EUR/CHF Probing Nearly 5-Year Lows at 1.06 – More Downside to Come?
Matt Weller, CFA, CMT February 19, 2020 11:14 AM
At the moment, it’s hard to argue against the strong bearish trend in EUR/CHF...
As the world's most widely-traded currency pair, EUR/USD is understandably garnering all the headlines as it extends its historic drop; indeed, the pair has now closed lower in 11 of the past 12 days, and rates on track to run that streak to 12 of the last 13 days as of writing.
That said, the drop in EUR/CHF is no less impressive. Despite a reputation for relatively low volatility, the exchange rate between the major mainland European currencies has dropped over 400 pips in a little over two months to trade near 1.0600, its lowest level in nearly half a decade! Much of the move is due to weakness on the euro side of the pair stemming from soft economic data and the potential for additional ECB easing this year, but FX traders would be wrong to dismiss demand for the Swiss franc.
Over the last three months, Switzerland’s currency has gained ground against every one of its major rivals. Not coincidentally, this move coincides with gold’s rally off its local bottom near $1450; as a fellow “safe haven” asset which the Swiss National Bank holds in abundance, gold tends to be highly correlated with the Swiss franc, as the 50-day correlation coefficient in the chart below shows:
Source: TradingView, GAIN Capital.
At the moment, it’s hard to argue against the strong bearish trend in EUR/CHF. Beleaguered bulls will point to the slight bullish divergence in the RSI indicator and previous support in the 1.0620 area, but the strength of the selling pressure could easily overcome those slight bullish arguments. If rates are able to break conclusively below 1.0600, sellers could turn their eyes toward the psychologically significant 1.0500 area next. At this point, only a break above the 21-day MA and bearish channel in the 1.0675 area would erase the market’s bearish bias.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.