USD/CHF Breaks Resistance Amid Soft Swiss CPI Data

In the European session on Tuesday, the USD strengthened against the CHF, surpassing the key resistance level of 0.8800. This upward movement followed the release of a disappointing Swiss Consumer Price Index (CPI) report for January.

Despite this bullish momentum, the USD/CHF faces several significant barriers ahead. Firstly, it encounters resistance at the 61.8% Fibonacci level from the last swing point. Additionally, it navigates within the 50% and 61.8% Fibonacci retracement area from the major swing high, alongside the challenge of surpassing the daily moving average. Furthermore, the Stochastic indicator signals an overbought condition, suggesting a potential reversal.

Turning to economic data, the Swiss CPI for January grew at a slower-than-expected pace of 0.2%, contrasting with the consensus forecast of 0.6%. December witnessed stagnant price pressures, with annual inflation decelerating significantly to 1.3% from the previous reading of 1.7%. This persistent trend of operating below the 2% inflation threshold could prompt the Swiss National Bank (SNB) to reconsider its restrictive monetary policy stance.

Expectations for the headline CPI indicate steady growth of 0.2% on a monthly basis, while the core CPI, excluding volatile food and oil prices, is projected to rise by 0.3%. Annual headline inflation is anticipated to decelerate to 2.9% from December’s 3.4%, while core CPI is expected to increase slightly slower at 3.7% compared to the previous 3.9%.

The prospect of decelerating price pressures may pave the way for the Federal Reserve (Fed) to contemplate rate cuts during the upcoming May policy meeting, aligning with investor expectations. However, Fed policymakers have emphasized the importance of sustained progress in declining inflation before considering interest rate adjustments.

In light of these developments, traders are monitoring the USD/CHF around the 0.8800 area, anticipating a potential reversal. As both technical and fundamental factors come into play, market participants remain vigilant for further cues to guide their trading decisions.