Action Insight Mid-Day Report 1-7-25

Swiss Franc Under Pressure as Deflation Risks Spur Speculation of Aggressive SNB Easing

Swiss Franc weakened across the board today after inflation data revealed a reversal in annual CPI back 0.6% in December. This marks the fourth consecutive month of deflationary pressure, as monthly CPI continues to slide. With inflation well below 1% for the past four months, concerns over a return to deflation have grown, intensifying expectations for further monetary easing by SNB in 2025.

Following the release, the probability of a 25-basis-point cut by SNB in March rose to 98.4% from 91% previously. Speculation is also building around the possibility of a 50-basis-point cut, similar to December’s move, which would bring the policy rate to 0.00%. Even more notably, discussions are emerging about the return of negative interest rates this year, as a tool for managing deflationary pressures.

Euro, on the other hand, is supported by another month of acceleration in headline CPI, while consumer inflation expectations also jumped. Its still early to argue that inflation expectations have deviated too much from ECB's 2% target, and thus, policy easing should still carry on. Yet, the pace would remain measured and gradual, as many policymakers have expressed their preference for....

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USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9001; (P) 0.9053; (R1) 0.9097; More…

USD/CHF bounces slightly after drawing support from 55 4H EMA, but stays below 0.9136 resistance. Intraday bias remains neutral for more consolidations. But further rally is expected as long as 0.8956 resistance turned support holds. Above 0.9136 will resume the rally from 0.8374 to 0.9223 key resistance next. However, firm break of 0.8956 will turn bias back to the downside for 55 D EMA (now at 0.8869).

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