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CapitalPanda | Swiss Franc Surges

Latest news

Read current news from the financial markets and expert articles from our analyst.

Swiss Franc Surges

SNB raised rates

For the first time in 15 years, the Swiss National Bank raised its interest rate. With this move they joined other central bank in their tightening to curb the inflation. They raised its rate from -0.75% to -0.25%.

The move came after the US raised interest rates by 0.75 percent. The Federal Reserve raised interest rates on Wednesday, while the European Central Bank said last week that it will hike rates in July to combat the eurozone's soaring inflation, which reached 8.1 percent last month.

Swiss economy

The Swiss economy has showed resiliency, as evidenced by the January 2021 OECD Economic Survey[1], but the COVID-19 pandemic continues to generate uncertainty and hardships. Effective state aid has helped to protect jobs and raise household incomes. At the same time, some industries and groups have been particularly heavily impacted. This hit disproportionately impacted low- to medium-skilled individuals and those earning low wages. Promoting productivity development is critical to ensuring a good level of living in the future. Although the country has one of the highest worker productivity rates in the OECD, productivity growth has slowed dramatically over the previous three decades. Lowering internal market obstacles to free and open competition, as well as maintaining access to overseas markets, would increase competitive pressures and boost productivity and growth.

 

According to the State Secretariat for Economic Affairs (SECO), the Swiss economy is expected to expand by 2.6% in 2022, revising down its March forecast for growth of 2.8%. SECO also lowered its 2023 growth prediction from 2.0 percent to 1.9 percent.

CHF future development

SNB said in its statement: “The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland. It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilize inflation in the range consistent with price stability over the medium term. To ensure appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary.”

The strength of the franc has reduced the impact of inflation in Switzerland by lowering fuel and food import prices. The SNB upped its inflation predictions for 2022 from 2.1 percent in March to 2.8 percent. It also forecasts 1.9 percent and 1.6 percent inflation in 2023 and 2024, respectively, up from its earlier forecast of 0.9 percent inflation in those years. Nevertheless, the SNB still expects the Swiss economy to grow by about 2.5% in 2022.

 

Technical view

obrazek1capitalpanda*

Chart 1: Last 5 years performance EURCHF, daily timeframe (source: tradingview.com)

For the last 5 years, Swiss franc was constantly getting stronger, as it can be seen on the Chart 1. During 2022 it has already tested the 2015’s support zone, with EURCHF zone 1.00-1.02.*

Since the SNB increased interest rate, and there is no clear decisions will ECB increase the rates for the Eurozone, it is expected that the EURCHF will continue to slide down. Until where? It’s hard to tell. But, if we check technical analysis on bigger timeframe, maybe we can find the worst-case scenario.

obrazek2capitalpanda*

Chart 2: EURCHF performance since 2015, weekly timeframe (source: tradingview.com)

On Chart 2, it can be seen Head and Shoulders[2] pattern, according to which we can identify worst-case scenario of the EURCHF price. Since the Neckline of the pattern is at the value 1.06007, the maximum expected value for this currency pair in following months/years is 0.92041.[a]

 

Overview report prepared byJozo Perić, Analyst of CapitalPanda

[1] Swiss economy, OECD: https://www.oecd.org/economy/

[2] Head and Shoulders pattern: https://www.investopedia.com/terms/h/head-shoulders.asp

* Past performance is no guarantee of future results.

[a] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.

The content of this material constitutes marketing communication and should not be considered as any type of investment advice and/or investment research and/or a solicitation for any transactions. This material was prepared for informational/educational purposes only and does not imply an obligation to perform investment transactions nor does it guarantee or predict future performance. BCM Begin Capital Markets Cy Ltd and its relevant persons including affiliates, agents, directors, or employees do not guarantee the accuracy, validity, timeliness, or completeness of any information/data provided by third parties and assume no liability for any loss arising from any investment made based on the said information/data. Past performance is no guarantee of future results.

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