USD/CHF starts the week down as Fed dovish surprise weighs on the Dollar, eyes on PCE

• The USD/CHF trades near the 0.8680 level, seeing 0.20% losses.
• Markets await the US Personal Consumption Expenditures (PCE) data on Friday from November.
• Rising US bond yields may limit the downside for the Greenback.
• The SNB also appeared dovish in it last week’s decision.

In Monday's session, the USD/CHF pair dictated a bearish trail, having losses as it traded near the 0.8680 level. The pair's movements mirror the continued softness of the USD, which came in the wake of the US Federal Reserve's dovish surprise and ahead of the release of the Personal Consumption Expenditures (PCE) data from November from the US, which could potentially act as a catalyst for further movements.

In line with that, the Fed held steady with a 5.25%-5.50% interest rate in its December meeting and offered dovish guidance. They hinted that softening inflation data would lead them to contemplate policy easing sooner than initially scheduled with officials seeing three rate cuts in 2024, and as a reaction, the Greenback and the USD/CHF suffered severe selling pressure. On the other hand, the Swiss National Bank (SNB) kept rates pinned at 1.75%, and despite changing its tone to a more dovish approach, the CHF has demonstrated enduring resilience against its rivals in the last sessions.

Meanwhile, US Treasury bond yields are on the uptrend, which may limit the downside for the pair. The 2-year rate rose to 4.45%, while the 5-year and 10-year rates are both noted at 3.95%.

For Friday’s PCE figures, markets expect the core figure to have declined to 3.3% YoY and the headline figure to 2.8%. In addition, its outcome may fuel volatility in the swap markets and on the investor's bets on the next Fed’s decision, which could dictate the pair's pace for the short term.

USD/CHF levels to watch

The daily chart manifests a bearish outlook on the pair, powered by strong selling momentum. The flat position of the Relative Strength Index (RSI) in negative territory, coupled with the presence of flat red bars in the Moving Average Convergence Divergence (MACD), confirms that the bears have the upperhand for the short term but seem to be consolidating their downwards movements.

Providing extra weight to the bearish bias, the pair trades below the 20, 100, and 200-day Simple Moving Averages (SMAs), depicting that the sellers are clearly in command.

Furthermore, indicators turning somewhat flat on the daily chart suggest that bears are taking a breather following a 1% loss within a week. This pause, rather than signaling a trend reversal, may represent a consolidation phase before the next downward leg.

Support Levels: 0.8650, 0.8600, 0.8570.
Resistance Levels: 0.8700, 0.8730, 0.8760 (20-day SMA).

USD/CHF daily chart