The USD/CHF exchange rate tilted upwards on Friday after Switzerland published weak Consumer Price Index (CPI) data, and as traders waited for the upcoming nonfarm payrolls (NFP) data. It was trading at 0.8675, a few points below last month’s high of 0.8700, and 3.65% higher than this month’s low of 0.8375.
Switzerland inflation falls
The USD to CHF pair continued rising after the latest economic data from Switzerland. Data by the statistics agency showed that the headline Consumer Price Index dropped for the third consecutive month.
The CPI dropped by 0.1% in October after falling by 0.3% in the previous month. It was a weaker number than the median estimate of 0.0%.
This decline translated to a YoY drop from 0.8% in September to 0.6% in October, missing the analysts’ estimate of 0.8%.
These numbers mean that the Swiss National Bank (SNB) has achieved its goal of bringing inflation to the 2% target.
However, there is a risk that the country is moving towards a deflation, where prices are moving downwards. While high inflation is not ideal, deflation is also a dangerous thing for the economy since it lets customers delay some of their purchases as they wait for prices to fall further.
Additional data that Swiss retail sales dropped by 2.2% in October after rising by 2.7% in the previous month. These numbers were worse than the median estimate of 2.5%.
Other data showed that the Swiss purchasing managers index remained unchanged at 49.9, and is moving near the expansion zone of 50. This report was also higher than the expected 49.5.
Therefore, the Swiss National Bank will likely continue cutting interest rates in the next meeting as it works to stimulate the economy. It also hopes that these hikes will lead to a weaker Swiss franc, which has strengthened substantially in the past few months.
The Swiss franc has risen by almost 6% from its lowest level in May. It has also risen by 5% against the euro in this period.
The SNB prefers a weaker franc because of the importance of exports to the Swiss economy. Data by the OECD shows that Switzerland exports goods worth over $402 billion a year and imports goods worth $364 billion. As such, its exporters are usually impacted by a strong local currency.
US nonfarm payroll data
The next important USD/CHF data will come out on Friday when the US publishes the latest nonfarm payroll (NFP) data.
These are crucial numbers because they will have a big impact on the Federal Reserve when it meets next week.
A report released by ADP on Wednesday showed that the labor market strengthened substantially in October. It estimated that the number of jobs increased from 233k, the biggest gain in 14 months.
Analysts expect the data to show that the unemployment rate remained unchanged at 4.1% in October. They also expect the numbers to reveal that the nonfarm payrolls slipped from 254k in September to 106k in October. Wage growth is expected to come in at 4.0% YoY and 0.3% MoM.
These are important numbers because the Federal Reserve is now more concerned about the labor market instead of inflation. That’s because there are rising chances that inflation is moving towards the Fed’s 2.0% target.
The other key data to watch will be the ISM and S&P manufacturing PMI numbers, which will provide more information on the economy. Economists expect the ISM data to show that the PMI rose from 48.3 to 49.8, while the S&P figure remained at 47.8.
Analysts expect the Federal Reserve to either cut interest rates by 0.25% in its meeting next week or leave them unchanged if the jobs numbers come out weaker than expected.
The USD/CHF pair will also react to next week’s US election, which has become difficult to predict. The predictions market predicts that Donald Trump will win, while polls show that the race is virtually tied.
A Trump win will be positive for the US dollar because it will lead to more demand for safe havens as he starts his trade wars.
USD/CHF technical analysis
USD/CHF chart by TradingView
The daily chart shows that the USD/CHF pair dropped and bottomed at 0.8377 in September, and has been in a bullish trend since then.
It has formed a small bullish flag pattern, one of the most popular positive signs in the market. Also, the pair is consolidating at the 100-day Exponential Moving Average (EMA).
Meanwhile, the USD to CHF pair has formed an inverse head and shoulders pattern, which often leads to more downward moves.
Therefore, the pair is sending mixed signals. While more gains are possible, it may also have a bearish breakout.
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