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US Dollar/Swiss Franc Monthly Technical Forecast

5/11/2011 Monthly Chart

us_dollar_swiss_franc_monthly_currency_forecast_body_chf.png, US Dollar - Swiss FrancTechnical and Fundamental Forex Forecast for May

Prepared by Joel Kruger

This market remains confined to a very intense downtrend, with the price most recently breaking to a fresh record low by 0.8550 ahead of the latest minor bounce. However, a bullish weekly formation in early May could suggest that at a minimum, there is some form of a medium-term base in place by 0.8550 ahead of some corrective gains back towards the 0.9000-0.9500 area. Back below 0.8550 negates recovery outlook.

Swiss Franc / US Dollar Interest Rate Forecast

Currency, Central Bank

US Dollar, US Federal Reserve

Swiss Franc, Swiss National Bank

Net USDCHF Spread

Signal

1-Year Expectations(Basis Points)

32

39

(7)

Bearish

Yield in 1 Year(Percent)

0.57

0.46

0.11

Bullish

us_dollar_swiss_franc_monthly_currency_forecast_body_Picture_4.png, US Dollar - Swiss FrancTechnical and Fundamental Forex Forecast for May

A noteworthy deterioration in Swiss National Bank interest rate expectations has put pressure on the domestic currency, pushing the USDCHF higher through recent trade. Below-forecast Consumer Price Index inflation numbers greatly reduced pressure on the SNB to raise interest rates. Whereas Overnight Index Swaps once priced in as much as 80 basis points of SNB rate hikes through 12 months, said expectations now stand at a paltry 39bps. US Federal Reserve rate forecasts have fallen through the same stretch but to a lesser extent.

The net result is that markets predict the US Dollar and Swiss Franc will carry the same short-term yields in a year’s time. It will take a significant shift in either SNB or Fed rate forecasts to force significant yield-driven moves in the USDCHF.

Written by David Rodriguez, Quantitative Strategist and Joel Kruger, Technical Strategist for http://www.DailyFX.com