EUR/CHF Triggers Oversold RSI Signal Amid Flight to Safety

EUR/CHF Rate Talking Points

EUR/CHF trades at its lowest level since 2017 even though the Swiss National Bank (SNB) emphasizes its ability to intervene in the currency market, and the bearish price action looks poised to persist as the Relative Strength Index (RSI) pushes into oversold territory.

EUR/CHF Triggers Oversold RSI Reading Amid Flight to Safety

EUR/CHF slips to a fresh yearly low (1.0677) as fears surrounding the coronavirus heighten the appeal of safe-haven assets, and the Swiss Franc may continue to benefit from the shift in market behavior amid the weakening outlook for global growth.

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The appreciation in the Swiss Franc is likely to test the SNB’s patience as President Thomas Jordan insists that the “expansionary monetary policy continues to be necessary given the inflation outlook in Switzerland.” Rather than pushing interest rates deeper into negative territory, the SNB may first attempt to jawbone the Swiss Franc as the central bank remains “willing to intervene in the foreign exchange market as necessary.”

It remains to be seen if the SNB will make a meaningful announcement ahead of its next meeting on March 19 especially as the UK prepares to leave the European Union (EU), but efforts to talk down the Swiss Franc may do little to alter the near-term outlook for EUR/CHF as market participants scale back their appetite for risk.

With that said, EUR/CHF may serve as a better barometer for risk sentiment compared to USD/CHF as the US Dollar benefits from its reserve currency status, and the flight to safety may fuel increased volatility in the Swiss Franc as the ongoing shift in global trade policy clouds the outlook for the world economy.

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EUR/CHF Rate Daily Chart

Image of EUR/CHF rate daily chart

Source: Trading View

  • A bear flag appeared in the second half of 2019, with EUR/CHF snapping the range bound price action from the third quarter at the start of 2020.
  • Recent developments in the Relative Strength Index (RSI) suggest the bearish momentum could still gather pace as the oscillator continues to track the downward trend from December and sits in oversold territory.
  • With that said, need to see the RSI bounce back from oversold territory and flash a textbook buy signal to foreshadow a correction in EUR/CHF.
  • Until then, the bearish behavior in EUR/CHF may persist as it trades at its lowest level since April 2017, with a break/close below 1.0680 (100% expansion) raising the scope for a move towards the 1.0640 (61.8% expansion) region, which sits just above the 2017 low (1.0625).

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— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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