Pound Slips into Negative Trend vs. Swiss Franc

Image © Pavel Ignatov, Adobe Images

- GBP/CHF has changed trends from bullish to bearish

- More downside forecast after break of October lows

- Pound dominated by Brexit headlines, CHF by risk aversion

The Pound-to-Swiss Franc exchange rate is falling steeply due to increased Brexit uncertainty and our technical view of the exchange rate's charts suggest the downtrend will probably extend now that it has broken below the 1.2739 October lows.

The next target to the downside is the 1.2500 level of the September lows.

An increasing risk the UK might crash out of the EU without a Brexit deal is causing the sell-off amidst a strong indication that the deal in its current form will not make its way though parliament.

GBP/CHF has been one of the pairs showing the most weakness from the drama due to the Franc's positive correlation to increasing risk sentiment.

CHF is a 'safe-haven' which tends to rise when other assets are falling, so the chaos round Brexit is probably supporting flows into the Franc at the same time as it is weighing on the Pound.

The consequent ‘ripsaw’ effect of one currency appreciating at the same time as its partner is depreciating is ‘dynamite’ to Sterling bears as it magnifies downside momentum.

A break below the 1.2700 bar would provide confirmation of more downside down to a potential next target at 1.2500.

The profile of the Franc was boosted by strong balance of trade data out on Tuesday, which showed a rise in the trade surplus to 2.6bn CHF in October compared to only 1.3bn  previously. A greater surplus tends to be indicative of a bullish backdrop for a currency as it reflects strong demand.

The next major release for the Franc is industrial production on Thursday, November 22, which rose 8.3% previously and according to some forecasters is expected to rise by 4.9% in Q3.

Although the pair was in a short-term uptrend during September and October it subsequently reversed after touching the 50-week highs in the early 1.30s and has since started a short-term downtrend.

The descending sequence of peaks and troughs the exchange rate described in November, shown on the 4hr chart below, is a strong sign the pair is now in a short-term downtrend. The fact it has broken below the late October lows and the accompanying, rapid, downside, momentum are all bearish trend-change signals.

Since trends are more prone to extending than reversing according to the old financial market adage that “the trend is your friend until the bend at the end,” the current short-term bear trend biases the exchange rate to further losses in the future.

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