USD/CHF rally stalls as the US dollar index (DXY) gains steam

The USD/CHF exchange rate wavered on Tuesday after the strong Swiss jobs numbers and as the US dollar index (DXY) recovery gained steam. The pair was trading at 0.9272, which was a few points above the year-to-date low of 0.9057. 

US dollar index rallies

The USD to CHF price has been in a slow bullish trend in the past few days as the market focuses on last week’s jobs numbers and Fed decision. On Wednesday, the Federal Reserve decided to hike interest rates by 0.25%, the smallest increase in months. Officials signaled that more rates were necessary since inflation remains stubbornly high.

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The case for more rate hikes was solidified on Friday when the US published the latest jobs numbers. As we wrote in this report, the economy added over 500k jobs in January. That was a surprise because many large employers like Microsoft, Google, and Dell have been lying off thousands of workers. The unemployment rate dropped to 3.4%.

Fed officials are expected to maintain their hawkish tone, which will likely push the dollar index higher. In a statement on Monday, Fed’s Raphael Bostic said that the bank needed to up its upper limit of rate hikes. He recommended holding rates above 5% for a long time.

The next important forex news will come from the Fed Chair. In his first statement after the jobs report, Jerome Powell is expected to maintain a hawkish view. The goal is to limit the performance of stocks and other risky assets like cryptocurrencies. Bond yields have also pulled back in the past few weeks.

The USD/CHF reacted to the strong Swiss jobs numbers. In a report, the statistics agency said that the unemployment rate remained at 1.9% in January. As such, there is a likelihood that the Swiss National Bank (SNB) will continue hiking rates.

USD/CHF forecast

In my US dollar index forecast, I noted that it had formed a falling wedge pattern and noted that its price would have a comeback. This view was accurate a the DXY index has jumped to $104, the highest point in weeks.

On the 4H chart, we see that the USD/CHF price has been in a bearish trend for a while. As it dropped, it formed a descending channel shown in red. The current price is along the upper side of this channel and is above the 50-day moving average. 

Therefore, the pair will likely resume the bearish trend and retest the lower side of the channel at 0.9100. A move above the upper side of the descending channel will invalidate the bearish view.