USD/CHF: Franc drops despite dollar’s first weekly decline since mid-July

• FOMC Rate Decision: Expected to maintain benchmark lending rate target at 5.25% to 5.5%, signaling one last rate increase
• SNB rate decision: Expected to raise rates by 25bps to 2.00%
• Treasury yield curve shifts higher; 10-year yield rises 4.2bps to 4.328%

The Swiss franc is not attracting any safe-haven flows as China shows more signs of stabilizing and with another round of US data/reports that support the soft landing narrative.

USD/CHF Daily Chart

The US dollar rally is approaching a confluence of resistance from the 200-day SMA, the Bollinger Band’s upper band, and the heavily tested 0.9000 level.  Next week is all about rate decisions, which is expected to see the SNB deliver the last rate rise in their hiking cycle and a Fed hold that will try to keep optionality alive. The way the FX market is positioned, dollar-swiss seems ripe to have a big move.   If the Swiss franc becomes attractive again, downside could target the 0.8750 level.  The current bullish trend faces initial resistance at the noted 0.90 level, with further upside targets including 0.9058, followed by 0.9150.

Macro Drivers

US stocks and the dollar are finishing the week lower as Wall Street grows nervous over how long the UAW strike will last, concerns the AI trade was too optimistically priced in, and on today’s $4 trillion triple witching options event.  Treasury yields are rising after another round of data exemplifies the US growth exceptionalism story.  If the US economy reaccelerates here, Wall Street won’t be happy pricing in more Fed tightening. Most of the data was optimistic with the exception of the University of Michigan report that showed both sentiment and current conditions weakened more than expected. The slide with inflation expectations should support the case that a slowdown will happen as the economy starts to feel the impact of the Fed’s tightening cycle. ​

UAW

An unprecedented strike began as 13,000 auto workers walked out.  The big three automakers are nowhere near a deal with expectations rising that GM and Ford will struggle with higher costs heading into a weakening consumer backdrop.  Tesla will likely benefit the longer this strike lasts as the big 3 automakers will have issues getting their EV cars produced.

Adobe

Adobe delivered a textbook earnings beat and in-line guidance, but that isn’t going to cut it for one the key AI trades.  The bar is set high for all AI bets and Adobe’s Q4 revenue outlook of $4.89-$5.03 billion, disappointed as investors expected something well above the $5 billion consensus estimate.  Adobe could benefit from generative AI as soon as November and that lead to double digit revenue growth but that might not be enough to keep investors satisfied. Rising costs to the consumer might make Adobe’s guidance questioned, but it will still likely remain a hold or buy for most analysts.

US data

A steady dose of economic data supported the soft-landing case. The US economic resilient story could hold up as manufacturing activity stabilizes, while inflation expectations come down.  Today’s import/export price data supports the higher for longer narrative being driven by the Fed. Core manufacturing impressed but that isn’t expected to last. ​

The University of Michigan sentiment report however was the main event of the day.  Inflation expectations are finally dropping and that is good news for longer and sustainable growth after the economy hits a brief recession.  The short-term outlook is getting gloomier and that will trigger some demand destruction that should help bring inflation towards the Fed’s target.  The long-run inflation expectations fell from 3.0% to 2.7%, which was the lowest levels in a year.  The consumer is growing optimistic that inflation will be under control in the coming year.

Fed rate hike expectations for November might start to cool down here if more of Wall Street becomes convinced that inflation is getting conquered.

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