EUR/CHF 1.05 about to blow?

  • EUR/CHF bears are running head in with weekly support.
  • 1.050 could be a tough nut to crack from a technical perspective. 
  • SNB is potentially comfortable with a stronger CHF instead of hiking rates. 

EUR/CHF is turning heads in the currency markets at the start of the week as the bears take control and target an imminent break of the 1.05 key psychological level. At the time of writing, EUR/CHF is trading down 0.21% after sliding from 1.0546 to a low of 1.0515.

This is the lowest level since May 2020 for the euro against the safe-haven Swiss franc when EUR/CHF was at 1.0504. A double whammy of inflation fears and renewed concerns over the COVID-19 pandemic that is sweeping across mainland and eastern Europe in a fresh wave is pressuring the risk-sensitive markets.

Swiss National Bank governing board member Andrea Maechler said modest Swiss inflation, at an annual rate of around 1.2%, was capping the franc’s rise. But she reiterated the SNB’s commitment to currency market interventions designed to limit if needed, the effect that the Swiss franc’s strength has on Switzerland’s export-orientated economy.

CHF is a natural hedge against inflation

Deutsche Bank’s Robin Winkler argued that the franc is a good stagflation hedge, ”and the SNB are likely to be more tolerant of currency appreciation than in the past, considering it insurance against importing inflation from the Eurozone.”

”The rates market has been trying to price the first hike from the SNB next year, in sympathy with the ECB, but in our view the SNB will use the exchange rate, rather than the policy rate, to tighten policy.”

EUR/CHF technical analysis

While there are prospects of a break of 1.0500, there are prospects for a significant correction to the upside in the near future, from a technical standpoint. 

The weekly chart shows that the price has fallen for eight consecutive weeks without a correction. This is the longest weekly losing streak since the turn of 2010. While that in itself is not a reason to try and catch a falling knife, it does give rise to the prospect of a correction in the near future.

Profit-taking could emerge around a test of the 1.0500 level and result in consolidation and a phase of accumulation that could well target the July 202 lows that have a confluence with the 23.6% Fibo at 1.0605 and then the Nov 2020 lows that have a confluence with the 38.2% Fibo near 1.0660. On the downside, 1.0470 could be a stronger level of support according to the monthly chart should the bears conquer bullish commitments at 1.0500. 

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