USD/CHF has tentatively turned back to the downside on Monday ahead of this week’s potentially pivotal Federal Reserve meeting, when guidance on the trajectory of interest rates in the US is expected to be provided by Wednesday’s FOMC statement.
Monday’s dollar retreat occurs at a critical level for USD/CHF, tentatively turning the currency pair down right around the key 0.9785 resistance area, which is also around the 50% retracement level of the last major bearish run from March’s high to April’s low. This price level has served as a major support and resistance area since late 2015.
Prior to this retreat from resistance, USD/CHF has spent the past two weeks in a general ascent from early April’s lows around 0.9500 support, as the dollar has been in a moderate rebound since then.
From a slightly longer-term technical perspective, USD/CHF has been in a general decline since December, printing consistently lower highs and lower lows as the dollar has suffered from an increasingly dovish Fed after its most recent rate hike in December.
If USD/CHF continues to trade below the noted 0.9785 resistance area in the run-up to the Fed meeting, any further dovishness that is likely to emanate from the FOMC statement could lead to continued dollar weakness and a return back down to the 0.9500 support area to resume the medium-term downtrend. In the event of a break below 0.9500, the next major downside target is at the 0.9250 support area.
In the opposite event of a more hawkish Fed outcome, any breakout above resistance could lead to an extended rebound and downtrend reversal next targeting parity (1.0000), which was last hit in early March.