• USD/CHF recovers further above 0.8850 as the US Dollar bounces back strongly.
• Traders doubt whether the Fed will cut interest rates in December.
• USD/CHF finds a cushion near the 50% Fibo retracement around 0.8800.

The USD/CHF pair extends its recovery above 0.8850 in the North American trading session on Wednesday. The Swiss Franc pair rises as the US Dollar (USD) bounces back strongly amid doubts about whether the Federal Reserve (Fed) will continue its policy-easing cycle in the December meeting.

According to the CME FedWatch tool, trades see a 59% chance that there will be 25 basis points (bps) interest rate cut next month, which will push interest rates lower to 4.25%-4.50%. The probability of a Fed rate cut has diminished from 82.5% a week ago as investors expect President-elect Donald Trump’s economic agenda will boost inflation in the United States (US) along with its economic growth.

Meanwhile, global brokerage firm Nomura expects the Fed to pause the policy-easing cycle in December. "We currently expect tariffs will drive realized inflation higher by the summer, and risks are skewed towards an earlier and more prolonged pause,” analysts at Nomura said.

The Swiss Franc (CHF) witnessed buying interest on Tuesday as a fresh escalation in the Russia-Ukraine war improved its safe-haven bid. However, it turned out short-lived as Russian Foreign Minister Sergei Lavrov pushed back expectations of a nuclear attack.

USD/CHF bounces back after a mild correction to a 50% Fibonacci retracement around 0.8800. The Fibo tool is plotted from a May high of 0.9225 to a September low of 0.8375. Upward-sloping 20-day Exponential Moving Average (EMA) near 0.8765 suggests that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) oscillates in the 60.00-80.00 range, suggesting a strong bullish momentum.

The asset could rise to near the July 5 low of 0.8950 and the psychological resistance of 0.9000 after breaking above the November 14 high of 0.8918.

In an alternate scenario, a downside move below 38.2% Fibo retracement at 0.8700 could drag the asset towards the October 23 low of 0.8650, followed by the November low of 0.8616.
 

USD/CHF daily chart

(Click on image to enlarge)

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