The USD/CHF currency pair is holding firm around the 0.8200 level, continuing its upward momentum into a fifth consecutive session. The pair remains buoyed by broad-based US Dollar (USD) strength and a dovish stance from the Swiss National Bank (SNB), which announced a 25 basis point rate cut during the second quarter. 

This decision, though anticipated by a majority of market participants, has significant technical and fundamental implications for the Swiss Franc (CHF) and the pair’s trajectory. Lead financial broker from Fletrade, Nadeen Donovan, delivers clear, actionable insights on this subject in their full breakdown.

SNB Cuts Benchmark Sight Deposit Rate to 0.00%

On Thursday, the Swiss National Bank officially lowered its benchmark Sight Deposit Rate by 25 basis points, bringing it down to 0.00%. The decision, while broadly expected, marked a continuation of Switzerland’s gradual monetary policy easing amid a softer inflationary backdrop and weakening economic data.

The rate cut, while mild, reflects the SNB’s commitment to supporting domestic economic growth, even as inflation remains subdued. Importantly, SNB policymakers acknowledged that while they are not currently considering negative interest rates, such a path remains within the central bank’s policy toolkit if global risks worsen.

Notably, market pricing suggested about a 25% probability of a more aggressive 50 basis point cut, so the decision to implement a more cautious quarter-point adjustment contributed to the Swiss Franc’s modest resilience in the aftermath of the announcement.

CHF Weakens as Trade Surplus Narrows Sharply

Further weighing on the Swiss Franc, official data showed that Switzerland’s trade surplus narrowed sharply in May, coming in at just CHF 2.0 billion, compared to CHF 5.4 billion in April. The May reading represents the smallest trade surplus recorded since December 2023, and reflects a notable 13.6% drop in exports, which fell to CHF 21.0 billion.

This deterioration in the trade balance is attributed to reduced demand from key trading partners and a stronger CHF during parts of the quarter. A weakened external sector underscores the challenges facing the Swiss economy, reinforcing the SNB’s dovish tilt and validating its recent interest rate action.

Technical Outlook: USD/CHF Bullish Bias Persists

From a technical analysis perspective, the USD/CHF pair is exhibiting a sustained bullish structure, holding steady around 0.8200 during the European trading session. The pair has now logged five straight daily gains, with momentum supported by a series of higher lows and higher highs on the daily chart.

Immediate resistance is located near the 0.8225 level, corresponding to the May swing highs. A breakout above this zone would open the path to the 0.8270 resistance zone. On the downside, initial support lies at the 0.8160 region, followed by the 0.8125 zone, which has served as a recent pivot.

The Relative Strength Index (RSI) remains in bullish territory, currently holding above 60, indicating that upward momentum is not yet overextended. Moreover, MACD histograms are firmly in positive territory, offering additional confirmation of bullish bias.

Macro Drivers Supporting USD/CHF

The backdrop of monetary policy divergence between the SNB and the US Federal Reserve (Fed) continues to play a pivotal role in shaping USD/CHF flows. While the SNB is easing, the Federal Reserve maintains a more cautious stance, with recent commentary from Fed officials suggesting a prolonged higher interest rate environment due to persistent inflationary pressures in the US.

This divergence enhances the carry trade appeal of holding USD over CHF, making the greenback more attractive from a yield perspective. Combined with the geopolitical uncertainty and Switzerland’s weakening trade dynamics, this policy gap is a strong driver of continued USD/CHF upside potential.

Conclusion

The USD/CHF pair remains underpinned by a combination of Swiss monetary policy easing, weaker trade fundamentals, and escalating geopolitical risks that have prompted safe-haven flows into the USD. 

The SNB’s 25 basis point rate cut to a zero interest rate environment aligns with Switzerland’s slowing economy and soft inflation outlook. At the same time, a narrowing trade surplus and a drop in exports further exacerbate the CHF’s vulnerability.

In this environment, traders and investors are likely to maintain a bullish bias on the pair, at least in the near term, until new economic data or geopolitical developments alter the balance of risks.