USD/CHF: Dollar rally awaits next week’s CPI and retail sales data

• Fed expected to keep rates on hold on September 20th
• 10-year Treasury yield eases back to 4.248% as 4.36% remains key resistance
• US retail sales are expected to weaken and the US inflation report will be mixed (core steady, headline rises)

The US dollar rally may have to wait till next week’s inflation and retail sales data. The dollar is slightly softer across the board as Treasury yields soften. It was a rather quiet day in the US as most of the attention stayed on Apple shares and another earnings report that supported the resumption of the disinflation process.  Kroger’s earnings release stated, “we believe inflation will continue to decelerate and the environment will remain challenging for consumers.”

Today, we didn’t learn anything new about the short-term direction of inflation and the US economy.  Next week, will either bolster up the Fed hawk argument that more tightening might be needed in November or show the consumer is finally feeling the impact of the Fed’s tightening cycle, as financing costs surge, student-loan repayments come due, and as households run out of excess savings.

USD/CHF Daily Chart

USD/CHF (a daily chart of which is shown) as of Friday (September 8^th 2023) has shown the bullish move that started in the middle of July is running out of steam.  Price action in September recaptured both the 50- and 100-day SMAs.  The strong bearish trend that has been in place since last November is being tested and bullish momentum could thrive over the short-term if price is able to recapture the 200-day SMA, alongside making its first higher high since late last year.

The bearish case for USD/CHF however could unfold over the coming months.  The cost of capital will clearly be much higher and that will take a major toll on just personal consumption but also corporate spending.  When risk aversion runs wild, USD/CHF may return quickly.  Right now the market is pricing in a soft landing that includes orderly weakness, but that could get rattled if geopolitics deliver a couple shocks to risk appetite.

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