Swiss Franc stalls against Euro after mixed inflation data from the Eurozone

• The Swiss Franc trades flat against the Euro after inflation data shows a decline in some metrics but a rise in others. 
• Annual inflation falls whilst price growth accelerated on a monthly basis.
• The overall trend for EUR/CHF remains bearish with the possibility of a correction higher in the short-term. 

The Swiss Franc (CHF) traded flat against the Euro (EUR) on Friday after Eurozone inflation data painted a mixed picture in December. Whilst inflation came out below forecast on a year-on-year basis, it rose month-on-month. 

European Central Bank (ECB) President Christine Lagarde adopted a hawkish stance at the last ECB meeting, saying inflation pressures remained too high for the Governing Council to consider cutting interest rates. The policy echoes that adopted by the Swiss National Bank (SNB), whose Chairperson Thomas Jordan also sidestepped questions about rate cuts during his press conference on the same day.

Lower interest rates are negative for a currency as they reduce foreign capital inflows. 

Daily digest market movers: Swiss Franc trades flat versus Euro after mixed HICP data

• The Swiss Franc trades flat against the Euro at the end of the week, after mixed inflation data from the Eurozone.  
• The Harmonized Index of Consumer Prices (HICP), the ECB’s preferred gauge of inflation, came out at 2.9% in December on a year-on-year basis. 
• This was lower than the 3.0% estimated by economists but higher than the previous year’s 2.4%. 
• Core HICP also undershot expectations, registering a 3.4% gain versus the 3.5% expected and 3.6% previous.  
• On a month-on-month basis, however, Core HICP showed a rise of 0.4% against the 0.6% decline in November. 
• Headline HICP rose by 0.2% MoM after registering a 0.6% decline in November. 
• The so-called factory gate prices, which are measured by the Producer Price Index, showed a 0.3% decline in December on month, when a fall of 0.1% had been forecast. This was also lower than the 0.3% gain of November.

Swiss Franc technical analysis: EUR/CHF in firm downtrend but with risks of a correction higher

EUR/CHF – the number of Swiss Francs that one Euro can buy – shows a small recovery this week despite the overall bearish tenor of the chart. 

The pair is arguably in a downtrend on all major time frames – long, intermediate and short-term charts. This overall bearish bias pushes the odds in favor of more downside in the future.

Euro vs Swiss Franc: Weekly Chart 

If EUR/CHF breaks below the 0.9254 lows it will likely continue falling to the next support level at the 0.9200 round number. A break below that will then usher in further weakness to 0.9100. 

Several factors have emerged, however, which suggest the possibility of a correction higher happening first. 

The pair has reached the oversold zone on the Relative Strength Index (RSI) which classically means short-holders should not add to their positions. If RSI exits oversold, rising back above 30, it will be a sign the pair will rise and for traders to buy. 

Secondly, the pair has reached the lower trendline of a descending channel. This is likely to provide technical support to price and could be the springboard for a recovery back up towards the upper channel line at roughly 0.9500. 

Nevertheless, the pair is below its three major Simple Moving Averages – the 50, 100 and 200 and continues making lower lows and lower highs, which suggests any recovery may be short lived before the dominant downtrend resumes.