Continues to Build a Base

Eventually, something is going to have to give, and eventually, time will prove to the market that the Federal Reserve is likely to stick with its 2% inflation target.

• The USD/CHF has rallied a bit during the training session on Friday but continues to struggle to rally. However, it’s probably worth noting that the market is also going sideways overall, suggesting that we are getting closer to a bottom.
• This would make a certain amount of sense, as the Swiss are nowhere near as tight with their monetary policy as the US is, even though they for the first time in years offer positive rates.
• It is probably only a matter of time before we see some type of correction.

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Keep in mind that Wednesday is the next Federal Reserve meeting, and a lot of people will be paying close attention to what Jerome Powell has to say. It’s not so much about the interest rate hike, although if the Fed raises 50 basis points, that might shock the market a bit, having people running towards the greenback. It’s going to be about the press conference afterward, and whether Uncle Jerome sounds like he is losing his patients with the market. After all, the Federal Reserve continues to talk about tight monetary policy while the markets flat-out tell them they are not going to do it.

Waiting for the Federal Reserve

Eventually, something is going to have to give, and eventually, time will prove to the market that the Federal Reserve is likely to stick with its 2% inflation target. We are light years away from that, and of course, this will have an influence on the US dollar. On the Swiss side of the equation, Switzerland’s biggest problem is the fact that they are surrounded by the European Union. Over 85% of Switzerland’s exports go into the EU, and the EU is likely to have major problems going forward. In other words, Switzerland’s biggest customer may be its biggest weakness.

If we can break above the 0.93 level, I think we will start to make a move toward a 0.95 level again. However, breaking down below the 0.91 level opens the possibility of a move down to the 0.90 level. I suspect that both Monday and Tuesday might be a little bit on the quiet side as we wait for directionality from the Federal Reserve.

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