After a rough few weeks in October, the euro is finding a bit of reprieve against the franc since the end of last week. EUR/CHF is bouncing off the 0.9200 level towards 0.9245 today but this the start of a proper recovery or merely a breather before another leg lower?
For now, I would argue that the technical picture still favours sellers despite the latest bounce.
Looking at the daily chart, the pair has already broken below its trendline support from the March to May lows, the 100-day moving average (red line), and the 0.9300 level earlier this month. That puts buyers in a rather uncomfortable position, with the latter now acting as a key resistance level alongside the broken trendline.
Meanwhile, the hourly chart shows the rebound running into resistance around the 100-hour moving average (red line) around 0.9243 currently. The key near-term level has limited gains in the pair since last week and is now put to the test again, with the 200-hour moving average (blue line) near 0.9263 being the next hurdle.
To the downside, the 0.9200 level remains the key support level to watch. A firm break below that would expose the late June to July lows around 0.9175-80, potentially opening the door towards 0.9000 thereafter.
So, what exactly could drive the euro lower again from here?
The most obvious is France’s fiscal and political troubles, which are still weighing heavily on sentiment. The France-Germany 10-year yield spread holding around 166 bps after hitting a high of 176 bps last week, the highest levels since the Eurozone debt crisis in 2011.
As things stand, French borrowing costs remain elevated as investors continue to question the country’s fiscal outlook. And until those concerns ease, the franc will remain an attractive alternative whenever European risks flare up again.
For now, the bounce in EUR/CHF is certainly welcome for euro buyers. However, there’s still plenty of work to do before we can label this as a meaningful turnaround.
This article was written by Justin Low at investinglive.com.