CFD Trading Rate Euro vs Swiss Franc (EURCHF)

• EUR/CHF appreciates after SNB unexpectedly cut rates by 50 basis points, doubling market expectations of a 25 basis point cut.
• SNB Chairman Schlegel highlighted that rate cuts remain the primary tool for monetary easing if further adjustments are required.
• Traders expect the ECB to deliver a quarter-basis point rate cut later on Thursday.

EUR/CHF gains ground following the SNB Monetary Policy Assessment, trading around 0.9340 during the European hours on Thursday. The EUR/CHF cross appreciates as the Swiss Franc (CHF) faces challenges as the Swiss National Bank (SNB) unexpectedly cuts its benchmark Sight Deposit Rate by 50 basis points (bps), lowering it from 1.00% to 0.50%. This decision caught markets off guard, as consensus had anticipated a smaller 25 bps reduction to 0.75% for the quarter ending in December.

In its Monetary Policy Assessment, the Swiss National Bank emphasized its readiness to intervene in the foreign exchange market when necessary. The SNB reaffirmed its commitment to closely monitoring economic developments and stated that it would adjust its monetary policy as needed to ensure inflation remains within the range consistent with medium-term price stability.

SNB Chairman Martin Schlegel addressed the surprise rate cut during the post-policy meeting press conference, explaining the rationale behind the decision. Schlegel emphasized that rate cuts remain the primary tool for monetary easing if further adjustments are required. He also noted that the current monetary easing aims to counteract reduced inflationary pressures. Additionally, he reaffirmed the SNB's readiness to intervene in foreign exchange markets when necessary.

In the Eurozone, the European Central Bank (ECB) is set to announce its interest rate decision following the December monetary policy meeting later on Thursday. Markets widely anticipate a 25 basis point rate cut, reducing the Main Refinancing Operations Rate to 3.15% from 3.40% and the Deposit Facility Rate to 3.00% from 3.25%.

Traders will closely monitor ECB President Christine Lagarde's press conference following the policy decision, where she is expected to present a prepared statement on monetary policy and address questions from the media.

This Thursday, the Swiss National Bank will likely be cutting rates a few hours before the ECB, ING’s FX analyst Chris Turner notes.  

SNB has little room for manouevre

“We are a little surprised to see the market pricing 36bp for the SNB decision. We think a 25bp cut is far more likely given that, with the Swiss policy rate already at 1.00%, the SNB has far less room for conventional policy easing. Indeed, there is a case that the SNB does not take rates below 0.50% in this cycle – even though market pricing is toying with the idea of negative rates next year.”

“Having stayed surprisingly bid during French political stress last week, EUR/CHF is now turning a little lower. Here we favour a grind lower towards this year's spike lows near 0.9200/9210 as it becomes apparent the SNB will not be able to keep pace with ECB easing.”  

• EUR/CHF mildly falls on Friday as markets digest Eurozone HICP inflation data for November. 
• The Euro weakens as it does little to change the outlook for interest rates , a key driver of FX valuations. 
• CHF gains marginally on stronger GDP growth data but hamstrung by comments for the SNB’s President Schlegel. 

EUR/CHF edges lower to trade on the 0.9300 handle on Friday after the release of Eurozone inflation data continues to suggest European Central Bank (ECB) members will cut interest rates at their December meeting despite the figures meeting economists’ expectations. Lower interest rates are negative for the Euro (EUR) since they decrease net capital inflows, and this puts pressure on the pair. 

The Swiss Franc (CHF) meanwhile, gains a mild tailwind after the release of Swiss Gross Domestic Product (GDP) data shows Swiss economic growth outstripped expectations, and accelerated in Q3 on a year-over-year basis. The effect is likely to be blunted, however, with comments from the President of the Swiss National Bank Martin Schlegel, last week, still fresh in traders' minds. Schlegel said that interest rates in Switzerland might fall below zero. Still, EUR/CHF has fallen into negative territory after both sets of data on the back of Swiss Franc outperformance. 

Eurozone inflation data decpetively high

The preliminary Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.3% YoY in November in line with expectations and above the 2.0% of the previous month, according to data released Friday from Eurostat. Core HICP rose by 2.8%, which was also in line with expectations. 

Despite appearing like inflation was rising, several analysts said the elevated November figures were almost entirely due to “base effects”. A base effect relates to the corresponding month of the previous year, if inflation was too low in that month it only requires a small rise for the data to show a large percentage increase in the current year. 

“The increase in headline inflation from 2.0% in October to 2.3% in November was in line with expectations and was almost entirely caused by a base-effects driven by an increase in energy inflation,” said Jack Allen-Reynolds, deputy chief Eurozone economist at Capital Economics. 

The view was shared by Anders Svendsen, chief analyst at Nordea, who said, “Inflation rises on base effects but remains on track to return to the ECB's inflation target in the first part of 2025, allowing the ECB to continue cutting policy rates towards neutral.”

Svendsen goes further to argue that inflation will likely fall to the European Central Bank’s (ECB) 2.0% target more quickly than the ECB is currently forecasting. 

“Markets and the ECB agree that inflation will close in on 2% but disagrees on the timing. We believe the ECB will change its forecast to reflect an earlier return to 2% at its meeting in December. With that outlook, the ECB can continue cutting policy rates to neutral,” he writes. 

Capital’s Allen-Reynolds thinks the November data marginally reduces the chance of the ECB making a double-dose 50 basis points (pbs) (0.50%) cut to rates in December, however, in spite of this, there is still a “good chance” of 50 bps reduction nevertheless, as well as lower rates further down the track. 

“The continued strength of euro-zone services inflation in November reduces the chance that the ECB will cut interest rates by 50 bps in December,” yet adds, “While we think there is a good case for the ECB to cut interest rates by 50bp in December, several influential members of the Governing Council seem opposed to the idea and the strength of services inflation will arguably bolster their case. But if we’re right that services inflation will decline in December and beyond, and that the economy will remain weak, we think bigger cuts will be on the cards sooner or later.”

France's budget woes a drag

A further drag on the Euro is the political risk around the French budget with Prime Minister Michel Barnier struggling to get stringent budget cuts passed through parliament because of his wafer-slim majority. 

The political battle highlights France’s weak fiscal position and has led to the spread in yields between French Government Bonds over German Bunds to widen by 82 bps, indicating outsized risks for French bond-holders.  

“French Prime Minister Michel Barnier will have to make more concessions to the budget bill to prevent the government from falling. Far-right National Rally President Bardella stressed yesterday that “other red lines” remained. In the meantime, French political uncertainty is not spreading to the rest of the Eurozone which limits the drag on EUR.”

CHF vulnerable on SNB rhetoric

EUR/CHF saw limited downside pressure after Swiss GDP data, even though it would have been expected to strengthen CHF. Swiss GDP recorded a 2.0% rise in Q3 YoY, above the 1.8% forecast and the 1.8% previously. QoQ GDP rose 0.4%, in line with expectations and below the revised-down 0.6% of Q2. 

The effect of the data was muted by growing expectations that the Swiss National Bank (SNB) will slash interest rates by 50 bps at its December meeting following comments from SNB President Schlegel in which he warned that negative interest rates cannot be ruled out. 

“The SNB has plenty of room to slash the policy rate as Swiss inflation is tracking below the bank’s Q4 forecast of 1.0%. Market is pricing-in about 60% probability of a 50 bps rate cut to 0.50% at the December 12 meeting,” said Elias Haddad, Senior Markets Strategist at Brown Brothers Harriman (BBH). 

• EUR/CHF might continue to decline towards the initial target generated by the Triangle pattern formed between August – October. 
• A textbook bullish Hammer reversal candle was not confirmed and downside risks remains.

EUR/CHF recovers after declining following a breakout from a Triangle pattern that started forming in August and completed in November (see chart). 

The pair reached lows of 0.9204 on November 22 but promptly recovered to form a bullish reversal candlestick pattern called a bullish Hammer (green rectangle on chart below). 

EUR/CHF Daily Chart

Despite being a classic example of a Hammer, the candle on EUR/CHF failed to gain bullish confirmation as it was not succeeded by a green up candle on the following day. 

Since then the market has been going sideways. 

There is still a risk EUR/CHF could resume falling again. It has not yet reached the conservative downside target for the Triangle at around 0.9146 (red dashed line), the 61.8% Fibonacci extrapolation of the height of the Triangle lower, and it is possible it may still fall down to that target in time.

A break below the Hammer’s lows at 0.9204 would increase the likelihood of the target being achieved.  

• EUR/CHF declines to new lows after breaking out of a Triangle pattern. 
• It is likely to continue lower according to technical analysis theory. 

EUR/CHF falls lower after breaking out of a Triangle pattern. It will probably continue to decline until it reaches the next downside target, which has been revised up to 0.9145 - 0.9150. This is the 61.8% Fibonacci extrapolation of the height of the Triangle lower, the target generated using technical analysis theory.  

EUR/CHF Daily Chart

The bearish trend prior to the formation of the Triangle (Since May 27) further tips the odds in favor of a downside evolution. 

Another potential support level and more conservative target is the key August 5 low at 0.9210. 

EUR/CHF remains on the low near 0.93, ING’s Chris Turner notes.  

EUR/CHF to grind towards 0.92

“In August we had felt that EUR/CHF would stay offered for the rest of the year and recent events only add to that conviction.”

“What interests us is whether the Swiss National Bank will take rates below 0.50% in this easing cycle (we think not). And spread compression should weigh on EUR/CHF as the ECB cuts rates 150bp into next summer.”

“Expect EUR/CHF to grind towards 0.92 – with the main risk now probably being an SNB official saying the policy rate could go negative again after all.”

• EUR/CHF confirms its downside breakout from a Triangle pattern. 
• It is likely to continue lower, especially given the bearish market action prior to the Triangle’s formation. 

EUR/CHF cements its bearish breakout from a Triangle pattern and declines. 

It has now fallen below the confirmation level for the pattern at 0.9339, the November 13 low, and will thus probably confirm more weakness down to the next downside target at 0.9132, the 61.8% Fibonacci extrapolation of the height of the Triangle lower. 

EUR/CHF Daily Chart
 

EUR/CHF has found support at the 0.9307 September 11 lows (red dotted line). A break below the low of Tuesday at 0.9304 would confirm more downside to the aforementioned target (red dashed line). 

The bearish trend prior to the formation of the Triangle (Since May 27) further tips the odds in favor of a downside evolution. 

• EUR/CHF is trading at the bottom of a Triangle pattern. 
• The pair looks vulnerable to breaking lower. 

EUR/CHF is probing the base of a Triangle pattern it has formed over the last three months (see chart below). It has broken below the bottom of the Triangle on an intraday but not a closing basis. That said, the base seems weakened and vulnerable to finally giving way.  

EUR/CHF Daily Chart

A break below the 0.9339 November 13 low would probably confirm more weakness down to  the next downside target at 0.9132, the 61.8% Fibonacci extrapolation of the height of the Triangle lower. 

The bearish trend prior to the formation of the Triangle (Since May 27) further tips the odds in favor of a downside evolution. 

• EUR/CHF is trying to break out of a Triangle pattern. 
• If it succeeds it will probably lead to further downside towards the price objective for the pattern.

EUR/CHF is attempting to break out of a Triangle pattern it has formed over the last three months (see chart below).

EUR/CHF Daily Chart

A bearish close on Tuesday will indicate a decisive breakout has happened and suggest the start of a likely strong decline. 

The market activity prior to the formation of the Triangle (Since May 27) further tips the odds in favor of a downside evolution. 

If EUR/CHF breaks below the 0.9307 level (September 11 lows) it will further confirm an authentic bearish breakout, with the next target to the downside at 0.9132, the 61.8% Fibonacci extrapolation of the height of the Triangle lower. 

• EUR/CHF has formed a Triangle pattern which looks poised to breakout
• A downside break is marginally more probable given the longer-term trend is bearish. 

EUR/CHF has formed a Triangle pattern over the last three months which looks like it is on the verge of completing as it tapers to a tip at around 0.9400. A breakout should soon follow. 

EUR/CHF Daily Chart

Since the market activity prior to the formation of the Triangle (Since May 27) was bearish and the longer-term trend is probably also down, the odds slightly favor a downside breakout. 

If EUR/CHF pierces below the lower boundary line of the Triangle and falls below the 0.9307 level (September 11 lows) it will probably confirm an authentic breakout. The next target to the downside would lie at 0.9132, the 61.8% Fibonacci extrapolation of the height of the Triangle lower. 

An upside breakout – though less likely – is possible. A move above the 0.9508 high of September 25 would probably confirm a bullish breakout and extend to the 0.9581 Fibonacci 61.8% target for the Triangle higher. 

The Average Directional Index (ADX) measures how strong the price is trending. At 14.13 it is currently relatively low, suggesting it will soon start rising again as price begins its next directional phase of development.