USD/CHF plunges towards 0.8900 on weak US CPI and falling yields

• The USD/CHF pair fell more than 1%, settling around 0.8915.
• The dollar weakened because markets are confident that the Fed will not raise interest rates in December.
• On Wednesday, markets’ attention will focus on PPI and retail sales.

On Tuesday, the USD/CHF pair recorded an impressive decline and settled near 0.8915, registering a loss of more than 1%, mainly driven by general weakness in the United States, after the inflation figures of October in that country.

According to the US Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) for October rose 3.2% year-over-year, below both previous forecasts and the previous month’s rate. Additionally, core CPI inflation, which excludes volatile food and energy prices, fell to 4% year-on-year, below both the September rate and the estimate of 4.1%. On a monthly basis, it slowed to 0.2%, below last month’s reading and the 0.3% forecast.

The inflation figures had a direct impact on US government debt yields, as the 2-year bond rate fell to 4.84%, and the 5- and 10-year yields were seen lower to 4.44% and the 4.45%. Consequently, these movements in yields may mean that markets are glad that a possible rate hike by the Federal Reserve (Fed) in December is no longer on the table with inflation and the labor market cooling. The focus now turns to the next set of data, which will provide information on how long the central bank will keep interest rates tight to start shaping expectations for rate cuts.

On Wednesday, the Producer Price Index (PPI) is expected to have slowed to 1.9% year-on-year, while retail sales will fall 0.3% in October.

USD/CHF levels to watch

Analyzing the daily chart, the USD/CHF has a bearish bias, with indicators reflecting that sellers are getting stronger. Showing a bearish trend below its midline, the Relative Strength Index (RSI) supports this view, as does the Moving Average Convergence (MACD) as it establishes larger red bars. In the broader context, the pair is also below the 20-day and 200-day SMA, but above the 100-day SMA, indicating that the bulls continue to show strength on the time frames. larger despite the bearish sentiment seen in the short term.

Supports: 0.8900 (100-day SMA), 0.8870, 0.8850.
Resistances: 0.8930, 0.8950, 0.9000 (convergence of the 20 and 200 day SMAs).

USD/CHF Daily Chart