According to the data published yesterday, consumer price index (CPI) in Switzerland in May increased by 0.1% compared to April (with forecast at 0.2%, and compared to 0.3% in April). Compared with the same period last year, consumer prices fell 0.4% in May. It is likely that the long period of deflation in the country is still far from ended. However, USD/CHF continues to decline amid the general weakening of the US dollar on the currency market. After disappointing May NFPR data in the United States, published last Friday, investors have already ruled out raising interest rates in June and are revising the likelihood of the Fed tightening policy in July. Investors still consider it unlikely that the Fed would raise interest rates in the next few months. It is very likely that the Fed could refrain from raising interest rates in 2016 at all. On Wednesday the US dollar fell to its lowest level in five weeks. WSJ dollar index, which tracks the US dollar's value against the basket of 16 currencies, recently fell 0.5%, to 85.57, the lowest level since May 3.
The main suspense of the month – the referendum on Britain's membership in the EU – results in the increase in demand for safe-haven assets such as gold and the yen. Despite the fact that the franc's role as a safe-haven currency has weakened in recent years, it is in high demand amid the upcoming referendum in the UK and the general weakening of the US dollar on the market.
However, USD/CHF pair is very close to the strong support levels near 0.9580, 0.9520 (see the article «Technical Analysis»).
If the current growth of the franc is short-lived, the SNB may have recourse to intervention on the foreign exchange market to stabilize the franc.
If the flow of capital into Switzerland continues, the country's central bank may have to lower the rate on deposits from the current level of 0.75% by at least another 50 basis points.
In any case, it is necessary to exercise caution when opening orders near the level 0.9500, especially when selling the pair.