Top Story

EUR/CHF hits highest since 2015 SNB floor removal

It might not be on every trader’s radar, but the EUR/CHF has reached its highest level since the Swiss National Bank’s decision to scrap its 1.20 floor in January 2015. At a good 1.1560, this once popular pair is now less than 450 pips from reaching 1.20 again. The EUR/CHF’s rise has been mainly attributable to a stronger euro this year than a weaker franc, although the latter has also underperformed in recent months. Thanks to an improving Eurozone economy and higher levels of inflation, the pressure has been growing on the European Central Bank to tighten its extra-ordinary loose monetary policy. This has put upward pressure on the shared currency. But unlike the Eurozone, there has been no signs of inflation in the Swiss economy. This has allowed the SNB to maintain an extremely loose monetary policy stance and active in the currency markets as it tries to put downward pressure on the franc.

Despite the EUR/CHF’s recovery after its sudden drop when the floor was removed, the franc still remains overvalued against the euro, according to the SNB. Although the central bank chose to change the wording from “significantly overvalued” to “highly valued” at its latest policy statement last week, the diverging policy stances of the ECB and SNB means that the EUR/CHF could still rise further in the coming weeks and months. An eventual return to 1.20 – which would effectively close that void left behind after the removal of the floor – would not come as surprise to us. The key risk to this outlook is if we see a sudden rise in risk aversion, say as a result of a stock market correction or some geopolitical event. This would undoubtedly boost the franc as it is deemed by many as a safe haven currency.

But for now the path of least resistance for the EUR/CHF is clearly to the upside. Indeed, with price breaking out to a new 2.5 year high, the chart is telling us that rates want to push further higher than lower. With that in mind, our next bullish objectives are at 1.1610/15 and 1.1705/10, the 127.2 and 161.8 per cent Fibonacci extension levels of the last (mini) correction. If after these targets are hit and depending how and when price gets there, the 1.20 handle could be the next key objective. Meanwhile the first area of support now is seen around 1.1500 to the 1.1537 area. But if the 1.1500 level breaks then we may see a deeper pullback before the uptrend resumes. A couple of longer-term support levels reside around 1.1200 and 1.1090.  

Source: eSignal and FOREX.com.

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.