The US Dollar continues to
consolidate around the highs although it’s stronger against the commodity
currencies. In the bigger picture, the market reached the peak in the repricing
of interest rates expectations, and it will need stronger reasons to price out
the remaining rate cuts for 2025.

In fact, despite lots of
strong US data, the market’s pricing remaining largely unchanged around three
rate cuts by the end of 2025. The focus is now on the US CPI report due
tomorrow. It looks like the Fed really wants to cut next week before pausing
for some months. So, we might need an upside surprise in the core inflation
numbers to force them to change plans.

Even if the Fed decides to
cut next week despite a hot CPI, the market will likely scale back further the
rate cuts expectations for 2025 and that could trigger some risk aversion with
the US Dollar rallying across the board. The best scenario would be a soft
report given the overstretched long positions in the greenback. In such a case,
we can expect the US Dollar to selloff across the board.

On the CHF side, the market
is pricing in a 63% probability of a 50 bps cut for the SNB this week.
Inflation has been much lower than the central bank’s forecasts and the
strength in the Swiss Franc didn’t help either.

The new SNB’s Chairman
Schlegel seems more resolute than his predecessor as he flagged
negative rates if
needed to dampen the appetite for the safe-haven franc, so the central bank
might go for a 50 bps cut this time around.

USDCHF
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCHF broke below the upward trendline that was defining the bullish
momentum on this timeframe. We can expect the sellers to pile in around these
levels to position for a drop into new lows. The buyers, on the other hand,
will want to see the price rising back above the trendline to target new highs.

USDCHF Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we have a strong support
turned resistance around the 0.88 handle with a downward trendline defining
the bearish momentum on this timeframe. We can expect the sellers to step in
both at the resistance and the trendline in case the resistance gets breached.
The buyers, on the other hand, will pile in at every break higher.

USDCHF Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the consolidation below the resistance. The sellers will
continue to step in here to target a drop into new lows, while the buyers will
look for a break higher for a rally into the trendline. The red lines define the
average daily range for today.

Upcoming
Catalysts

Tomorrow we get the US CPI report, which is also going to be the main event of
the week. On Thursday, we have the SNB rate decision, the US Jobless Claims and
the US PPI.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

The news here yesterday came after the domestic session closed but the Hang Seng index managed to capitalise and rallied to produce over 2% gains. The optimism was largely expected to carry over to today but the mood music hasn’t quite turned out that way. That despite domestic indices closing higher today. It doesn’t tell the whole story.

The Shanghai Composite and CSI 300 indices closed up by 0.6% and 0.7% respectively. However, they closed at the lows for the day with the latter falling back under 4,000 and returning to the post-October range. As for the Hang Seng, it opened with a gap up of over 3% but closed the day with a loss of 0.5%. Ouch.

As the dust begins to settle from the latest announcement by Beijing, investors are still holding reservations. Personally, I don’t doubt China’s commitment and ability to deliver on the monetary policy front. They’ve already stepped it up this year and one can reasonably expect that to continue next year. The change in policy stance is just a bonus to reinforce that sentiment.

The only thing I doubt is China’s ability to deliver on the fiscal side of things. They’ve been saying that they will do more for over two years now. And yet every time when Beijing should be making a strong commitment, they tend to flake. Just like they did back here in November in the most recent time.

If Beijing wants to reaffirm the faith of investors, they will have to deliver something at some point next year. Otherwise, the latest uptick in sentiment since October might end up falling away rather quickly. That especially with Chinese economic data still not being it towards the end of this year.

This article was written by Justin Low at www.forexlive.com.