USD/CHF is currently in a period of consolidation after bouncing back from its July low. The chart shows an Inverse Head and Shoulders pattern. For further gains, the pair must rise above the neckline at 0.8020, with essential support found in the 0.7870/25 range. In July, USD/CHF briefly fell below 0.7870, but this decline didn’t last long. The pair regained this level and is now heading towards the 50-DMA and a downward trend line, indicating potential upward movement.

Inverse Head And Shoulders Pattern

To affirm short-term growth, a breakout above the 0.8020 neckline is necessary. If resistance continues, a pullback might happen, with 0.7870/0.7825 serving as critical support. The uncertainty from the US government shutdown may impact the Federal Reserve’s decision-making due to limited data, which could benefit safe-haven assets. Ripple (XRP) is witnessing gains along with the larger cryptocurrency market, partly due to expectations of a 25-basis-point interest rate cut by the US Federal Reserve this October. USD/CHF’s Inverse Head and Shoulders pattern suggests a potential bottom is forming after July’s low. We are closely monitoring the 0.8020 neckline as the key level for a continued upward trend. The support zone between 0.7870 and 0.7825 is vital to maintain this bullish outlook.

Market Influences And Strategies

However, the overall situation is presenting significant challenges for the US dollar. The ongoing government shutdown is creating uncertainty in the markets, often leading to a rise in safe-haven assets like the Swiss franc. This political instability, along with a data blackout from government agencies, complicates the Federal Reserve’s policy decisions. During the 16-day government shutdown in October 2013, the VIX volatility index surged by over 50% initially. We expect similar volatility now, suggesting that implied volatility on currency options will increase, leading to higher costs. Traders should be ready for sharp price swings in the coming weeks. Additionally, there is a strong market expectation of a 25-basis-point interest rate cut from the Fed this month. The CME FedWatch tool indicates an 85% probability of this cut, especially after last month’s Non-Farm Payrolls report showed job growth slowed to only 95,000. This complicates the case for a strong dollar based on fundamentals alone. With the bullish technical signals contrasting the bearish fundamental news, we suggest options strategies could be the best approach. Traders expecting a breakout above 0.8020 might consider buying call options or engaging in bull call spreads to manage risk. On the other hand, if resistance keeps the dollar from rising, buying put options offers a clear strategy to take advantage of potential declines. This situation is ideal for volatility strategies, as a significant move seems likely. We believe buying a long straddle or strangle could work well, allowing traders to profit from substantial price movements in either direction while capitalizing on the uncertainty rather than betting on one outcome. Create your live VT Markets account and start trading now.

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