Swiss Franc Attracts Speculators as Brexit Issues Hamper GBP/CHF, EUR/CHF Charges

Swiss Franc Forecast Overview:

• The Swiss Franc has attracted capital flows in the course of the Brexit saga at any time when it seems extra probably {that a} ‘no deal, exhausting Brexit’ will happen.
• GBP/CHF charges are holding at trendline help courting again to the yearly low, whereas EUR/CHF charges are nonetheless contending with the symmetrical triangle consolidation.
• Per the IG Shopper Sentiment Index, the Swissie has a bullish bias towards the Euro and a impartial bias towards the US Greenback within the short-term.

Franc is Europe’s Protected Haven

The Swiss Franc has been a major beneficiary of early-month buying and selling in December, with the secure haven surging forward of its European counterparts in latest days. After all, there’s an elephant within the room: Brexit. And given the latest information movement popping out of Brussels, it seems that a deal is coming all the way down to the wire (even when UK Prime Minister Boris Johnson kicks the can and strikes the goalposts, once more).

The Swiss Franc has attracted capital flows in the course of the Brexit saga at any time when it seems extra probably {that a} ‘no deal, exhausting Brexit’ will happen. Sparked by the short-term change in information movement round Brexit, GBP/CHF charges are holding at trendline help courting again to the yearly low, whereas EUR/CHF charges are nonetheless contending with the symmetrical triangle consolidation.

GBP/CHF RATE TECHNICAL ANALYSIS: DAILY CHART (December 2019 to December 2020) (CHART 1)

GBP/CHF charges have been the epicenter for concern round Brexit, with the pair shedding round -3% from its late-November highs by at this time. Assist has been discovered initially of this week twice on the rising trendline from the March, September, and October lows, suggesting that merchants are unwilling to throw within the towel on a possible bullish transfer increased.

However it could’t be denied that bearish momentum has accelerated within the near-term, with GBP/CHF charges buying and selling beneath their day by day 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Every day Sluggish Stochastics are holding on the precipice of oversold territory, whereas day by day MACD is shortly declining and has simply began to maneuver beneath its sign line.

No matter buying and selling persona or model, the present setup doesn’t seem interesting when considered in context of the sideways channel that has shaped courting again to June: GBP/CHF charges are in the course of a spread, neither close to help nor resistance throughout the consolidation. Accordingly, it’s too quickly to counsel that GBP/CHF charges could not swing again increased, significantly if information breaks {that a} Brexit deal comes collectively – actually something above ‘no deal,’ that’s how low the bar is correct now.

EUR/CHF RATE TECHNICAL ANALYSIS: DAILY CHART (December 2019 to December 2020) (CHART 2)

In our final replace, EUR/CHF charges started to advance out of a symmetrical triangle in place since mid-Might, following the break of the downtrend from the 2018 and 2019 highs. However EUR/CHF’s check of the 23.6% Fibonacci retracement of the 2018 excessive/2020 low vary at 1.0857, and furthermore, the world between 1.0857 and 1.0878 which produced a number of tops in latest months, finally noticed the EUR/CHF bullish breakout try fail.

It was additionally famous that “features by 1.0878 within the coming weeks would supply a robust sense of confidence that not solely is the symmetrical triangle bullish breakout gaining tempo, however {that a} longer-term bottoming effort has been commenced,” however such a growth by no means occurred.

For now, weak spot throughout the symmetrical triangle is again in play, suggesting that EUR/CHF charges might fall again in direction of 1.0700 over the approaching weeks. Granted, information of a Brexit deal might spur a bullish reversal in EUR/CHF charges nicely earlier than reaching 1.0700, given how low expectations are for any deal rising at this juncture.

IG Shopper Sentiment Index: EUR/CHF Charge Forecast (December 8, 2020) (Chart 3)

EUR/CHF: Retail dealer knowledge exhibits 56.00% of merchants are net-long with the ratio of merchants lengthy to brief at 1.27 to 1. The variety of merchants net-long is 7.01% increased than yesterday and 34.40% increased from final week, whereas the variety of merchants net-short is 6.45% increased than yesterday and 11.41% decrease from final week.

We usually take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests EUR/CHF costs could proceed to fall.

Merchants are additional net-long than yesterday and final week, and the mix of present sentiment and up to date modifications provides us a stronger EUR/CHF-bearish contrarian buying and selling bias.

Learn extra: Euro Rally Pauses as Brexit Lingers – Outlook Stays Bullish for EUR/USD, EUR/JPY Charges

— Written by Christopher Vecchio, CFA, Senior Foreign money Strategist