The EURCHF currency pair witnessed a compelling surge during Wednesday’s trading, marking a 32 basis point uptick to halt a two-day decline. This surge unravelled against the backdrop of shifting sentiments surrounding safe-haven currencies, notably as the Swiss Franc lost traction amidst a broader market shift towards riskier assets.
The Federal Reserve’s decision to pause interest rates and its dovish stance triggered this shift, impacting not only the US dollar but also safe-haven currencies like the Swiss Franc. Subsequently, the Swiss National Bank (SNB) maintained its anticipated interest rate pause at 1.75%, a move coinciding with Switzerland’s inflation registering a significant slowdown, dropping to 1.4%—30 basis points below October’s figure and notably beneath the country’s ceiling.
Attention now swivels toward the European Central Bank (ECB), poised for its interest rate decision today. Market expectations lean towards the ECB maintaining its interest rate at 4.5%, reflective of its success in taming inflationary pressures.
An intriguing aspect surfacing from this landscape is the potential influence of interest rate differentials on the EURCHF pair. With higher interest rates prevailing in the Eurozone compared to Switzerland, shifts in risk appetite might favour the Euro against the Swiss Franc, creating a pivotal dynamic influenced by diverging monetary policies.
Technical
The EURCHF currency pair has embarked on a fascinating journey, poised for a potential second consecutive positive week after navigating through recent fluctuations. A setback emerged as the Euro weakened, propelling the pair below its critical 100-day moving average and initiating a downtrend.
Amidst this descent, a support level materialized at the 0.94172 level, underpinned by oversold conditions on the Relative Strength Index (RSI). This support set the stage for an impressive surge in price action, briefly halting at the 0.96838 resistance before a sharp downturn ensued, precipitating a nearly 2% plunge three weeks ago.
The pair’s retracement to retest the support encountered opposition, echoing the dynamics of the initial formation of this support level as demand outweighed supply at the price level. As a potential reversal takes shape amid oversold RSI conditions, market attention could centre on the 50% retracement level, a potential short-term point of interest, should upward momentum persist. Conversely, should market sentiment tilt towards renewed downward momentum, the 0.94172 support level could resurface.
Summary
The EURCHF’s recent bounce, triggered by shifting sentiments in safe-haven currencies amid a dovish Fed and SNB’s stance, hints at a potential uptrend. The reversal from support at 0.94172 could bring the 50% level into the spotlight.
Sources: Federal Reserve, Swiss National Bank, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
