There are plenty of ways to track the latest concerns around France and Europe, and we’ve already talked about some this week:
- Macro pulse: France-Germany yield spread breakout puts euro area contagion risk in focus
- Connecting the dots: How France’s budget problems are turning into the euro’s problem
In adding to that, I think EUR/CHF is quietly becoming one of the better charts for doing so as well. Unlike EUR/USD, there is less need to disentangle the story from Fed expectations or swings in the dollar. The message here is arguably much cleaner considering the precedence that when investors become more nervous about European risk, the safe haven Swiss franc tends to benefit from it.
And that seems to be what we are seeing play out over the past week.
EUR/CHF was testing the 0.9475-80 region only recently before being slammed lower, briefly falling through 0.9300 as worries around France’s fiscal position intensified.
The move lower lines up with the broader market story. French borrowing costs have surged as investors question how easily lawmakers can bring its budget deficit under control. Meanwhile, the widening gap between French and German bond yields has raised the uncomfortable question of whether the stress could spread elsewhere across Europe.
That makes EUR/CHF worth watching but the technical picture above adds another layer to the story.
As seen with the chart, the 0.9300 area is doing a lot of work in holding the pair up for now. The level sits nearby the 19-20 August low around 0.9307 and also coincides with the 100-day moving average (red line) now at 0.9300. Just below that, there is also the trendline support from the March to May lows to deal with.
The fact that EUR/CHF has bounced back to around 0.9335 after briefly breaking beneath the figure level shows that buyers are still putting up a fight.
Having said that, I wouldn’t dismiss that sharp drop as being just noise.
If the 0.9300 level gives way more decisively, attention would quickly turn towards the 200-day moving average (blue line) at 0.9236 next before the 0.9200 level comes into play. And fundamentally, another leg lower would send a strong message to traders that when markets are looking for protection from European fiscal risk, Switzerland remains one of the places they are finding it.
This article was written by Justin Low at investinglive.com.