Fundamental analysis of USD/CHF for April 16, 2019

USD has been the dominant currency in the pair recently after the price bounced off the 0.9900 support area, having reversed the impulsive bearish trend. Though the Fed officials have recently adopted the wait-and-see approach and the trade conflict between the US and China is still unsolved, the latest US reports showed the economy's resilience. Thus, the dollar may extend gains but with certain volatility along the way.

The SNB compares the price stability with a rise in the national consumer price index of less than 2% on a yearly basis. The objective of price stability is also breached by deflation with a protracted decline in the price growth. The SNB assumes that the inflation objective cannot be achieved unless it is measured accurately. The CPI calculation methods are not fully adjusted for seasonal changes. As a result, the measured inflation tends to overdo the actual inflation to a small degree.

The consumer price index increased to 0.5% from 0.4% in March 2019 compared with the previous month's reading of 102.2 points, boosted by rising prices for international package holidays and air transport. The unemployment rate was unchanged at 2.4% while the youth unemployment decreased. Still, the formidable challenge for the SNB is to achieve the target inflation rate.

At its latest meeting the SNB reduced the inflation target for the current year to 0.3% from 0.5% in the previous quarter. For 2020, the central bank of Switzerland expects the inflation to be at 0.6% compared to 1.0% last quarter. For 2021, it predicts an inflation rate of 1.2%, wherein the assumption of the three-month Libor would be at –0.75%. If the SNB somehow fails to achieve the targeted inflation rate, there is a possibility for USDCHF to rise further. Moreover, the Swiss central bank also noted that the economic indicators were currently pointing to moderately positive momentum which makes them expect the GDP to expand by around 1.5. If the GDP and inflation rate targets are achieved, the USDCHF pair would gather bearish momentum.

Recently, Switzerland released the PPI report which showed an increase to 0.3% while the index was expected to be unchanged at 0.2%. The positive economic report did not quite help CHF to gain strong counter momentum but managed to slow down the extensive impulsive growth that has arisen earlier.

On the other hand, the US Consumer Price Index for All Urban Consumers increased by 0.4% in March on a seasonally adjusted basis after rising by 0.2% in February. Over the last 12 months, the index advanced by 1.9 percent before seasonal adjustment. The latest FOMC policy meeting minutes showed that the Fed officials discussed an option of ending the reduction in the Federal Reserve's securities holdings at the end of September 2019. The Fed also expected the GDP to bounce back solidly in the second quarter of 2019 with a strong labor market. Moreover, there was further discussion about the interest rate hikes depending on the economic conditions. The unemployment rate over the last 2 months was 3.8% in February while the declining production rate rebounded in February. The manufacturing output also decreased over 2 months.

Today the US Capacity Utilization Rate report is going to be published which is expected to increase to 79.2% from the previous value of 78.2%. Furthermore, the industrial production is expected to increase to 0.2% from the previous value of 0.1%. At the same time, analysts predict that the NAHB Housing Market Index rose to 63 from the previous figure of 62. The US retail sales report will be published on Thursday, which is expected to increase to 0.9% from the previous negative value of -0.2%. Ahead of it, USD has more chances to gain further momentum over CHF if the economic expectations are met in the coming days.

Now let us look at the technical view. The price is currently rejecting off the 1.0050 area with a daily close which is expected to lead to certain corrections and volatility along the way before it starts to push higher with the target towards 1.0130 resistance area in the coming days. The bullish trend is expected to continue as no bearish divergence is spotted and the price is residing above the dynamic support level.

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The material has been provided by InstaForex Company - www.instaforex.com