Hey guys! In case you missed it in your calendars, the U.S. is about to print the Fed’s preferred inflation gauge.
Will the release extend the dollar’s losses against the franc?
Here’s a setup that I’m looking at:
USD/CHF is consolidating near .8985, which is just below the big .9000 and the 100 SMA on the 4-hour time frame.
The setup caught my eye today because the pair’s current levels line up with an inflection point that dollar bulls and bears have been minding for most of May.
Will .8985 hold as resistance this time? The U.S. is scheduled to print its PCE price index, which the Fed pays attention to because it removes the most volatile items from the OG consumer price index (CPI) reading.Markets see the core PCE price index printing an annual rate of 2.6% in April. That’s a jump from March’s 1.9% increase!
If prices rise much more than what markets are expecting, then there would be more pressure on the Fed to join central banks like the Reserve Bank of New Zealand (RBNZ) and the Bank of England (BOE) and consider tightening its stimulus programs.
Talks of tightening, combined with a jump in safe-haven demand, could push USD/CHF above the descending channel and 100 SMA resistance.
If the PCE report comes within expectations, though, then it will be easier for traders to believe the Fed saying that price increases are transitory.
The lack of pressure on the Fed to tighten might drag USD/CHF back down to its May lows or even extend its Q2 2021 downtrend.
What do you think? Can the dollar lose more pips against the franc in the next trading sessions? Or is it time for USD/CHF to see a longer-term reversal?
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