The USD/CHF exchange rate has remained under pressure in the past few months as investors moved to the Swiss franc, which has become a popular safe-haven asset amid Donald Trump’s tariffs. It has moved to 0.8260, down by 10% from its highest point this year.
USD/CHF forms a giant bearish pennant pattern
While the USD/CHF pair’s downward momentum has faded in the past few days, there are signs that it will have a strong bearish breakdown. It formed a death cross in April as the 50-day and 200-day moving averages crossed each other.
The pair remains below the important point at 0.8377, the lowest swing in September last year, a sign that bears are in control. It has also formed a bearish pennant pattern, a popular bearish continuation signal in technical analysis.
The pennant has a long vertical line and a symmetrical triangle pattern. This pattern often leads to a strong bearish breakdown, which in this case, will push it to the year-to-date low of 0.8040. A drop below that level will have it drop to the next point at 0.800.
The long-term target for the USD/CHF exchange rate is 0.7632. This target is derived from measuring the distance between 0.9197 and 0.8377, which is the depth of the inverse cup and handle pattern, another highly bearish pattern.
The bearish USD/CHF forecast will become invalid if it rises above the key resistance at 0.8377, the lowest swing in September last year.
USD/CHF chart by TradingView
The bullish case for the Swiss franc against the US dollar
There are a few reasons why the Swiss franc is a better currency to hold than the US dollar for now.
First, Switzerland is a neutral country on most geopolitical issues, meaning that it is not exposed on many issues. The US, on the other hand, is involved in most geopolitical issues, putting it at risk, which have increased because of Donald Trump’s protectionist policies.
Second, the US public debt will be a big challenge in the future. The country has a public debt of over $36.7 trillion, a figure that will continue in the next few years since the budget deficit stands at almost $2 trillion.
The debt load will keep going up despite Donald Trump’s actions to reduce spending in some areas of the government. While this is good, most of the spending is in the non-discretionary spending, where it is hard to cut costs.
As such, the US may crash in case of a major crash since the country will not have the best tools to respond.
Switzerland, on the other hand, has one of the lowest public debts globally. And its debt is largely backed by liquid assets like US Treasuries. This means that the country will be able to withstand any major shocks.
Further, there are signs that the Federal Reserve will start cutting interest rates this year, reducing the fixed income return that investors are getting.
Read more: USD/CHF forecast: why the Swiss franc is soaring, and the next target
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