USD/CHF is under pressure, dropping to around 0.7830 due to a weakened US Dollar. Even with strong Q3 GDP data from the US, which shows a growth rate of 4.3%, the Dollar hasn’t performed well against other currencies. The US Dollar Index (DXY) is close to a three-month low, trading around 97.75. The Dollar’s weakness stems partly from expectations of future interest rate cuts by the Federal Reserve, as noted in their recent policy announcement.

This Week’s Currency Performance

This week, the USD fell by 0.63% against major currencies. It particularly lagged behind the New Zealand Dollar, which increased by 1.75%. Technical analysis shows that USD/CHF struggles below the 20-day Exponential Moving Average of 0.7966. The Swiss Franc performed well during this holiday-shortened week, maintaining higher levels. The 14-day Relative Strength Index is at 31, indicating weak momentum for USD/CHF. If the pair closes below 0.7830, it could continue to trend downward. The Federal Reserve’s decisions are crucial to the USD’s value. Quantitative easing usually weakens the Dollar, while tightening typically strengthens it.

Strategies for Traders

With the USD/CHF pair trending downward, traders might look for strategies to profit from falling prices. The market is focused on the Federal Reserve’s expected interest rate cuts next year, making bearish positions on the Dollar appealing. This sentiment overshadows the strong US GDP growth figures. The robust 4.3% growth in Q3 GDP is being overlooked. Recent inflation data showed a slowdown to a 3.1% annual rate in November, which clears the path for the Fed to ease policy. The Fed’s recent projections indicating multiple rate cuts are driving this sentiment. On the flip side, the Swiss Franc benefits from better inflation data. Switzerland’s latest consumer price index reveals inflation at just 1.4%, much lower than in the US. This reduces any urgency for the Swiss National Bank to cut rates, boosting the Franc’s strength. For traders anticipating the pair to test the 0.7830 support level, buying put options with strike prices around 0.7850 or lower is a defined-risk strategy. This allows traders to profit from the expected decline in the coming weeks. The weak momentum, suggested by the RSI near 31, supports this bearish view. Another strategy is selling call option spreads with a ceiling near the 20-day moving average of 0.7966. This is for traders who believe the pair will not only drop but also struggle to rally significantly during the holiday trading lull. It allows collecting a premium, betting that any upward movement is limited. We should recall the sharp decline in late 2023 when a similar dovish Fed pivot led to a quick drop in this pair. This precedent indicates that the current momentum might persist, especially as we approach the new year. Traders can use short-dated futures contracts to position themselves for a continuation of this trend. Create your live VT Markets account and start trading now.

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