USD/CHF juggles below 0.9300 as investors await Federal Reserve/Swiss National Bank policy

• USD/CHF is oscillating below 0.9300 as investors await Federal Reserve’s policy release for fresh cues.
• Investors seek policy guidance for CY2023 from the Federal Reserve as an interest rate hike by 50 bps is highly expected.
• An interest rate hike by 50 bps is expected from the Swiss National Bank to keep inflation near 2%.
• USD/CHF  is expected to resume its downside journey as technical indicators narrate more weakness ahead.

USD/CHF is displaying back-and-forth moves in a narrow range below the critical resistance of 0.9300 in the early European session. The Swiss Franc major asset is manifesting a lackluster performance as investors seek further guidance, which will be provided by the Federal Reserve (Fed) after it will announce its last monetary policy of CY2022 on Wednesday.

The US Dollar Index (DXY) is showing a balanced auction profile of around 104.00 after a recovery from a fresh five-month low at 103.59. On Tuesday, the USD Index displayed a perpendicular turmoil after the release of a soft November inflation report. A meaningful decline in the United States Consumer Price Index (CPI) dampened safe-haven’s appeal. The US Treasury bonds got decent traction which has led to a fall in 10-year yields below 3.50%.

Meanwhile, S&P500 futures have extended their upside momentum on Wednesday amid rising hopes of a slowdown in the pace of the interest rate hike by the Federal Reserve. Analysts at JP Morgan Chase & Co. cited that a soft reading in US CPI data could spark a powerful rally in US equities. Continuations of an upside move in the S&P500 futures are portraying a risk appetite theme in the market.

While the Swiss Franc is awaiting the monetary policy by the Swiss National Bank (SNB), scheduled for Thursday, for fresh impetus.

Soft US Inflation report cements Fed’s interest rate hike by 50 bps

The street was expecting a decline in the US inflationary pressures as the Producers Price Index (PPI) and oil prices remained weak in November. A decline in prices of finished goods at the factory gate by manufacturers is critical for a slowdown in consumer inflation. November’s US PPI reported a drop in headline figures to 7.4% from the former release of 8.0%.

The headline CPI has dropped to 7.1% while the core inflation that doesn’t include oil and gas prices tumbled to 6.0%. Weaker prices of gasoline used cars, and airline fares remained major contributors to the lower price rise index.

A significant deceleration in US inflation has set the ground for less-hawkish monetary policy by the Federal Reserve. Fed policymakers were already advocating for a slowdown in policy tightening pace to reduce financial risks. And, a termination of 75 basis points (bps) rate hike spell looks solid, which will leave the option for a 50 bps rate hike announcement. The Federal Reserve might not choose a 25 bps rate hike as the inflation rate is still extremely diverged from the targeted rate of 2%.

Policy guidance for CY2023 from Fed’s Powell a key trigger ahead

After a second consecutive decline in the United States monthly inflation report, an interest rate hike announcement by 50 bps seems real. Therefore, investors will keep an eye on monetary policy guidance by Federal Reserve chair Jerome Powell for the entire CY2023.

A note from Commerzbank dictates that “The 50 basis points (bps) hike, which is generally expected for tomorrow's FOMC meeting, can be considered almost certain after today's data.” We continue to assume that the Fed will reduce the size of the rate hikes again at the beginning of 2023, moving by only 25 bps in February and March.

Swiss National Bank to replicate expected Federal Reserve’s 50 bps move ahead

The fourth quarterly monetary policy meeting of the Swiss National Bank is scheduled for Thursday and Swiss National Bank Chairman Thomas J. Jordan is expected to hike its interest rate further by 50 bps. A Reuters poll on the Swiss National Bank’s interest rate expectations indicates that the central bank will hike interest rates by 50 bps to 1%. Switzerland’s inflation rate has already dropped from a peak of 3.2% to above 2%. To dodge inflation risks, the Swiss National Bank already shifted its borrowing cost from negative to positive territory for the first time after 2014. Investors also believe that the Swiss National Bank will keep in mind the widening interest rate differential from the European Central Bank (ECB) while drafting monetary policy.

USD/CHF technical outlook

USD/CHF has shifted into a negative trajectory after a downside break of the declining channel formed on a four-hour scale. The Swiss Franc major asset has dropped sharply after hovering around the 20-period Exponential Moving Average (EMA), which indicates that the short-term trend has turned bearish.

The 200-period EMA at 0.9530 is continuously slopping downwards from the past month, which signifies a bearish long-term trend.

Meanwhile, the Relative Strength Index (RSI) (14) is on the verge of slipping into the bearish range of 20.00-40.00, which will trigger a bearish momentum ahead.