USD/CHF: Dovish cut can lend momentum – OCBC

Swiss National Bank's Monetary Policy Committee (MPC) meeting takes place tomorrow. Markets have fully priced in a 25bp cut to bring the policy rate down to zero. Pair was last at 0.8178 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Potential double bottom pattern is on the charts

"The ongoing slump in the manufacturing PMI and well-entrenched disinflation trend allows for such a move. PMI has plummeted to an 18-month low of 42.1. The sub-indices indicate widespread distress across the manufacturing sector, with production dropping 7.2 points to 42.5 and the order book index experiencing a significant decline to 35.9."

"Switzerland is also grappling with a well-entrenched disinflation trend, as core inflation has reached a near four-year low, and the headline CPI is now negative on a year-over-year basis. Furthermore, officials had earlier expressed concerns over the persistent strength of the Swiss Franc (CHF). YTD, CHF was up 11% (vs. USD). They have indicated that they are open to reducing the policy rate to zero or even into negative territory."

"In fact, the market anticipates an additional 25 basis point cut beyond the upcoming MPC, potentially lowering the policy rate to -0.25% by the end of the year. A dovish rate cut could support upward movements in USD/CHF. Daily momentum is flat while RSI rose. Potential double bottom pattern, typically associated with a bullish reversal. Resistance at 0.8205 (21 DMA), 0.8240 (50 DMA). Support at 0.8040/50 levels (double bottom)."