The EURCHF has been weak over the last few weeks. This is has been a little surprising especially as the reflation trade has been expected. The EURCHF should be a pair that would find gains on a global synchronised recovery.
However, one of the reasons for the euro weakness is the expectations of a double-dip recession. The Eurozone has been slow in vaccinating its population in comparison to the US. If the US economy shows a faster than expected return to normality then any dollar strength will weigh on the euro. Furthermore, the CHF has been gaining as a safe haven currency on risk-off trading surrounding COVID-19 concerns. So, there have been reasons the EURCHF has been pressured.
EURCHF set for growth over the long term
However, with that being said, there is a decent case to be made for the EURCHF to make a recovery from here. The CHF has long been bought since the Global Financial Crisis and had its shock highs against the EUR as the EURCHF peg was removed. That area serves as the ‘catastrophic floor’. At present, there is not a reason for the EURCHF to fall back below that level. Especially as the SNB is intervening in the EURCH pair to stop it from going too low. Remember the SNB hate a strong franc.
If economies are set to rebound on a synchronised global growth narrative then the EURCHF could be a good pair to consider.
The risk, of course, is that the strength in the CHF is sounding a warning note against the deflation narrative and that markets have got ahead of themselves in the vaccine euphoria. However, will the EURCH FSNB floor hold whatever? There could be a strong case made that they would. The only factor to remember is that the last time the EURCHF had a floor at 1.2000, it went horribly long. So, make sure leverage levels are low/at zero.