The US Dollar is holding strong against the Swiss Franc, supported by positive economic data from the US and assertive remarks from the Federal Reserve. In June, retail sales increased by 0.6%, significantly higher than the anticipated 0.1% rise, indicating that consumer spending is growing despite concerns over tariffs. The Federal Reserve is closely monitoring inflation that may result from tariffs. As the August deadline approaches, there are worries that rising import costs could be passed on to consumers, which may hurt the economy.

Federal Reserve Expectations

The likelihood of a rate cut by the Federal Reserve in September has decreased. The chance of a 25 basis point reduction fell to 52.7% from 65.4% last week. Conversely, the chance of keeping rates steady increased to 46.0% from 29.7%. The USD/CHF chart shows a possible bullish reversal, having broken above the 20-day Simple Moving Average. The pair is now aiming for the 38.2% Fibonacci level at 0.8103, with support around 0.7995 and stronger support at 0.7950. This indicates potential upward movement in the short term. Consumer spending strength is a key factor boosting the dollar. The latest jobs report shows non-farm payrolls added 187,000 positions in July, and the unemployment rate remained steady at 3.5%. This economic strength suggests that immediate monetary easing might not be necessary. Therefore, we believe the market is accurately adjusting its expectations for a September policy change. Recent comments from Governor Bowman indicate that further rate increases may be needed to control inflation, supporting this hawkish outlook. We think the policy differences between the U.S. and Switzerland will continue to benefit the US Dollar.

Positioning and Strategy

Given this positive outlook, we are preparing for short-term upward movement by considering buying call options on the USD/CHF pair. The technical breakout above the 20-day Simple Moving Average supports this bullish strategy. Our initial target aligns with the 38.2% Fibonacci level at 0.8103. For traders who want to minimize upfront costs and manage risk, a bull call spread could be an effective strategy. This involves buying a call option at a lower strike price while selling another call at a higher strike price, allowing us to benefit from a moderate rise in the pair while limiting potential losses if tariffs worsen. We are keeping an eye on ongoing trade discussions, as they pose a significant risk to our bullish view. If import costs lead to a sharper-than-expected spike in inflation, it could place unexpected pressure on the economy and complicate central bank policies. Historically, periods of Fed policy tightening have supported currency exchange rates. During the Fed’s hiking cycle from 2016 to 2018, the USD/CHF pair experienced a consistent upward trend as US policy diverged from that of other central banks. We see similarities in the current situation that suggest a similar, though perhaps less dramatic, outcome may occur. Create your live VT Markets account and start trading now.

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