The EUR/CHF exchange rate continued its strong downtrend as focus shifted to the upcoming European Central Bank (ECB) and Swiss National Bank (SNB) interest rate decision. It retreated to 0.9276 on Monday, down by 6.57% from its highest level this year.
European Central Bank decision
The main catalyst for the EUR/CHF exchange rate will be the upcoming interest rate decision by the ECB scheduled on Thursday.
This decision will come at a time when the European economy is not doing well. In Germany, the coalition government is facing issues and may collapse. Just last week, Michel Barnier’s government in France collapsed too.
At the same time, some key European economies, especially Germany and France are not doing well. Data released last week showed that the German manufacturing and services PMI numbers remained below 50 in November, a sign of contraction.
Another report showed that the German industrial production retreated slightly in October, continuing a trend that has been going on for a while. Many German industrial companies like BASF, Bayer, and Volkswagen are not doing well and have hinted that they will cut their workforce.
Therefore, analysts expect that the ECB will continue cutting rates in a bid to support the economy. If this happens, it will bring the rate cuts so far to about 1%. The bank may also hint that it will cut more rates next year since inflation has largely moved to the 2% target level.
Swiss National Bank decision
The other key catalyst for the EUR/CHF exchange rate will be the SNB decision on Thursday. The bank is facing a unique challenge in that its currency has rallied too much against the euro and the US dollar.
Switzerland is mostly an export-driven economy that does well when the local currency is fairly weak. Therefore, most analysts believe that the bank will continue to cut interest rates in this meeting in a bid to devalue the currency.
It has already delivered three cuts this year, moving the benchmark rate to about 1%. Thee are signs that these cuts will continue to about zero percent next year.
The SNB’’s challenge is that it is attempting to devalue the currency at a time when it is seeing more demand as global risks rise. Analysts believe that the Swiss franc is a better alternative to the US dollar.
EUR/CHF exchange rate analysis
EUR/CHF chart by TradingView
The daily chart shows that the EUR/CHF exchange rate has been in a strong downtrend in the past few months. It has remained below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears are in control.
The Relative Strength Index (RSI) has moved below the neutral point at 50, while the MACD has dropped below the zero line. Therefore, the path of the least resistance for the EUR to CHF exchange rate is downwards, with the next point to watch being at 0.9200.
The bearish view will become invalid if the EUR to CHF exchange rate rises above the key resistance level at 0.9300, its lowest swing on September 10.
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