USD/CHF struggles as trade talk uncertainty and stagflation fears weigh on sentiment

• USD/CHF is trading near a critical support area as the US Dollar Index (DXY) reverses course ahead of US-China trade talks in Switzerland this weekend.
• Fed officials have highlighted stagflation risks, noting the potential for rising inflation and unemployment if tariffs remain elevated.
• Technically, the DXY faces immediate support at 100.2200 and resistance at 101.9000, while the USD/CHF could test its recent lows if the Dollar weakens further.

The USD/CHF pair is navigating a critical juncture as it trades near a key support level, with broader market sentiment clouded by trade talk uncertainties. The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, has recently pulled back to 100.3000 after hitting a near-month high of 100.8600. This reversal comes as markets digest the implications of US-China trade talks set for this weekend in Switzerland, along with concerns over a lackluster UK trade deal that failed to remove key tariffs. Despite hopes for a breakthrough, the US position appears weaker, with President Trump suggesting that tariffs could be cut by 50% if China cooperates, though this remains highly uncertain.

From a fundamental perspective, the Fed remains cautious about the economic outlook. Fed officials, including New York Fed President John Williams, emphasized the need for price stability, while Governor Adriana Kugler noted that the current policy stance is "moderately restrictive," hinting that rates may remain high despite slowing growth. Additionally, the Atlanta Fed recently revised its Q2 GDPNow model to 2.3% SAAR, reflecting a solid growth outlook, though the risk of stagflation remains as tariffs continue to disrupt global supply chains.

Technical Analysis

Technically, the DXY is testing support at 100.2200, a former resistance level that could act as a base if bearish sentiment persists. Below this, the next support lies at 97.7300, with deeper levels at 96.9400, 95.2500, and 94.5600 if downside pressure intensifies. On the upside, resistance is seen at 101.9000, followed by the 55-day SMA at 102.4700. For the USD/CHF, a break below recent support could open the door to fresh multi-year lows, with potential targets around 0.8900 and 0.8800 if the broader USD sentiment remains weak.

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