• USD/CHF has dropped as the risk-off impulse is losing strength.
• A full-blown recession in the US economy could trigger a 15-20% fall in S&P500.
• A meaningful decline in the US PPI might trim inflation projections further and will also weigh on wage growth ahead.

The USD/CHF pair has sensed selling pressure after failing to surpass the critical resistance of 0.9280 in the early Asian session. The Swiss franc asset has picked offers and has dropped to near 0.9240. It seems that the risk-off impulse is fading away as the United States markets will open today after a stretched weekend on account of Martin Luther King Jr. Day.

On Monday, the S&P500 futures witnessed a moderate fall amid holiday-inspired anxiety among the market participants. No doubt, the 500-stock basket is displaying signs of recovery from the past few weeks as the Federal Reserve (Fed) is expected to reach the terminal rates sooner and is looking to trim the pace of hiking interest rates. However, price stability could not be achieved without entering into a recession in the United States economy.

Economists at UBS think that the upcoming 4Q corporate reporting season will provide a reality check. “Earnings headwinds – an aggressive Fed, a normalization in demand for goods popular during the pandemic, a stronger USD, and higher costs because of more expensive labor – have become strong enough for us to expect no growth in S&P 500 4Q earnings per share compared to the same period last year. The downside risks remain elevated, and stocks could fall 15-20% if the economy enters a full-blown recession.”

The US Dollar Index (DXY) turned sideways around 102.00 after a firmer recovery move from the fresh seven-month low at 101.36. The USD Index is likely to be guided by the release of the US Producer Price Index (PPI) data, which is scheduled for Wednesday. A meaningful decline in the US PPI might trim inflation projections further and will also weigh on wage growth ahead.

Meanwhile, investors are awaiting the commentary from global officials at World Economic Forum, happening in the Swiss Franc region. On the economic front, the absence of major triggers in the economic calendar this week will keep the focus of investors on the US economic calendar for any action.