USD/CHF rebounds above 0.8840 on mixed US data, weak Swiss retail sales

• USD/CHF trades at 0.8842, recovering from a daily low of 0.8771, as US PCE inflation aligns with forecasts and Swiss retail sales plunge -2.3% MoM.
• Mixed US employment data sets the stage for a crucial Nonfarm Payrolls report, while a ‘morning star’ chart pattern suggests a potential upside for USD/CHF.
• Swiss National Bank faces pressure as retail sales disappoint and inflation remains below target; money market futures give a 68% chance of rates staying unchanged.

The Swiss Franc (CHF) losses momentum vs. the US Dollar (USD) after Swiss economic data was weaker than expected, but US inflation remains steady although decelerated. That, alongside month-end flows, bolstered the US Dollar. Hence, the USD/CHF is trading at 0.8842 after hitting a daily low of 0.8771.

US Dollar gains ground as PCE inflation meets estimates and on month-end flows

The US economic docket revealed better-than-expected data on Thursday, contrary to Tuesday and Wednesday. A soft US jobs openings report, consumer confidence deteriorating, ADP Employment Change below estimates, and the GDP for the second quarter downward revised reignited recession fears. Nevertheless, never count out consumers, portraying America’s resilience.

The US Federal Reserve’s favorite inflation gauge, the Personal Consumption Expenditure (PCE), came as expected at 3.3%, a tick higher than June’s data, while on a monthly basis, it stood at 0.2% MoM. Core PCE, which excludes volatile items, rose by 4.2% YoY, aligned with the consensus, but above June 4.1%.

Initial Jobless Claims for the last week showed the labor market remains tight despite recent data linked to the jobs market depicting the opposite. People filling for unemployment aid rose by 228K, below estimates of 235K. Hence, mixed employment data makes tomorrow’s US Nonfarm Payrolls report for August crucial. That could clear some of the clouds, spurred by recent data.

That and month-end flows triggered a recovery, with the USD/CHF reclaiming the 0.88 figure, as the daily chart portrays a three-candle ‘morning star’ chart pattern, which, although it warrants further upside, a downslope resistance trendline looms, drawn from March 2023 highs.

In the meantime, the US Dollar Index, which measures the buck’s value against a basket of six currencies, climbs 0.51%, at 103.707.

On the Swiss front, retail sales for July were worse than estimated, plunging -2.3% MoM, below the upward revised June 1.5% gain. Even though the data portrays the increasing borrowing costs of the Swiss National Bank (SNB), it could also lead to a faster economic slowdown. USD/CHF traders’ focus shifts toward Switzerland’s inflation report, expected to drop to 1.5% in August after July’s 1.5% fall.

Despite Swiss inflation remaining below the SNB 2% target, the central bank foresees CPI to rise to 2.2% in 2023 and 2024. Due to its scarce monetary policy meetings, with the central bank hosting four, one in each quarter, the next reunion possesses additional importance. In the meantime, money market futures expect the SNB to keep rates unchanged, with odds at a 68% chance.

In the meantime, Atlanta’s Fed President Raphael Bostic said the policy was appropriately restrictive to bring inflation towards the US central bank’s 2% target over a “reasonable” period.

USD/CHF Price Analysis: Technical outlook

Given the fundamental backdrop, the USD/CHF is neutral-biased. But from a technical standpoint, the pair is neutral to downward. The next resistance emerged at around 0.8830/60, with a five-month-old downslope resistance trendline looming, which could pave the way for further upside if broken. The next resistance would emerge at 0.8900, followed by the 0.9000 figure. Conversely, downside risks emerge below 0.8771, followed by the current week’s low of 0.8745