After nearly a year of consolidation, the Swiss Franc looks poised for a breakout versus the US dollar as September approaches.Although summer trading volumes are significantly lower on a seasonal basis, sliding volatility and falling volumes may indicate the potential for a breakout should a fundamental catalyst trigger a new round of directional momentum.However, with the Federal Reserve unlikely to make a move in its next policy meeting and the Swiss economy mired in deflation, any near-term breakout will be contingent on a black swan event coming to fruition.While the Swiss have dedicated their own policies to preventing the same scale of inflows that drove the Franc higher during previous market flight to safety moves, the relative stability and safety of the Swiss economy and political structure still make it an attractive haven.As a result, any new flight to safety could push USD/CHF lower.

Accommodation Prevails

With neither the US Federal Reserve nor the Swiss National Bank taking any steps to adjust policy over the last 6-months, it is clear that accommodative policy measures are set to remain in place for at least the near-to-medium term.While the pace of deflation in the headline Swiss CPI figure has gradually decelerated, with the figure recently printing at a 20-month high and pushing towards positive territory, weak GDP growth implies no imminent upward pressure on rates is anticipated.Negative interest rates have helped deflect the impact of deflation and reduce the strength of the currency, however, growth has seen little upside since implementation in January of 2015, underscoring the challenges facing global central banks as they try and fight sluggish growth and low inflation.Although there is potential for higher Swiss rates during the first half of 2017, it depends largely on a significant rebound in economic activity.

Meanwhile, the outlook for the American economy remains no clearer than expected conditions in Switzerland.The Federal Reserve’s heavily restated “data dependence” emphasis has seen the dollar continue to lose ground recently amid a spate of weak fundamental indicators.Furthermore, speculation is high that the FOMC will not act on rates before the end of the year, with Fed Funds futures pricing not pricing in a rate hike probability above 50.00% before May of 2017 at the very earliest.Considering the deferred time frame anticipated by financial markets, the only real catalysts for a directional breakout near-term remains considerable weakness in the US dollar or a volatility trigger that sends investors scurrying to the perceived safety of the Swiss Franc.On this basis alone, there is a higher propensity for the USDCHF pair to find itself trending lower in the absence of improving US data.

Technically Speaking

At the moment, there is little in the way of a directional bias for the USD/CHF pair as it continues to trend within a triangle consolidation that has been intact for the better part of the last year.However, there are multiple signs that a breakout is waiting in the wings in the comings days and weeks.For one, trading volumes continue to progressively fall, usually a leading indicator that a breakout and increased price momentum is waiting around the corner.Furthermore, falling volatility adds to the confidence that a major move is about to precipitate once there is a directional move outside of the triangle.  The consolidation sees the trend lines converging in the middle of November, meaning that between now and then, any candlestick close outside of the triangle that accompanied by an uptick in volume and momentum is a likely breakout.

Apart from the ongoing consolidation in USD/CHF, the pair is also trending below its 50 and 200-day moving average which are currently acting as resistance against any upside rebound.Furthermore, the moving average crossover that transpired back in early April is feeding the more bearish bias in the currency pair.The first target of any downside breakout will be support sitting between 0.9530 and 0.9500 with the current upward trend line serving as the entrance point and exit strategy for bearish positions.However, should both the 50 and 200 day moving averages be broken to the upside along with the downward trend line, the next reasonable target on the upside is resistance at 0.9945 and 0.9990.In the meantime however, barring any major event that spurs price momentum, expect USD/CHF to continue trending within the consolidation.

Looking Ahead

After only a limited reaction to US CPI figures which saw US consumer inflation fall to the slowest pace of annualized expansion in 7-months, there are few events in the sessions ahead that will likely move the needle on USD/CHF price action.The following week will be more exciting upon the release of US durable goods followed by the revised reading of second quarter GDP.By comparison, the next major Swiss data is due September 6th with a second quarter GDP reading which will be trailed by a Swiss National Bank decision on September 15th.However, no major changes are anticipated between now and then for fundamentals of either country, potentially leading to a sustained consolidation.Considering the slightly bearish bias in the pair, in the event of a major risk-off event, USD/CHF might break through the upward trend line, setting the stage for a new directional trend.