The EURCHF pair has been fluctuating in a sideways pattern during December, with a lower border of 0.9825 and an upper border of 0.99. The euro against the franc has not updated its lows since 2015, but it also does not continue to grow after the powerful rise in October. Whose side will be the initiative next year?
JPMorgan’s analysts suggest that the EURCHF pair will be prone to decline. They expect it to reach the level of 0.95 by the end of the first quarter of 2023 and 0.92 by the end of 2023. The analysts consider the Swiss currency status of safe haven asset as the main factor of the euro decrease against the franc. In the first half of the year, the franc lost this status for a while against the background of the strong dollar’s growth. However, the Fed’s hikes rate was moderate at the end of the year, and in the future the franc won't lose so much to the U.S. assets in terms of profitability.
It might seem that Switzerland has a key rate of only 1%, while the ECB raised its rate to 2.5% and aims to exceed 3% in the first months of 2023. However, if the real (inflation-adjusted) rates instead of nominal are considered, the franc seems much better thanks to the rather slow price increase (3% versus 10.1%).
Besides, a comparison of the EU and Swiss trade balances shows a potential decrease of the EURCHF. European trade has been running a significant deficit for a year now, while Switzerland's trade balance is steadily positive.
The Stochastic indicator has given a sell signal, while the oversold zone is still very far, and the EURCHF may continue to decline. It is important to monitor the lower border of the sidewall and to increase the reliability of the transaction to open a position after its breakdown. In case the quotes fix below 0.9825, the November low of 0.973 will be a possible scenario.
The following trade strategies may be suggested:
Sell EURCHF in case it fixes below the level 0.9825. Take profit – 0.973. Stop loss – 0.99.
Also, traders, at their discretion, can use the Trailing stop instead of the fixed Stop loss.
This content is for informational purposes only and is not intended to be investing advice.