Daily Market Recap – USDCHF Evolution will depend on the Fed's tapering outlook

The USDCHF has been moving without a clear trend for several weeks. The dollar has been on a rollercoaster ride in recent weeks due to uncertainty about the timing of the Fed's tapering.

Investors began the summer anticipating an announcement of a reduction in the pace of Fed asset purchases at the end of the year, but hawkish comments from some Fed members led investors to move that forecast to September or October.

However, disappointing economic data in recent weeks, including the latest U.S. jobs report released earlier this month, has put a damper on that scenario, with investors once again seemingly anticipating a tapering announcement at the end of the year.

Given the Fed's reliance on macroeconomic data, particularly inflation and employment, upcoming US releases should continue to influence the exchange rate. The next big market event is the FOMC's decision on the Fed's monetary policy on September 22.

An announcement in favor of a reduction in the pace of asset purchases would be a first step by the Fed towards normalizing its monetary policy, which should allow the dollar to outperform in the foreign exchange market especially in the current context where the prospects for tapering are uncertain. Conversely, the absence of an announcement would put pressure on the dollar and in turn allow the USDCHF to correct further.

From a technical perspective, the outlook for the USDCHF will depend on whether the exchange rate breaks out of the symmetrical triangle it has been oscillating in since early summer.

A breakout from the top would signal a bullish reversal in the USDCHF. The high of the year at 0.9473 would be the first target and would probably be reached if the Fed announced a reduction in its asset purchases at the end of the month.

Conversely, a breakout from the bottom of the triangle would signal a continuation of the downtrend we have been experiencing since early spring. The first support to watch would be the May/June low at 0.89 and would probably be reached if the Fed does not announce tapering at the end of the month or at its October meeting.

 (Chart Source: Tradingview 12.09.2021)

For now, traders should pay attention to the price action in the run-up to the 20-day moving average as it would signal potential short-term direction in the USDCHF. As it stands, it would seem like the rate should continue to trade sideways thus traders may consider targeting the 0.919 and 0.913 levels.

Support & Resistance Levels:

R3       0.9473

R2       0.9342

R1       0.9262

S1        0.9134

S2        0.9000

S3        0.8926

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.