Summary:

A robust May jobs report prompted the Fed to hold rates this week. Markets anticipate a hawkish meeting, expecting the Fed to continue signaling concerns about inflation and a tight labor market. In contrast, recent hawkish comments from the SNB didn't change the overall outlook for the CHF, with markets still anticipating another rate cut in June as the inflation rate remains within the SNB's target range.

USD/CHF 4H

Macro View:

USD: Markets remain bullish on the USD as the upcoming US election begins to have a larger impact, adding a barrier against a significant drop in the Dollar over the next few months. Additionally, protectionist or inflationary policies present an upside risk to the Dollar and contribute to market uncertainty. The May jobs report showed a tight labor market, with nonfarm payrolls surging to 272K and Average Hourly Earnings (AHE) rising by 4.1% year-over-year and 0.4% month-over-month. These figures indicate a tight job market, and the higher AHE suggests an increased risk of inflation. Consequently, the May jobs report could lead the FOMC to hold rates steady this week, potentially maintaining higher rates for longer due to concerns about balancing the labor market and achieving the 2% inflation target. Overall, the market believes it will be difficult for the Dollar to break to the downside before election uncertainty clears, confidence grows in the global outlook, and concerns about a tight labor market and potential inflation risk are addressed.

CHF: The Swiss Franc has gained strength recently due to hawkish comments from SNB’s Jordan and a stronger-than-expected Q1 GDP report, increasing the likelihood that the SNB will stay on hold rather than delivering another cut this year. However, the overall fundamentals of the CHF remain unchanged and weak, as it is still likely to be used for carry trades in FX. The SNB has not intervened in the FX market since the beginning of the year. With Swiss inflation within the SNB’s target range, markets are already pricing in the possibility of a rate cut in June. Additionally, JP Morgan remains bearish on CHF and recommends continuing to long USD/CHF, EUR/CHF, and AUD/CHF.

FX View:

DXM: A Tool to Gauge Retail Sentiments

USD/CHF Current Retail Long/Short Position

The DXM shows that 47% of traders are bullish, while the remaining 53% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

USD Futures’ seasonality movement

The seasonal pattern for the USD suggests bullish momentum in the near term.

CHF Futures’ seasonality movement

The seasonal pattern for the CHF suggests bearish momentum in the near term.

Sources: Prime Market Terminal

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