EUR/CHF 4H

EUR: Although further upside on a hung parliament should be limited, political uncertainty is likely to remain elevated long after the election is over. This could dampen momentum in Euro area activity data and potentially reinforce the case for ECB cuts. However, a series of weak economic data from the US, including the June employment report, has provided some support for the euro. Additional support might come from Fed Chair Jerome Powell’s semiannual testimony before the Senate and the House if he maintains a balanced tone, echoing his recent speech in Sintra, and from US CPI-inflation numbers for June if the data show progress on disinflation. Even though these developments will limit the further upside of the euro against the USD, this backdrop could benefit the euro crosses, especially against extremely weak currencies like the CHF, CAD, and JPY, barring any strong developments from them in the near term.

CHF: The SNB’s June meeting clarified that CHF strength was not in line with its policy. Despite inflation tracking in line with the bank’s forecast, the SNB’s decision to ease rates was largely based on curtailing CHF strength, which poses deflationary risks for the economy. Sight deposit data show little evidence of active SNB intervention to weaken the CHF, but further political-risk-driven market moves may prompt the SNB to take a heavier hand between meetings. Softer CPI prints for Switzerland are also likely to help drive the CHF down and disperse any remaining expectations of a policy pivot from the SNB. Moreover, manufacturing PMI input prices are also edging lower, suggesting near-term CPI downside. This means the CHF could weaken against the USD or other high-beta currencies if risk sentiment improves.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/CHF Current Retail Long/Short Position

The DXM shows that 16% of traders are bullish, while the remaining 84% 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 bullish momentum in the near term but the latest economic development in Switzerland is not favor with this bullish seasonal pattern.

Sources: Prime Market Terminal

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