The USDCHF pair dropped sharply after a poor NFP report, with its price now close to an important level. The US dollar weakened significantly on Friday, as traders now expect the Federal Reserve to cut rates three times by year-end, totaling 70 basis points. There’s a 10% chance of a 50 basis-point cut in September, depending on the CPI report coming out on Thursday, which might weaken the USD further.

The US Dollar Stays Within a Range

The US dollar is stuck in a range, pressured by expectations about the Fed’s plans. If the expected rate cuts boost the economy, it could cancel future rate cuts, helping to stabilize the dollar. However, the dollar’s overall trend is downward, and we need strong data to change this. The Swiss National Bank (SNB) is currently on hold because Swiss inflation is not reaching the 2% target. The central bank is reluctant to lower rates to negative levels, which makes the CHF responsive to the strengths of other currencies. On the 4-hour chart, the USDCHF is near 0.7910, a critical point for buyers looking to push prices to 0.7985, while sellers are watching for a drop to 0.7870. Economic reports expected this week, including US PPI, CPI, and jobless claims, could influence these predictions. The US dollar is under pressure after the August NFP report showed only 110,000 new jobs, raising the unemployment rate to 4.1%. Markets are now fully anticipating 70 basis points of Fed rate cuts by the end of the year. The CPI report on Thursday is key; if it shows lower growth than the expected 0.2% monthly rise, it could lead to a larger rate cut in September and push the dollar lower. We should be cautious, as speculative short positions on the dollar are at levels not seen since early 2021, indicating a crowded bearish sentiment. If these rate cuts stimulate the economy in the coming months, expectations for further easing in 2026 could evaporate quickly. This would set a strong base for a dollar recovery, even if the immediate trend remains negative.

Swiss National Bank Remains Neutral

On the other side, the Swiss National Bank is staying neutral, as recent inflation data showed only a 1.4% annual rate, far from their 2% target. They are unlikely to cut rates into negative territory, meaning the franc’s value relies mainly on the US dollar’s movements. Thus, upcoming US data is critical for this currency pair. For traders anticipating a bounce off the 0.7910 support level, buying short-dated call options on USDCHF with a strike around 0.7925 could be a good strategy. This provides a way to profit with defined risk from a move back towards the 0.7985 resistance. This strategy would be effective if the US PPI or CPI report later this week surprises positively. Conversely, if we expect the dollar’s downward trend to gain speed, a break below 0.7910 would be a good signal. A simple approach is to buy put options with a strike near 0.7900, targeting the 0.7870 level. This trade would be especially appealing if Thursday’s CPI data comes in much lower than expected, supporting the market’s dovish Fed outlook. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now