A recent survey of 4,500 Swiss firms by the KOF Institute found 86% of respondents confident about their prospects despite the Covid-19 pandemic. Economists forecast a 4.9% recession in 2020. Another KOF survey showed 21% fewer bankruptcies between March and July, which included the current peak of economic hardship brought by the virus, as compared to 2019. Government assistance was singled out as the reason for a relatively stable performance by all sectors, including the hard-hit hospitality and tourism industries. The USD/CHF embarked on a counter-trend breakout but now faces rejection by its short-term resistance zone amid a build-up in bearish pressures.

The Force Index, a next-generation technical indicator, initially spiked to a new multi-week peak before receding while price action advanced, resulting in a negative divergence. It is now driven lower by its descending resistance level, as marked by the green rectangle, and positioned for a collapse below its horizontal support level. Bears wait for this technical indicator to cross below the 0 center-line and drop below its ascending support level to regain full control over the USD/CHF.

Unlike most developed countries that faced a surge in the unemployment rate resulting from business closures due to mandatory lockdown measures, the Swiss unemployment rate remained stable at 3.2%. The head of the labor unit at the State Secretariat for Economic Affairs (SECO), Boris Zürcher, did state no massive layoffs are expected in 2020. The USD/CHF completed a breakout above its support zone located between 0.9049 and 0.9105, as identified by the grey rectangle, but bearish momentum is growing, suggesting a reversal.

Swiss voters will head to the polls in September, where the Swiss People’s Party campaigns to end the free movement to moderate immigration. The agreement exists for over 20 years, but many question the economic benefit, if any, from it. Several studies showed no negative impact, which does not suffice for a growing majority of Swiss. With the Covid-19 pandemic likely to intensify over the next few months, safe-haven demand is favored to remain elevated for the Swiss Franc. The USD/CHF is losing upside momentum near its short-term resistance zone located between 0.9206 and 0.9260, as marked by the red rectangle, with the descending Fibonacci Retracement Fan sequence maintaining the downtrend. Price action will challenge its next support zone between 0.8798 and 0.8856.

USD/CHF Technical Trading Set-Up - Price Action Reversal Scenario

Short Entry @ 0.9190

Take Profit @ 0.8855

Stop Loss @ 0.9260

Downside Potential: 335 pips

Upside Risk: 70 pips

Risk/Reward Ratio: 4.79

In case the ascending support level spikes the Force Index higher, the USD/CHF may temporarily extend its counter-trend rally. Forex traders should consider more upside from present levels as an excellent selling opportunity due to the worsening economic outlook for the US. Congress considers more debt, while the labor market remains depressed, unlikely to recover for several years. The upside potential remains confined to its intra-day high of 0.9467, from where the current sell-off materialized.

USD/CHF Technical Trading Set-Up - Confined Breakout Scenario

Long Entry @ 0.9325

Take Profit @ 0.9465

Stop Loss @ 0.9260

Upside Potential: 140 pips

Downside Risk: 65 pips

Risk/Reward Ratio: 2.15