EURCHF stirring and reversing

In recent months we have published a handful of notes and videos on the Euro currency, against the U.S. dollar and on some cross rates, such as EURCAD and EURAUD. In all, we have been advocates of Euro strength.

While the jury is still out on EURCAD and EURAUD, this week the EURUSD launched a rebound from its 20 year, long term trendline support and specifically from the 1.0770/60 region, that halted declines in April and February of this year.

One of the key catalysts behind this week’s EURUSD’s rally was a joint press conference where German Chancellor Angela Merkel and French President Emmanuel Macron proposed a €500bn Recovery fund to support the regions worst hit by COVID-19.

The proposal outlines that funds raised via the market will be distributed to member states via grants. The member states would not be required to repay the grants. Instead, the grants would be repaid via revenues of the EU budget.

This has been met with opposition from member states including Austria, Denmark, the Netherlands, and Switzerland who prefer loans as opposed to grants. However, at the core, the proposal is viewed as a first step towards fiscal union - the lack of which has been a key problem weighing on the Euro since inception.

In terms of how FX markets might respond should the Franco-German proposal gain traction, moves this week in EURUSD and EURCHF provide an insight.

As can be viewed on the chart below EURCHF has been well supported ahead of 1.0500 in recent months and there are signs of bullish divergence via the RSI indicator. Additionally, the rally on Monday above the April 1.0612 high, ends the recent pattern of lower highs and lower lows and is a preliminary sign that a recovery is underway.

Further confirmation would be a break and close above resistance 1.0655/70 area that would then allow a stronger recovery towards the highs of late 2019, 1.1035/55 area. Keeping in mind, if EURCHF was to break/close below the 1.0500 support zone, it would be negate the prospects for a recovery.

Source Tradingview. The figures stated areas of the 20th of May 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.