USD/CHF continues to consolidate following the swift move higher from the late September bottom, during which the pair gained 2.3%. USD/CHF is currently down 0.07% relative to Tuesday’s N.Y. close, holding near the 0.9890 level.
The range on the daily chart has been narrow over the past several sessions and the range on an intraday basis is in the process of tightening, as can be seen on the 4-hour chart. As a result of the consolidation and lack of volatility, Bollinger Bands have tightened considerably on an intraday basis. Typically, periods of low volatility lead to spikes in volatility. And, a sustained breakout from the narrowing pattern on the 4-hour chart would set the stage for the next short term move in USD/CHF.
On the downside, a drop below the rising trendline on the 4-hour chart would call for follow through to test first support at last Friday’s 0.98533 reaction low. A drop below this level could spark additional selling, which leads to a follow through decline to former resistance at the 0.98188 level, defining the mid-September corrective top. A decline to this level would retrace 38.2% of the advance from the September low, thereby qualifying as a minimal pullback that leaves the pair well-positioned to recover and resume the rally.
On the upside, a breakout above the recent high at 0.9914 confirm a resumption of the advance from the September low, leaving the next target at the May/July rally highs at 0.9956/0.9950. This is a key level of resistance and a sustained break above would be considered another bullish development for the pair that is likely to lead to further gains in the weeks ahead. Last week, the pair broke out from a symmetrical triangle that had developed on the weekly chart in recent months. Measuring implications resulting from the triangle breakout call for an eventual climb to the 2015 high at 1.0330.
With the Stochastic indicator still at a heavily overbought level, a further move higher in the near term would be considered a sign of underlying strength.
The Swiss data calendar is light this week, with the only release being the September Trade Balance on Thursday. In the U.S., Housing Starts/Building Permits will be released today at 8:30am EST, while Existing Home Sales are due out Thursday at 8:30am EST. Today, the Fed will also release its latest beige book, a review of regional economic conditions.
U.S. CPI data for September, released on Tuesday was mixed and, according to Fed Funds futures, slightly mitigated the potential for a rate hike by the Federal Reserve in December. As of Tuesday’s close, Fed Fund futures were indicating a 65% chance of a rate increase at the December meeting, down from 69% as of Monday’s close. However, overall, a rate hike is still expected, as all-items U.S. CPI is up 1.5% year-over-year, which is tracking toward the Fed’s long term inflation target of 2%. And, the reading was the largest 12-month increase since October 2014. The expectations for a rate hike should continue to help support USD/CHF. Thus, the bias in the pair remains to the upside, despite the recent consolidation.