USD/CHF forecast as the Fed hints at quantitative tightening

The USD/CHF pair went sideways after the hawkish minutes by the Federal Reserve and the latest Swiss unemployment rate. The pair is trading at 0.9326, which is slightly below the highest point on March 29th. It has risen by 1.38% from its lowest level last week.

Fed and SNB divergence widens

The USD/CHF price held steady as the latest FOMC minutes showed that the divergence between the Fed and the Swiss National Bank (SNB) widened. The Fed plans to continue its tightening process by delivering six rate hikes this year. Some of those hikes will be 0.50%. 

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At the same time, the minutes revealed that the bank plans to start quantitative tightening (QT). QT is a process where the bank starts to reduce the size of its balance sheet. 

It is the opposite of quantitative easing program. In this QT, the bank will sell assets worth $95 billion per month. During its QE process, it was buying assets worth $120 billion per month.

In the past few days, several Fed officials like Lael Brainard, Raphael Bostic, and Mary Daly have all said that they are supportive of more tightening. 

On the other hand, the SNB has hinted that it will maintain interest rates at a low rate in a bid to devalue the Swiss franc. The bank has also spent billions of dollars in foreign exchange interventions. The SNB believes that a weak franc is a good thing because it helps to support its currency.

The USD/CHF pair also reacted mildly to the latest Swiss unemployment rate. The data revealed that the unemployment rate fell from 2.3% to 2.2% in a seasonally-adjusted basis. This means that Switzerland has one of the lowest jobless rates globally.

USD/CHF forecast

The USD/CHF pair rose to a high of 0.9348, which was the highest level since March 29. The 25-period and 50-period have made a bullish crossover. It is also slightly below the descending trendline shown in green. At the same time, it seems like it is forming an inverted head and shoulders pattern while the Relative Strength Index (RSI) has been rising.

Therefore, there is a likelihood that the pair will have a bullish breakout in the coming days. If this happens, the next key resistance level will be at 0.9400.

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