Daily Market Recap – EURCHF Euro reached its lowest level since July 2015 against the Swiss franc

The euro fell to 1.0498 on Thursday, its lowest level since July 2015, weighed down by fears about inflation and the resurgence of Covid-19 cases in Europe.

Unlike the U.S. or the eurozone, inflation in Switzerland is much lower, so currencies in high-inflation countries depreciate against those in low-inflation countries. For Europe, a rate hike in 2022 has always seemed like a tall order despite inflation being above the ECB's 2% target, while a recent spike in COVID-19 cases may dampen growth.

The European Central Bank's latest comments on inflation have weighed on the single currency. The euro plummeted against all major currencies after Christine Lagarde on Monday effectively quashed money markets' expectations of an interest rate hike in 2022. According to her, tightening policy now would only stifle the economic recovery.

Inflation in the euro zone accelerated in October to an annualized 4.1 percent, its highest level in 13 years, driven by rising energy prices.

If inflation rises but the ECB sticks to its very loose monetary policy message, the euro will remain under pressure. A robust economy allows central banks to tighten their monetary policies to fight inflation, making their currencies more attractive.

At the same time, the Swiss National Bank wants to avoid a rapid appreciation of the franc, which would weigh on the Swiss economy. The SNB is still active in the foreign exchange market and its leaders do not miss an opportunity to recall their willingness to intervene in the market to fight against a too strong appreciation of the franc.

From a technical perspective, the EURCHF is located in the area (1.05 CHF) where the SNB intervened in the markets to bring stability to the pair in May 2020. This level is a key pivot point to expect a rebound in the euro. Of course, the momentum is bearish, but EURCHF could start a technical rebound in the short term. For the time being, it is difficult to envisage a real bullish recovery, as the market would have to manage to regain the 1.0610 level.

On the other hand, an incursion below 1.0500 would not bode well for the future. Given the current context, this scenario would not be excluded, and the euro could risk continuing its slide towards 1.0405.

 (Chart Source: Tradingview 18.11.2021)

To sum up, the pair is under pressure and sellers are keeping the upper hand. It is therefore necessary to pay attention to the battle over the 1.0500 support to identify the next directional move.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.