February 23, 2022 15:15:13

EUR/CHF has become something of a risk sentiment gauge in Europe due to its high exposure to the Russia-Ukraine crisis. The market is trying to understand the ongoing impact of the Russian escalation as the West “keeps it powder” in terms of stronger sanctions. The swissie is a go-to safe haven currency and the euro suffers if a full-scale Russian invasion occurs, as it will impact hugely on the eurozone economic recovery.

While direction in this pair can be famously governed by the SNB who are wary of an appreciating currency, it appears that decision makers at the bank are more relaxed about a stronger franc. A more neutral SNB takes out the concern of the central bank intervening to buy its currency and push EUR/CHF higher. On the flip side, two rate hikes by the ECB this year look too aggressive to some, so sellers may look to fade Lagarde and the governing council’s hawkishness.

EUR/CHF long-term downtrend

The pair topped out at 1.1151 back in March last year. Since then, prices have fallen in two long-term bear channels. But the end of last year and start of 2022, we have seen a base form around 1.0350. Buyers stepped in twice last month pushing the pair back to and above long-term support/resistance at 1.0503.

Prices actually advanced beyond here at the beginning of this month and through the 100-day SMA. But momentum pushed the pair into overbought territory on the daily RSI and beyond upper Keltner band.

We’ve recently dropped below 1.05 and the 100-day SMA which now sits at 1.0484. Sellers got close to the long-term low 1.0330 yesterday but the better risk mood saw buyers reappear.

Any deeper Russian invasion should see 1.0330 challenged again with 1.0280 and 1.0233 the next downside targets. Buyers need to push above 1.05 to arrest the long-term downtrend, which could be seen on any long-term easing in geopolitical tensions.