In recent weeks, the USD/CHF currency pair has displayed a price action pattern resembling a bear flag, indicating potential bearish momentum moving forward. The upper limit of this bear flag is located between 0.8320 and 0.8350. This region represents an important resistance level, one that has proven difficult for the pair to ascend past. USD/CHF could see a deeper decline if it’s unable to hold key support. A daily close below 0.8250 would be the flag’s confirmation and increase the flag’s bearish nature.
Yet the last six weeks have seen USD/CHF falter at these technical ceilings. On Thursday, the duo was treated to a relief bid that juiced its value through the 0.8348 life highs. This increase met with fierce opposition. Yet this rally fizzled out exactly at the 20-day exponential moving average. It came up just short of the 50-day moving average, which has capped every rally wave since late April. The failure to retake these levels confirms that the recent rebound has probably already played itself out.
Economic drivers have been another important force at work influencing the course of USD/CHF. That disappointing U.S. economic data has spooked the markets significantly. Last week’s reported contraction of 0.2% in Q1 GDP, in combination with the continuing climb in jobless claims, has further added to the pair’s downturn. Swiss National Bank (SNB) Chair Thomas Schlegel has already ignited well-deserved market speculation with his remarks regarding the possibility of “negative inflation.” This has heated up conversations about possible rate cuts. Adding to USD/CHF’s dire outlook is the current 75% odds for a rate cut on June 19.
On the downside, a break below 0.8250 will confirm the failure of this bear flag. This move would reintroduce April’s floor of 0.8186 for USD/CHF. Market pundits have the jitters at any moves under 0.8186. They are looking for this to establish a double-bottom between 0.8100 and 0.8040. This setup means more drops might be waiting if bearish momentum persists.
Thursday’s rejection at the critical resistance level of 0.8350 maintains the sequence of lower highs for USD/CHF, aligning with the broader downtrend that has characterized the pair’s performance in recent months. A fast reversal back through the 0.8300 level would remove this downtrend and suggest a continuation of this bearish momentum.
Investors long USD/CHF would still run into very big challenges from the technical and macroeconomic barricade that is tightly clustered between 0.8350 to 0.8400. They need to play with 3-dimensional chess board mental acuity. Advocates have pointed out that these low levels repeatedly clog up and kill recovery attempts. If true, they should at least stop them from cratering in the near-term.