04.03.202123:35 Forex Analysis & Reviews: EUR/CHF. What's wrong with the franc?

The euro-franc cross pair is breaking records: in just three trading days, the price jumped by almost 200 points, reaching almost two-year highs. The pair is currently trading in the middle of the 11th figure - the last time the price was at such heights was back in the early summer of 2019. Such a sharp jump is due to both the strengthening of the euro and the weakening of the Swiss franc. Such multidirectional dynamics of currencies provoked strong volatility, although the EUR/CHF cross shows, as a rule, phlegmatic trading. Given the uncertain situation for dollar pairs (the greenback reacts to Powell's speech, in anticipation of the release of Nonfarm and the adoption of a package of assistance to the US economy), the EUR/CHF cross can be considered as a "temporary alternative". Dollar bulls almost have no impact here, and the focus is on slightly different fundamental factors.

The driver of the EUR/USD growth is, of course, the franc, which is getting cheaper throughout the market. Both the internal macroeconomic reports and the external fundamental background play against the "chief". As you know, the Swiss currency is a protective asset that is in demand in troubled times - that is, during periods of growing anti-risk sentiment in the market. The main protective instrument is the dollar, but if we talk about cross-pairs, the franc shares the palm with the yen.

Meanwhile, the external fundamental picture does not contribute to the growth of the Swiss currency. Overall optimism in European markets is growing mainly due to the vaccination of the EU population against coronavirus. The European Commission has set a goal to vaccinate about 70% of the adult population of the European Union by the summer of this year. Despite the fact that there are only three months left until June, Brussels expects a significant increase in the rate of vaccination in March. Against this background, the key stock indexes of the European region are showing positive dynamics – in particular, they ended yesterday's session in positive territory.

Macroeconomic reports are also not on the side of the franc. Thus, Swiss inflation continues to be in negative territory, being the headache of the SNB. The consumer price index in February came out at -0.5% (year-on-year), that is, at the same level as in January. At the same time, most analysts were more optimistic, expecting growth to -0.3%. On a month-on-month basis, consumer prices rose 0.2%, following an almost equally weak 0.1% increase in the previous month. At the same time, the overall forecast was at the level of +0.4%.

Swiss National Bank Chairman Thomas Jordan also exerts background pressure on the franc. In the course of his few speeches, he regularly voices dovish theses. First of all, we are talking about currency intervention, which the SNB has repeatedly resorted to. Talk of cutting interest rates further into negative territory has subsided somewhat recently, especially after Washington accused Switzerland of manipulating the national currency. The Swiss central bank has rejected these accusations and continues to insist that the value of the franc is inflated. In addition to the problems mentioned above, there are several more that Jordan focuses on. In particular, this is the low profitability of companies and the associated "caution in hiring new employees". This problem is exacerbated by the coronavirus crisis, which has not spared Switzerland. Thus, the central bank makes a causal link between the coronavirus crisis, the expensive franc, the profitability of enterprises, unemployment and consumer activity, which ultimately affects the dynamics of inflation. Such rhetoric of the head of the SNB puts background pressure on the franc.

But this week's European reports supported the single currency. In particular, PMI indices were released in key European countries this week. These indicators confirmed a certain trend: the manufacturing sector remains afloat and even demonstrates a certain optimism, while the service sector is still a weak link. This is not surprising, since quarantine restrictions, which only intensified at the beginning of the year, hit the service sector first of all. But what is characteristic: the final estimates for February have been revised upward relative to the initial data. And above all, this applies to the service sector (with the exception of the German index).

From a technical point of view, the euro/franc pair is in a rising channel. The pair is showing a pronounced bullish trend, which is confirmed by the Ichimoku indicator, which has formed its strong Parade of Lines signal. Also, the price is testing the upper line of the Bollinger Bands indicator on all higher timeframes, which is in the extended channel. The trend indicators are confirmed by the MACD oscillator, which is in the oversold area. The support level is the Tenkan-sen line on the daily chart and the 1.1000 level. But the round mark is the closest growth target, the psychologically important 1.1200 (one and a half year high). In this price area, it is advisable to take profits and take a wait-and-see attitude.