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EUR/CHF Touches 3-Year Lows With More Scope for Downside

Euro, Swiss Franc, EUR/CHF Technical Analysis– TALKING POINTS

  • EUR/CHF is hovering at 3-year lows
  • Still scope for downside price action
  • What risks have catalyzed the selloff?

EUR/CHF Technical Analysis

After peaking in April 2018, EUR/CHF experienced an aggressive selloff and has declined over 10 percent. The pair is now hovering at three-year lows, and recent price action suggests there is scope for additional downside moves. The pair’s decline particularly accelerated after it broke September 2019 rising support (white-dashed line) while continuing to trade below the December descending resistance zone (red channel).

EUR/CHF – Daily Chart

EUR/CHF chart created using TradingView

Looking at a weekly chart shows EUR/CHF is approaching a multi-tiered floor between 1.0656 and 1.0717. If selling pressure is alleviated with the help of enthusiastic buyers, EUR/CHF may end up staging a recovery. However, the extent of the upside move may be curved by resistance at 1.0888 (gold-dotted line). Traders may therefore wait to see whether the pair clears or bounces back from upcoming support.

EUR/CHF – Weekly Chart

EUR/CHF chart created using TradingView

Fundamental Factors Favoring Swiss Franc

Part of EUR/CHF’s decline from a non-technical perspective has a lot to do with formidable fundamental risks that pressured the Euro throughout 2018 and 2019. This included Brexit, turbulent Italian politics and EU-US trade tensions to name a few. These anxiety-inducing risks caused investors to dump the Euro in exchange for its haven-linked counterpart, the Swiss Franc.

However, EUR/CHF has recently declined not so much due to Euro weakness but market-wide strength in the Swiss Franc. The US Treasury Department recently added Switzerland to its watchlist of currency manipulators amid the SNB’s interventions. Swiss policymakers have explained that the move is not to get a trade advantage but to avoid the negative effects a stronger CHF has on Switzerland’s export-based economy.

As such, investors are now anticipating that the SNB may not put a cap on the EUR/CHF exchange rate out of concern that it may anger Washington and be met with trade-related consequences. It is this fundamental force which may be behind catalyzing further downside breakouts in the pair. As such, monitoring this development will be crucial.

EUR/CHF TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter