EUR/CHF drops to key support as Swiss inflation spikes

The EUR/CHF price pulled back after the relatively stronger-than-expected Swiss consumer price index (CPI) data. It retreated to a low of 0.9925 as investors placed bets that the Swiss National Bank (SNB) will maintain its hawkish sentiment. It has retreated by more than 1% from its highest point this month.

SNB to maintain its hawkish tone

The EUR to CHF exchange rate retreated after the relatively stronger-than-expected Swiss inflation data. According to the country’s statistics agency, the headline inflation rose 3.4% in February, the highest level in decades. This increase was a few points above the median estimate of 3.1%. The agency attributed the jump to an increase in energy and food prices.

Swiss inflation growth has been modest than other European countries like Germany, France, and Italy. Analysts attribute this situation to several factors, including the fact that Swiss prices are usually higher than in other countries. Also, the government has implemented several interventions to protect consumers.

Analysts now believe that the Swiss National Bank will maintain its hawkish tone in the coming months. Expectations are that the bank will deliver another 50 basis point rate hike later this month. It has already hiked rates by 175 basis points in the past few months. Still, inflation expectations are that prices will remain above 2% for this year.

There will be no major economic data and events from Switzerland this week. Therefore, the main EUR/CHF news will be from the European Union. The bloc will publish the latest retail sales data while Philip Lane, ECB’s Lane will deliver a statement.

On Wednesday, Eurostat will publish the latest GDP numbers while Christine Lagarde will deliver a speech. Analysts expect that the ECB will continue hiking interest rates later this month.

EUR/CHF forecast

EUR/CHF chart by TradingView

The EUR/CHF price pulled back to an important support level at 0.9926, which was the highest point on February 17. It tested the upper side of the Ichimoku Cloud indicator while the Relative Strength Index (RSI) moved below the neutral point. The pair has moved below the neutral point of 50. It has also crossed the 50-day and 25-day moving averages.

The pair will likely continue falling as sellers target the next key support level at 0.9900. A move above the resistance point at 0.9970 will invalidate the bearish view.