Swiss Franc strengthens as US Dollar Index pulls back from 18-month highs

• USD/CHF dips as the US Dollar retreats after reaching 18-month highs ahead of key US inflation data.
• Escalating Middle East conflict and drone strikes in Saudi Arabia could quickly boost safe-haven USD demand.
• The Swiss Franc may struggle as the SNB holds rates at 0%, contrasting with global central bank tightening.

USD/CHF declines after registering modest gains the previous day, trading around 0.8330 during Asian hours on Tuesday. The currency pair depreciated as the US Dollar (USD) pulled back from an 18-month high.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, pulled back to around 102.40 after briefly touching a peak of 102.61. Investors are now looking ahead to crucial economic data, including Wednesday’s US Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI), to gain clearer insight into the Federal Reserve’s rate path. According to the CME FedWatch Tool, pricing suggests roughly an 80% likelihood that the Fed will leave interest rates unchanged at its upcoming meeting, alongside an 88% chance of a rate hike in December.

Despite the temporary retreat, the US Dollar could quickly regain upside momentum on safe-haven demand, driven by escalating geopolitical tensions in the Middle East. A recent deadly strike on Riyadh’s King Khalid International Airport prompted the Saudi-led coalition to confirm ongoing drone and missile attacks from Yemen’s Iran-backed Houthis. In response, Yemen’s Armed Forces issued a stark warning that no Saudi airspace or airports, except for Mecca and Medina, are safe. Alongside these regional risks, market participants are monitoring potential shifts in global energy supply, including prospects for increased Russian diesel exports and a potential Russia-Ukraine energy ceasefire.

However, the USD/CHF pair may find support as the Swiss Franc (CHF) faces headwinds from ongoing short positions. This relative weakness stems from divergent monetary policy expectations: while major global central banks continue their tightening cycles, the Swiss National Bank (SNB) maintains a markedly dovish stance. The SNB opted to keep its key interest rate at 0% during its September meeting. Reinforcing this posture, Vice Chairman Antoine Martin noted that no rate adjustments are currently required, citing low, stable inflation and minimal spillover risks as key indicators of a healthy Swiss economy.

USD/CHF seen consolidating as UOB maintains range-trading view

Strategists at UOB Group retain a neutral, range-bound stance on USD/CHF over the coming weeks. Referring back to their early October call, they note that the Dollar “has likely entered a range-trading phase between 0.8245 and 0.8365.” With price swings having moderated since then, UOB adds that “while volatility has eased, we continue to hold the same view for now,” underscoring expectations for consolidation rather than a decisive break in either direction.

Technical Analysis:

In the daily chart, USD/CHF trades at 0.8330, holding a bullish near-term bias as spot remains above both the short-term and medium-term Exponential Moving Averages (EMAs). The nine-period EMA at 0.8318 and the 50-period EMA at 0.8202 sit beneath price, suggesting a supported upside structure after the latest recovery from the low-0.82 area. Momentum stays constructive, with the 14-day Relative Strength Index (RSI) at 62.3, hinting that buyers retain control without yet venturing into overbought territory.

On the downside, initial support aligns with the recent pivot around 0.8333, followed by the nine-period EMA at 0.8318 and then the deeper structural floor at the 50-period EMA near 0.8202. With no immediate resistance levels from the current indicator set overhead, the pair would likely face selling interest only on approach to prior swing highs, while a clear break below 0.8318 would start to weaken the bullish tone and expose the 0.8202 region.

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