As rate cut expectations in the Eurozone have been factored in for a few weeks, the market is now reassessing the timing of a rate cut by the ECB as economic conditions improve. However, the fundamental backdrop of the CHF remains unchanged, with the market still anticipating another cut by the SNB in June and expecting further weakness in the CHF unless there is a shift in risk-off sentiment.

EUR/CHF 4H

Macro View:
EUR: In the longer term, policy divergence remains a key factor for the EUR. However, recent significant developments have supported the EUR. Firstly, Eurozone rates markets have scaled back their expectations of ECB rate cuts. Secondly, there have been continuous portfolio inflows into Eurozone equity markets, as highlighted by our ETF flow tracker. These developments share a common theme – recent sentiment indicators suggesting that the worst of the Eurozone economic downturn may be over. FX investors will be keen on further evidence of improving Eurozone economic outlook and updates on discussions within the Governing Council regarding the timing of future rate cuts. Consequently, the EUR could maintain its resilience among the G10 currencies, barring any substantial data disappointments or dovish remarks from ECB speakers. 

CHF: Despite the April CPI rebound, with annual headline and core CPI now at 1.1% and 1.0% respectively, policymakers shouldn't be overly influenced by this April figure as it still falls within the SNB’s range. Until the next CPI release in a month, consolidation may prevail for the CHF, assuming no significant swing in global sentiment. Markets seem to stick to the 0.97/1.00 EUR/CHF range established after the surprise March cut. Additionally, the monetary policy outlook is likely to support a higher EUR/CHF. The rise in US yields due to a delay in rate cuts has also impacted Europe, suggesting that SNB rate-cutting actions this year may not differ much from the ECB's. This limits the risk of a franc rebound should the ECB and the Fed cut rates more than the ECB.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/CHF Current Retail Long/Short Position

The DXM shows that 15.3% of traders are bullish, while the remaining 84.7% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

EUR Futures’ seasonality movement

The seasonal pattern for the EUR suggests bullish momentum in the near term.

CHF Futures’ seasonality movement

The seasonal pattern for the CHF suggests bearish momentum in the near term.

Sources: Prime Market Terminal

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