On Tuesday (March 18th), before the European market opened, the USD/CHF hovered around 0.8810, showing an overall lackluster performance. The recent escalation of the situation in the Middle East has led to an increase in risk aversion, and the Swiss franc, as a traditional safe haven currency, has gained some support. In addition, the focus of the market this week is on the upcoming interest rate decisions of the Federal Reserve and the Swiss National Bank. The market generally expects the Federal Reserve to remain inactive, while the Swiss National Bank may announce a 25 basis point interest rate cut on Thursday. In this context, the short-term volatility of the US dollar/Swiss franc is limited, and the future trend is worth paying attention to.

Fundamental analysis

US economic data performance and policy expectations

The US retail sales data was released as scheduled this week, although there was a slight rebound from the previous value, it did not significantly boost the US dollar. However, the US dollar index (DXY) still fluctuates around the 103.5 line, reflecting the market's divergent views on the future policy prospects of the Federal Reserve. Based on recent labor market conditions and inflation trends in the United States, the market believes that the Federal Reserve's March interest rate meeting is highly likely to keep interest rates unchanged, and the earliest window for interest rate cuts may occur in June. At the same time, the Federal Reserve will release its latest economic forecast this week, including expectations for inflation and growth prospects; This will become an important signal for the market to judge the future direction of the US dollar.

The situation in the Middle East and risk aversion

The recent escalation of the situation in the Middle East has driven the demand for safe haven. The Israeli side has stated that it will increase the intensity of military actions against its opponents, which has raised concerns in the market about the possibility of an escalation of the incident. The rising geopolitical risks often provide support for safe haven currencies such as the Swiss franc, which may suppress the upward movement of the US dollar/Swiss franc. If the geopolitical situation continues to deteriorate in the short term, the market's preference for risky assets and high-yield currencies may weaken, thereby benefiting Swiss franc buying.

Swiss central bank expected to cut interest rates

This Thursday, the Swiss National Bank will announce its latest interest rate decision. According to a Reuters survey, most economists expect the Swiss National Bank to lower its main policy rate to 0.25% and maintain that level for a longer period of time in the future. Previously, the market had expected the Swiss National Bank to further cut interest rates to zero or negative, but with the increasing uncertainty in the global financial environment, the Swiss National Bank may lean towards a more conservative rate cut. If the actual interest rate cut is smaller than expected, the Swiss franc is expected to receive stronger safe haven support, and the US dollar/Swiss franc may come under pressure; On the contrary, if the Swiss National Bank takes more aggressive measures, the exchange rate has a chance to break out of the current low range.

Technical analyst interpretation:

From the 4-hour chart observation, the US dollar/Swiss franc has continued to narrow in the range of 0.8796 to 0.8863 since early March, with clear signs of a long short tug of war. Above the 0.8863 line and around 0.8852, there is a certain resistance, as the exchange rate has repeatedly hit these levels but failed to effectively stabilize. The area below 0.8796 and the previous low 0.8757 constitute the short-term support zone.

Moving average system: MA14 (approximately 0.8829) and MA55 (approximately 0.8826) interweave above the current price, indicating significant short-term pressure, and the overall bearish alignment of the moving average has not yet reversed significantly.

RSI indicator: The 4-hour RSI stabilized around 45, indicating that market buying has not completely withdrawn, but the bullish power is insufficient to drive the exchange rate up significantly. The daily RSI is hovering above 36, indicating that it is still in a weak oscillation in the medium term.

ATR volatility: ATR (26) shows fluctuations around 0.0019, indicating limited short-term volatility space. Without significant news to catalyze, there is a high possibility of the exchange rate continuing to fluctuate within the range.

Fibonacci retracement: The Fibonacci retracement level on the daily chart shows a dense distribution of pressure levels between 0.8834 (61.8%) and 0.8903 (50.0%), and attention should be paid to repeated testing of this range.

Overall, the US dollar/Swiss franc is hovering below the important moving average, with a trend towards consolidation in technical form. If unable to break through the range of 0.8850~0.8860 in the short term, the tendency is to continue to maintain low consolidation; If sudden news leads to an increase in safe haven demand, the Swiss franc may further strengthen. On the contrary, if the Swiss National Bank releases an unexpected easing signal this week, the exchange rate is expected to reach the integer level of 0.8900.

Future prospects

Affected by multiple factors such as geopolitics and central bank interest rate decisions, the US dollar/Swiss franc may continue to fluctuate and consolidate in the short term.

If the Federal Reserve releases more cautious economic expectations after the interest rate decision and the situation in the Middle East escalates, safe haven buying of the Swiss franc may strengthen, and the US dollar/Swiss franc will continue to be under pressure.

If the Federal Reserve's wording remains relatively firm, implying that there is no rush to cut interest rates for the time being, and the Swiss National Bank's interest rate cut is greater than expected, the exchange rate is expected to break out of the current low range and challenge around 0.8900.

If there is a substantial easing of the situation in the Middle East, coupled with continued improvement in US economic data, market risk appetite may rebound. At that time, the US dollar may receive some support, but the overall strength of the Swiss franc still depends on the subsequent macro situation.

In the medium to long term, pay attention to the differences in policy direction between the Federal Reserve and the Swiss National Bank in the second half of the year. If the US economic environment does not significantly weaken, the Federal Reserve may only relax slightly when necessary, while the Swiss Federal Reserve may maintain a low interest rate strategy for a period of time once it initiates a rate cut cycle. This difference may affect the operating rhythm of the US dollar/Swiss franc on a longer time scale.