EUR/CHF Probing Nearly 5-Year Lows at 1.06 – More Downside to Come?

As the world’s most widely-traded currency pair, EUR/USD is understandably garnering all the headlines as it extends its historic drop; indeed, the pair has now closed lower in 11 of the past 12 days, and rates on track to run that streak to 12 of the last 13 days as of writing.

That said, the drop in EUR/CHF is no less impressive. Despite a reputation for relatively low volatility, the exchange rate between the major mainland European currencies has dropped over 400 pips in a little over two months to trade near 1.0600, its lowest level in nearly half a decade! Much of the move is due to weakness on the euro side of the pair stemming from soft economic data and the potential for additional ECB easing this year, but FX traders would be wrong to dismiss demand for the Swiss franc.

Over the last three months, Switzerland’s currency has gained ground against every one of its major rivals. Not coincidentally, this move coincides with gold’s rallyoff its local bottom near $1450; as a fellow “safe haven” asset which the Swiss National Bank holds in abundance, gold tends to be highly correlated with the Swiss franc, as the 50-day correlation coefficient in the chart below shows:

Source: TradingView, GAIN Capital.

At the moment, it’s hard to argue against the strong bearish trend in EUR/CHF. Beleaguered bulls will point to the slight bullish divergence in the RSI indicator and previous support in the 1.0620 area, but the strength of the selling pressure could easily overcome those slight bullish arguments. If rates are able to break conclusively below 1.0600, sellers could turn their eyes toward the psychologically significant 1.0500 area next. At this point, only a break above the 21-day MA and bearish channel in the 1.0675 area would erase the market’s bearish bias.