Swiss Franc weakens as increased risk aversion boosts safe-haven US Dollar

The Swiss Franc experienced a depreciation trend, trading near 0.8130 during Asian hours on Friday, as heightened risk aversion bolstered the US Dollar's position. This gain in the US Dollar was fueled by the increasing demand for safe-haven assets due to the escalating Middle East tensions. Tensions surrounding the Strait of Hormuz, coupled with the potential extension of Saudi military operations against Iranian-aligned Houthis, added to the geopolitical instability.

In response, Iran's parliament is deliberating on a proposal to restrict US and Israeli vessel access, impose a 20% cargo penalty on hostile nations, and halt the corridor until the US blockade is lifted. Rising US Treasury yields and recovering crude oil prices have reignited concerns of another Federal Reserve interest rate hike next month.

However, the Federal Reserve's likelihood of raising rates in September, as reflected by the CME FedWatch Tool, has slightly decreased to 54.5% from 63.4% the previous week. Investors and traders are now focusing on the upcoming July Nonfarm Payrolls report to evaluate the labor market and understand the Federal Reserve's forthcoming monetary policy actions.

On the Swiss side, the economic landscape is mixed, with Switzerland's non-seasonally adjusted unemployment rate rising to 3.0% in July from 2.9% in June, and youth unemployment (ages 15-24) slightly increasing to 2.8%. The release of the July Foreign Currency Reserves and Q3 SECO Consumer Climate data will be closely monitored.

Brown Brothers Harriman notes that "Swiss July CPI remains subdued," with headline inflation at 0.4% year-on-year and core at 0.3% for the fourth consecutive month. The Swiss National Bank (SNB) is projecting only minimal CPI averages and is maintaining its policy rate at 0.00%, which is expected to keep the Swiss Franc vulnerable, given its position as the weakest G10 currency this quarter.

The USD/CHF pair is displaying a slight bullish outlook in the short term, as it remains above the nine-day and 50-day Exponential Moving Averages (EMAs). This configuration, along with the 14-day Relative Strength Index (RSI) near 54, suggests a neutral-to-positive momentum trend rather than overbought conditions. Traders should watch for immediate resistance at the horizontal level around the 13-month high of 0.8207 and initial support at the nine-day EMA at 0.8111 and the 50-day EMA at 0.8056, with a potential further downside target near a five-month low of 0.7762.