USD/CHF retreats as the USD consolidates

• USD/CHF fell below 0.8800 and hit a daily low of 0.8760.
• FOMC minutes from the July meeting left the door open for another hike.
• Rising US yields limit the downside for the USD.

On Thursday, the USD/CHF lost ground as the USD seemed to be consolidating gains. The USD DXY index rose to its highest level since January at 103.60, mainly driven by hawkish bets on the Federal Reserve (Fed) and rising US yields. On the CHF’s side, investors await Friday’s Industrial Production figures from Q2.

The strength of the USD is propelled by the rising US yields due to investors betting on the Fed hiking at least once more in this cycle. The US 10-year bond yield surged to its highest level since October 2022, standing at 4.28%, and the 2 and 5-year yields have also experienced upward movements, hitting monthly peaks of 4.95% and 4.40%, respectively. 

In line with that, the Federal Open Market Committee (FOMC) minutes showed that members are concerned with a hot labour market threatening inflation, leaving the door open to another hike. That said, the Jobless Claims for the second week of August from the US rose to 239,000 compared to the projected 240,000, marking a decline from the preceding weekly figure of 250,000. As for now, markets are confident that the Fed won’t hike in September, but the probabilities of an increase in November rise to nearly 40%, according to the CME FedWatch tool.

USD/CHF Levels to watch

Analysing the daily chart, USD/CHF exhibits signs of bullish exhaustion, contributing to a neutral to bearish technical perspective. The Relative Strength Index (RSI) maintains a negative slope above its midline, while the Moving Average Convergence Divergence (MACD) displays fading green bars. Additionally, the pair is above the 20-day Simple Moving Average (SMA), but below the 100 and 200-day Simple Moving Average (SMAs), indicating that the bulls aren't done yet and that the outlook is still positive for the short term.

Support levels: 0.8760, 0.8750, 0.8725 (20-day SMA).

Resistance levels: 0.8800, 0.8815, 0.8830.

USD/CHF Daily chart