USD/CHF spirals down to multi-year lows below 0.8500

• The USD/CHF trades below the 0.8500 level its lowest since 2015.
• Expectations of six rate cuts in 2024 drives down the US dollar.
• Markets are pricing in a rate cut as early as in March

In Wednesday's session, the USD/CHF saw pronounced downward movements, sliding to multi-year lows of 0.8440, seeing a steep 1% dip. Dovish bets on the Federal Reserve primarily triggered this significant downturn as yields sunk to multi-month lows, making the Greenback lose interest.

Following last week’s decline in the Personal Consumption Expenditure price index (PCE), the Fed’s preferred gauge of inflation, from the month of November, optimism for sooner rate cuts soared. As for now, traders anticipate the Fed's initial rate decrease to occur in March, followed by another in May, and then place bets on four additional cuts.

In the meantime, the US bond yields are sharply declining, with the 2-year rate settling at 4.26%, while the 5 and 10-year yields are trading at 3.83% each, respectively, all three in multi-month lows. This dip in bond rates, driven by the dovish bets on the Fed, tends to decrease the demand for the US Dollar as lower local yields are less attractive for foreign investors.

For the rest of the last week of 2023, the highlight will be the weekly Jobless Claims from the US set to be released on Thursday, which may fuel further volatility on the pair.

USD/CHF levels to watch

The daily chart suggests that the pair has a strong prevailing selling pressure, with the Relative Strength Index (RSI) reaching oversold conditions. However, this is often an initial indication that the selling momentum is potentially reaching its limit, but this oversold sentiment is not guaranteed to trigger an immediate reversal, as further selling pressure could still be ahead before buyers take control.

Siding with the bearish momentum is the position of the pair, currently residing below its 20, 100, and 200-day Simple Moving Averages (SMAs). This indicates that the selling force retains stronger control in a broader perspective. The bearishness is further confirmed by the Moving Average Convergence Divergence (MACD), which is currently printing rising red bars, suggesting that the momentum favors the sellers for the time being.

Support Levels: 0.8430, 0.8400, 0.8350.
Resistance Levels: 0.8500, 0.8550, 0.8600.

USD/CHF daily chart