The EURCHF currency pair recently broke a two-week losing streak in the first week of 2024. However, this uptick follows a notable trend with the Swiss Franc’s resilience, marking its sixth consecutive year strengthening against the Euro in 2023.
Behind this lies the Swiss National Bank’s (SNB) strategic policy favouring implicit franc appreciation, notably employed since June 2022 to combat imported inflation. Leveraging its substantial foreign exchange reserves and exceeding SFr100bn in interventions since early 2022, the SNB has consistently sold euros and dollars while buying back and fortifying the Swiss currency.
Meanwhile, Switzerland’s inflation surged beyond expectations to 1.7% in December, coupled with robust retail sales growth, signifying a steadfast economy. Conversely, the Euro Area’s inflation approached the European Central Bank’s 2% target, hitting 2.9% in December, while retail sales continued a downward trend, underscoring divergent economic trajectories.
The EURCHF currency pair has recently shown a persistent downtrend, as depicted by its movement below the 100-day moving average within a descending channel pattern.
December witnessed a significant resistance level at 0.94444 after a sharp selloff, while the decline found a temporary halt around 0.92537, coinciding with the channel’s lower boundary and oversold RSI conditions.
Though a modest recovery followed, the upside encountered resistance at the 38.20% Fibonacci Retracement level. Presently, the pair consolidates sideways within a rectangular pattern, suggesting a momentary equilibrium. An imminent breakout from this pattern, especially on high volumes, could indicate a shift in market sentiment. An upward breakout might target the 50% level, while a downside breach could see the retest of the 0.92537 level.
The EURCHF pair faces the Swiss Franc’s sustained strength, marking a sixth year of resilience against the Euro. The SNB’s strategic franc appreciation policy, bolstered by interventions and a robust economy, contrasts with the Euro Area’s diverging inflation and vulnerable economy. Technically, the pair’s downtrend within a descending channel pattern and its current consolidation signal potential market sentiment shifts, awaiting a breakout for further direction.
Sources: Swiss Federal Statistical Office, EUROSTAT, Financial Times, Reuters, TradingView
Piece Written by Nkosilathi Dube, Trive Financial Market Analyst
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