USD/CHF: Bull Run Faces Reversal Risk as Momentum Fades

• USD/CHF rally stalls, technicals signal fading bullish momentum
• CPI data Wednesday and Bessent's Senate hearing Thursday could drive yields and USD
• A break below uptrend support targets .9020 as initial downside

Summary

The USD/CHF rally is looking a little vulnerable, bringing the prospect of renewed downside into play. An evening star pattern and weakening RSI and MACD hint at growing reversal risks. Key near-term catalysts like US CPI and Scott Bessent’s Treasury Secretary could determine whether we see a bounce or bearish break.

US rate outlook sees significant shift

Source: TradingView

USD/CHF has been in beast mode since the Fed began its easing cycle, powering higher on the back of higher US Treasury yields, especially the backend of the curve.

However, with pricing for further rate cuts this year nearly eliminated, there is a lot of hawkishness priced into the US dollar. That makes it vulnerable to any new information that contradicts inflation concerns that have undoubtedly contributed to the lift in US yields.

USD/CHF rally stalls ahead of risk events

Source: TradingView

With an inverted hammer candle on Monday and three-candle evening star patten completed Tuesday, we have two price signals that suggest the near-term highs may be in for USD/CHF, putting a potential uptrend support break on the radar.

RSI (14) and MACD are rolling over, hinting bullish momentum may be in the early stages of turning. Outright bearish signals have yet to be triggered but traders should be alert to such a scenario, increasing the risk of price following suit.

Those considering bearish setups could wait for a potential break of uptrend support, allowing shorts to be established beneath with a stop above for protection. .9020 looms as an initial downside target given it acted as both support and resistance over the turn of the year.

Inflation, Bessent confirmation key near-term events

As for fundamental catalysts that could spark a USD/CHF reversal, Wednesday’s US consumer price inflation (CPI) report is an obvious one. While not the Fed’s preferred underlying inflation measure, the detail in the core print will be influential. 0.2% or lower would bolster the prospects for short USD/CHF trades. It's released 8.30am ET Wednesday.

However, USD/CHF has been more influenced by yields at the back of the US Treasury curve over the past month, as shown in the bottom pane with a rolling correlation coefficient score of 0.83. That’s stronger than its relationship with shorter-dated yields over the same period, hinting the US fiscal trajectory may be of more interest to USD/CHF traders right now.

If that persists, it puts Scott Bessent’s Senate confirmation hearing for Treasury Secretary on the radar. When announced as Trump’s pick in late November, it helped spark a meaningful decline in US yields across the curve. Taking centre stage on Capitol Hill, could he deliver a similar outcome again? USD/CHF bears will be hoping so. The hearing begins 10.30am ET Thursday.

-- Written by David Scutt

Follow David on Twitter @scutty