USD/CHF, silver: Fed rate cut hopes fading as Trump win sends yields soaring

• Fed rate cut bets dwindle, pushing US yields higher across the curve.
• USD/CHF and silver hit hard by rising short-dated US rates.
• Trump’s pro-growth policies boost inflation and activity expectations.
• Key data this week could shift Fed rate expectations and market trends.

Overview

Expectations for Fed rate cuts are fading fast after Donald Trump's re-election, putting pressure on low-yielding assets like silver and the Swiss franc. With key US data due soon and risk appetite running high, the next few days could be pivotal for any further easing in the current cycle.

Traders slash Fed rate cut bets

From eight to three in the space of two months. We’ve witnessed another dramatic turnaround in expectations for Fed rate cuts over the next year, driven by resilience in US economic data and, more recently, a likely Republican red wave following the Presidential election, boosting the prospect for expansionary fiscal spending.

Source: TradingView

As bets on Fed rate cuts have dwindled, US interest rates across the curve have spiked. While some long-duration and non-yielding assets have held up despite increased competition for capital from higher fixed income returns, others, like silver and the Swiss franc, have struggled.

USD/CHF, silver face Fed headwinds

Correlation analysis over the past fortnight, covering price action before and after the election, highlights these trends. For USD/CHF, front-end US yields (less than two years) have been the most influential, with scores above 0.8 against both year-ahead Fed rate cut pricing and US two-year Treasury yields. It’s not the only European currency that’s been hit hard with its correlation with EUR/USD sitting at an extreme -0.97.

The relationship between short-dated US rates and silver has been even tighter than with the franc, with correlations at -0.95 and -0.92 against year-ahead rate cut bets and two-year yields, respectively.

Source: TradingView

Trump's pro-growth policies are driving up expectations for economic activity and inflation, forcing US rates higher. This is attracting capital into US dollar assets globally. Throw in the potential for protectionist US trade policies, and these trends seem unlikely to reverse unless there’s a shift in Trump’s stance, which looks doubtful in the near term.

USD/CHF rips as rate cut hopes fade

Source: TradingView

USD/CHF broke to fresh multi-month highs again on Monday, easily clearing minor resistance at .8777 as market expectations for Fed rate cuts hit cycle lows. With bullish momentum signals from MACD and RSI (14), and the price in an uptrend since election day, the focus remains on buying dips and breakouts in the short term.

The initial upside target is the 200-day moving average, a level that’s been hit-or-miss over the past year. If that breaks, other near-term targets include .8913, .8988, and .9050.

A break of the 200-day moving average could allow traders to buy with a stop below targeting any of the beforementioned levels. Alternatively, if we were to see a pullback and bounce from .8777, that too could allow for longs to be established with a stop beneath the level for protection.

Silver: selling rallies preferred near-term

Source: TradingView

Similarly, silver has respected prior levels on the charts, dropping below minor support at $30.77 on Monday before bouncing off an uptrend that’s been in place since early August. These two levels should be in focus when assessing setups.

With RSI (14) and MACD flashing bearish momentum signals, the bias is to sell rallies and bearish breaks in the short term. If silver stays below $30.77, shorts could be initiated with stops above for protection, targeting further downside. Initial levels include $29.66 and $29.10, with the 200-day moving average as the next point of focus. A break below the uptrend would offer another setup, allowing for shorts to be established with a stop above targeting the same downside levels

Hawkish data, Fed would boost trade prospects. 

Given the impact of short-end US rate movements on USD/CHF and silver, traders should pay close attention to events that could shift Fed rate expectations in the coming days. Fed speakers’ commentary following Wednesday's US CPI report could be crucial. A print in line or hotter than expected might prompt officials to guide markets away from pricing another rate cut in December. But if the data disappoints, recent price trends could reverse.

Other key releases include Thursday's PPI and jobless claims, along with Friday’s retail sales data.

-- Written by David Scutt

Follow David on Twitter @scutty

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