USD/CHF fell for a second session on Tuesday, yet held above the week’s low of 0.7921 as broad US dollar weakness weighed on the pair. It was trading at 0.7933, down 0.16%, with pressure linked to the dollar’s correlation with softer oil prices and reduced expectations of Federal Reserve rate hikes.
Technically, the pair remains neutral to mildly upward-biased after stalling near 0.8000, although the RSI is weakening and keeps focus on the 200-day SMA at 0.7906. A break below that level would point to the inverted head-and-shoulders neckline near 0.7878 and then the 50-day SMA at 0.7864; on the topside, a move above 0.7968 targets 0.7976 and 0.8000, before 0.8042 and 0.8100. In spot moves, CHF was strongest against JPY, while the heat map showed USD down 0.15% versus EUR and up 0.08% versus JPY, with CHF up 0.17% against USD and 0.24% against JPY. The franc was pegged to the euro between 2011 and 2015, and the removal of the cap drove a rise of more than 20%; SNB policy targets inflation below 2% and meets four times a year, while EUR-CHF correlation is described as above 90%.
Key Technical Levels and Trading Setups
We are seeing the USD/CHF pair pull back towards its 200-day moving average near 0.7906, creating a key decision point for the coming weeks. This weakness in the dollar is partly fueled by the recent May US CPI report, which came in at 2.8% and lessened any pressure on the Federal Reserve to consider rate hikes. For now, this supports a bearish stance on the pair.
We believe derivative traders should consider buying put options if the pair decisively breaks below the 0.7906 level in the coming days. A break here would signal further downside momentum, making puts with a strike price around 0.7875 an attractive way to play a move toward the next support zone. This strategy allows for defined risk while capitalizing on the current selling pressure.
SNB Policy Outlook and Volatility Implications
Adding to the potential for a downward move, all eyes are on the Swiss National Bank’s policy meeting scheduled for next week. With recent Swiss inflation holding firm at 1.9%, close to the SNB’s target, the market is pricing in a hawkish tone which could further strengthen the franc. This event makes short-term volatility plays, like straddles, worth considering for those who are directionally uncertain.
However, we must not ignore the underlying upward bias, and a bounce from current levels remains a distinct possibility. If USD/CHF reverses and climbs back above the 0.7968 high, we would see this as a trigger to purchase call options. Targeting the psychological 0.8000 level would be the primary objective for this bullish trade.
Historically, the Swiss Franc has acted as a safe haven, a trait that could come into play if broader market uncertainty resurfaces. Looking at the options market, we see one-month implied volatility for USD/CHF has ticked up to 6.5% ahead of the SNB meeting, compared to its three-month average of 5.8%. This suggests traders are preparing for a larger-than-usual price swing, reinforcing the case for using options to manage risk or speculate on the outcome.
