The Swiss National Bank’s (SNB) recent decision to cut interest rates by 25 basis points, bringing the key rate down to 1.25%, marks a significant move in the current monetary landscape. This action, prompted by stabilised inflation and efforts to support economic growth, may influence the broader market dynamics and USD/CHF.
USD/CHF – Daily Timeframe – 20th June 2024
On the technical front, the USD/CHF pair has shown notable movements. In the first chart, the price action has been on an upward trend since the beginning of the year but has been undergoing a corrective phase since May 2024. This correction could potentially be nearing its end, especially with Switzerland’s renewed efforts to boost its economy following the SNB’s rate cut. The key level to watch is 0.899, as a break above this point could signify the continuation of the rally. This level serves as a critical resistance point that, if breached, may confirm the end of the correction and signal a resumption of the uptrend.
USD/CHF – Daily Timeframe – 20th June 2024
In addition to this, the second chart highlights the formation of a premature inverted head and shoulders (H&S) pattern, which is a classic indicator of a larger trend reversal. This pattern suggests that the USD/CHF might be setting up for a significant bullish reversal. The left shoulder formed around February 2024, the head in March 2024, and the right shoulder is currently in formation. If the neckline is broken, it would further validate the bullish sentiment and indicate a substantial shift in the trend.
Macro Context and Future Implications
Source: Trading Economics – Switzerland GDP Forecast
The SNB’s monetary easing has been facilitated by the successful containment of inflation, which has consistently stayed below 2%. This strategic move aims to stimulate economic activity and ensure stability within the financial system. Lowering interest rates typically results in a controlled increase in inflation, as borrowing becomes cheaper and spending rises. For Switzerland, this could mean a more steady and predictable rise in inflation, which remains within the target range.
Furthermore, with the SNB’s efforts to boost economic activity, we can expect Switzerland’s GDP to show improvement. According to recent forecasts, the GDP growth is projected to climb up to 0.7% by the end of this year.. This anticipated increase reflects a broader positive impact on the economy, driven by enhanced consumer spending and investment due to the lower interest rates.
Conclusion
The recent SNB rate cut introduces new variables into the USD/CHF trading landscape. Technically, the key resistance level at 0.899 and the emerging inverted H&S pattern are crucial factors to watch. These indicators suggest potential bullish momentum for the pair, contingent on the breach of these critical technical levels. Traders should remain vigilant, considering both technical signals and macroeconomic developments as they navigate the evolving market conditions.
