- The Swiss Franc catches a bid on the back of safe-haven demand after the Red Sea becomes a no-go area, following Houthi attacks.
- Major shipping firms have rerouted their ships to go around the Cape of Good Hope to avoid the attacks.
- Swiss Franc pairs resume their bearish bias as haven demand supports the CHF.
The Swiss Franc (CHF) traded overall higher on Monday due to safe-haven demand as sentiment soured on global trade fears sparked by the Middle East geopolitical tensions.
Fears regarding global trade ratcheted up after the Iran-backed Houthi militia launched a drone attack on a Maersk shipping vessel in the Red Sea on Saturday. This led the company to reroute all its shipping vessels via the Cape of Good Hope. Other companies, including British Petroleum, followed suit.
Daily digest market movers: Swiss Franc gains after risk aversion ratchets up
- The Swiss Franc edges higher versus the US Dollar (USD) on Monday as geopolitical concerns support the safe-haven Franc.
- At recent central bank meetings, Federal Reserve (Fed) Chairman Jerome Powell mentioned interest rate cuts had been discussed, weighing on the US Dollar.
- This contrasted with the more hawkish tone of the Chairman of the Swiss National Bank (SNB) Thomas Jordan who seemed to imply policy would remain restrictive for the foreseeable future.
Swiss Franc technical analysis: USD/CHF resumes broader downtrend
USD/CHF – the number of Swiss Francs that one US Dollar can buy – continues trading around the December lows.
The pair is arguably in a downtrend now on all major time frames, suggesting bears are fully in charge and further price weakness is probable.
US Dollar vs Swiss Franc: Daily Chart
If a break below the December lows holds, the pair may well continue falling toward the next target at the July 2023 lows of 0.8552. Beyond that, further weakness could drag the pair down to 0.8500 and beyond.
The Relative Strength Index (RSI) is showing bullish convergence at the lows when compared to the December 4 lows. The RSI is not as low as it was earlier in the month despite price making a lower low during the December 14 sell-off.
Daily digest market movers: Swiss Franc falls to Euro as Lagarde’s hawkish comments resonate
- The Swiss Franc weakened against the Euro on Monday despite more lackluster data from the Eurozone.
- German business confidence deteriorated in December, following two consecutive improvements, according to data released on Monday. The IFO Business Climate Index dropped unexpectedly in December, with the sentiment about the current economic situation and the near-term expectations posting lower levels than in the previous month.
- “These figures come after the downbeat PMI figures seen late last week and the contracting Gross Domestic Product (GDP) seen earlier this month, confirming the view of an upcoming economic slowdown.” Said FXStreet analyst Guillermo Alcala in a note on the Euro on Monday.
- The Single Currency may be finding support after the hawkish comments from European Central Bank (ECB) President Christine Lagarde last week, who said rate cuts had not been discussed “at all” during the meeting.
Swiss Franc technical analysis: EUR/CHF trends higher in the short-term, but longer-term horizon still bearish
EUR/CHF – the number of Swiss Francs that one Euro can buy – is rising marginally on Monday.
The medium-term trend is still either sideways or bearish. Nevertheless, the MACD momentum indicator is likely to execute a bullish crossover given a positive close on Monday, indicating probable strength to come.
A decisive break above 0.9600 would probably indicate a break above the resistance cap from the 50-day and 100-day Simple Moving Averages (SMA) and leave the way open to further upside to the top of the range at around 0.9685.
Euro vs Swiss Franc: Daily Chart
A decisive weekly-bar break below the 0.9403 multi-year low would reconfirm the long-term bearish bias and see prices fall into uncharted territory, with major whole numbers then expected to provide support at 0.9300, 0.9200 and so on.
Daily digest market movers: Sterling edges lower against Swiss Franc as risk appetite recedes
- The Swiss Franc gains against the Pound Sterling (GBP) on Monday after growing tensions in the Middle East led to a flight to safety, advantaging the Franc over the Pound.
- At its recent meeting, the Bank of England (BoE) noted that inflation remains persistently high, suggesting rates will also need to stay high for longer, benefiting the Sterling.
- The Swiss National Bank also continues to strike a hawkish tone after Chairman Thomas Jordan dismissed the possibility of another cut and suggested rates would remain at current levels for the foreseeable future.
Swiss Franc technical analysis: GBP/CHF back in the middle of its range
GBP/CHF – the number of Swiss Francs that one Pound Sterling can buy – pressures the floor of an over-month-long range on the 4-hour chart, used to analyze the short-term trend. It is also sideways on long-term time frames.
Pound Sterling vs Swiss Franc: 4-hour Chart
The MACD has recently crossed below its signal line whilst above the zero line, giving a bearish short-term signal and could signify more losses to come.
A break below the 1.0960 lows of the attempted downside breakout on December 14 would reconfirm more downside, leading to a more concerted sell-off as the range floor finally gives way. Such a move would be expected to reach a target at the very least as far down as the 61.8% extrapolation of the height of the range at 1.0895.
A break above the 1.1085 resistance zone, meanwhile, would be required to invert the bearish outlook to a more bullish short-term picture.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
Source: https://www.fxstreet.com/news/swiss-franc-pairs-haven-demand-from-geopolitics-pushes-chf-higher-202312181644