Chart of the day: The support level that could trigger a CHF buying spree
The Swiss franc (CHF) is emerging as the coronavirus safe haven currency after the Japanese yen weakened considerably last week, foregoing its usual safe haven status.
As the euro continues to weaken, we’re watching the downtrend in EURCHF, which has flattened at the 1.06060 level and will trigger a CHF buying-spree when it breaks support.
The CHF is the only G10 currency to have outperformed the USD over the past week. This is happening despite the Swiss National Bank’s (SNB) stimulatory efforts to minimise its strengthening against the weak euro. Further, the SNB’s interest rate is -0.75%. The US Federal Reserve has considerably more room to ease with a rate target of 1.5 - 1.75%.
Switzerland’s SNB is on the US Treasury’s watchlist of currency manipulators. It must proceed with caution to avoid antagonising the Trump administration. Cutting rates further instead of directly intervening would keep them in Trump’s good books.
Then consider the coronavirus risk emerging in Italy, which looms on the already weak euro. Italy has confirmed at least 150 cases and put 50,000 people across several small towns into quarantine. With virus risks and comparative easing prospects, the circumstances are tilted in favour of CHF strengthening.
Price trend remains within the boundaries of the channel that started on 2 December, however, the last eight candles have taken a notable consolidation with price moving sideways. Hovering at support at the 1.06060 level, the pair has little support below here, having been lower only once for a brief four months in H1 2015. A break of support here and EURCHF falls further as CHF buy orders kick in, bolstering the sell-off. One to watch.
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