The dollar is higher across the board in an extension of Wednesday's move that was set off by a considerably more hawkish Fed than most market participants expected. The FOMC (via the dot plot projections) signaled that not one but two rate hikes in 2023 are on the cards, while most market forecasters were expecting one at the most. 

The strong reaction to the Fed announcement is a clear indication of a market that was positioned on the wrong side for the event. The first impression is that this is a paradigm shift in the Fx market and that the USD bearish leg from April and May is now over. 

The Fed has clearly signaled they will not tolerate higher inflation for too long and that they will not hesitate to raise rates if high inflation proves more persistent than initially expected. That was all the market needed to hear to bid the USD higher, and this new trend likely has scope to run further.

The technical picture shows us specific price levels where the dollar might be headed next. As usual, we'll examine the three most traded major pairs (EURUSD, GBPUSD, USDJPY) in our weekly analysis on Monday, while in today's newsletter, we'll take a look at a specific opportunity that could potentially provide the best risk-reward in the current environment – bullish USDCHF.

In line will the broad market, the dollar did some real damage here versus the Swiss franc and has taken the USDCHF pair some 200 pips higher from where it traded before the FOMC meeting.

The weekly and daily technicals confirm that this is likely the start of a new bullish leg. The price is moved swiftly higher on the Fed announcement and has continued to progress to the upside. USDCHF has now firmly moved above the strong resistance area of 0.9070 - 0.91. The weekly chart shows a giant bullish engulfing candle, which would only be undermined in the highly unlikely scenario of USDCHF closing the week below 0.91.

The target areas to the upside are the March high around 0.9450 - 0.95 area and then longer-term the monthly channel's resistance toward 0.98. 

However, there are factors that suggest caution in immediately chasing this rally higher. 

• Firstly, the longer intraday timeframes like 4H and 1H are at heavily overbought levels. 
• Second, USDCHF is nearing a moderate resistance zone at 0.9220 where the past lows meet with the 50% Fibonacci retracement (see chart). A pause and some consolidation at this stage would be healthy before the next leg higher.
• Third, the pictures on EURUSD and EURCHF, to which USDCHF is directly related and it's movements are often a function of, point that USDCHF is likely to hit a near-term wall and correct moderately lower. Namely, EURUSD has hit the 1.19 support zone, while EURCHF is near the 1.0940-1.0950 resistance. 
• For USDCHF to continue higher toward the 0.9450-0.95 target, EURUSD will need to break below 1.19 and move toward 1.16. Preferably EURCHF will be moving higher above 1.10 at the same time. But, with EURUSD at support and EURCHF at resistance, the mix argues for a near-term correction in USDCHF.

Although not confirmed yet, USDCHF is already showing some signs that the consolidation has started in that it is practically moving sideways since yesterday's evening. A break below 0.9150 would likely provide the confirmation that the "corrective" phase has started here. 

The potential entry areas lower to look for are 0.9100 (near the 38.2% Fib retracement) and then toward 0.9070 and 0.9050 (61.8% Fib retracement). Downside corrections should not move below 0.9050 for the current bullish setup to remain valid.

Entry: 

• Wait for some downside correction and look to enter at lower levels;
• 0.9100 is the first likely zone USDCHF might retest
• Although less likely, a deeper correction can go as low as the 0.9050 support zone

Stop: 

•  Below the 0.9050 support

Target:

• 1st: 0.9450-0.95
• Longer-term potential: 0.98

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