Today, a rate cut is highly possible by the European Central Bank (ECB) with forward pricing of nearly 25 basis points. On the other hand, Barclays strategists anticipate that the Swiss franc will continue to decline as the Swiss National Bank (SNB) reduces interest rates faster than initially anticipated to undermine the currency and prevent excessive disinflation. As a result, price fluctuation in EURCHF currency pair is highly possible, creating a decent trading opportunity.
ECB Meeting: A Rate Cut Knocks
Despite the current rate cut by the ECB, June is still being determined, with a possibility of a second consecutive reduction in July. The likelihood of a third cut this year is still being determined, even though a second cut is nearly completely priced by October.
Additionally, international factors impact long-term pricing. Rates in the eurozone have decreased due to declining oil prices and weaker US data. Recent domestic data on negotiated wages and CPI suggest a more hawkish stance at the upcoming meeting, despite EUR markets contemplating a three-cut scenario for this year.
As a result, markets may reprice higher, However, they are expected to fluctuate between two and three cuts for the time being unless additional data provides more clarity. This uncertainty will also influence the longer end of the curve, with international factors playing a significant role, particularly in light of the forthcoming US employment data. This will determine whether the 10-year Bund yield can maintain above 2.6% in a hawkish ECB stance.
Switzerland's Inflation Is Supportive To Franc
The persistence of inflation in Switzerland is significantly lower than in other countries, posing substantial downside pricing risks. The strategists at Barclays have noted that this will likely result in the SNB cutting its policy rate again in June and promoting a weaker franc. As per the current data, the market anticipates a policy rate cut to 1.25% in June, with a probability of approximately 50/50.
Barclays strategists also predict that the SNB will implement an additional reduction later this year, potentially reducing the policy rate to 1%. These pressures could intensify if the franc appreciates while other major central banks reduce their interest rates yearly.
EURCHF Technical Analysis
In the daily chart of EURCHF, the most recent daily candle closed as an inside bar, suggesting that bears are still active in the market.
In the broader context, the recent bullish pressure above the 0.98364 high with an immediate bearish reversal signals a potential downside continuation opportunity.
In technical indicators, downside pressure is potent below the 50-day Exponential Moving Average, signaling a more bearish possibility in the coming days. However, the 200-day SMA is still below the current price and is acting as a major support.
Moreover, the Relative Strength Index (RSI) moved below the 50.00 level and is yet to test the 30.00 overbought line, while the MACD Histogram is firmly bearish.
Based on the daily outlook for EURCHF, a downside continuation is highly possible as long as the price trades below the 0.98364 static level. In that case, the immediate support level is at 0.95637 before reaching the 0.93500 area.
On the other hand, an immediate bullish reversal followed by the fundamental releases might change the trend at any time. The ideal long approach is to find the price above the 0.98500 with a daily close before aiming for the 1.01000 level.
