For the second time in the last two years, the EURCHF level of 1.05 was not broken. In the spring of 2020, this required the interventions of the National Bank. However now the regulator is no longer actively interfering in Forex. Let’s discuss the Forex perspective and create a trading plan.
Quarterly Swiss franc fundamental forecast
When one looks at one point all the time, it’s hard to see what’s going on in other places. The attention of investors in Forex is so focused on withdrawal of monetary stimulus from the Fed and the related strengthening of the US dollar that other events are often in vain ignored. It is noteworthy that the euro fell below 1.05 against the Swiss franc for the first time since summer 2015. Traders are once again testing the strength of the SNB. In the spring of 2020, the bank passed the test with flying colors, but in 2021 it may abandon currency interventions.
Swissy is traditionally perceived as a safe haven asset in Forex. That is why the growth of political and geopolitical risks, especially in Europe, often leads to its strengthening. In this regard, widening yield spreads for peripheral Eurozone bonds with their German counterparts is a strong argument in favor of EURCHF sales.
Investors are sensitive to the return of the Brexit issue, including threats from the UK to use Article 16 of the Brexit deal due to tensions over Northern Ireland and the deteriorating epidemiological situation in Europe. Germany is facing the fourth wave of the pandemic and is reporting a record number of COVID-19 cases per 100,000 people, while Austria is imposing severe restrictions on the unvaccinated. How not to panic in such a situation? Don’t forget about the April 2022 presidential election in France. Although Emmanuel Macron is still leading in opinion polls, the intention of hedge funds to cover the risks will certainly keep the franc in the middle.
The increase in real Swiss bonds and the related capital flows into the country support the Swiss. Unlike most countries in the world, Switzerland has so far managed to prevent inflation from accelerating. It accelerated to 1.3% in October, but it is still very far from the 2% target. At the same time, SNB forecasts for consumer prices for 2021 at 0.5% and for 2022 at 0.7% suggest that the central bank may not use currency interventions to retain. EURCHF bears.
Dynamics of inflation in Switzerland and SNB interest rate
Source: Business Economics.
Trying to prevent inflation above 2%, the regulator should support the idea of frank strengthening. Strong national currency limits the rise in import prices and prevents the CPI from accelerating. In this regard, comments from SNB officials that the strong Swissy is holding back inflation may indicate their satisfaction with Forex developments.
Quarterly EURCHF business plan
On the other hand, Switzerland is threatened by a combination of slow GDP growth and higher price levels, stagflation. Under such conditions, strengthening the currency could negatively affect exports and further slow down the economy. In my opinion, SNB thinks this is a lesser problem and will not strive EURCHF level 1.05 as before. This increases the risk of the pair falling to 1,033 and 1,026. The reason for the formation of shorts may be a rebound of the resistance at 1.055, 1.058 and 1.062, or a break of support at 1.045.
EURCHF price chart in real-time mode
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