Pound-Franc Rate Finds Floor at Major Multi-Year lows
Image © Pavel Ignatov, Adobe Images
- GBP/CHF close to landing on hard floor
- Likely to bounce and go sideways
- Global risk trends main driver of Swiss Franc
The Pound-to-Franc exchange rate is trading at around 1.2278 at the time of writing, already 0.80% down since the start of the week, but studies of the charts indicate the pair is trading on a major historic floor, and this could provide some welcome relief.
The 4-hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair having found a hard floor at 1.2250, which is a historic support level stretching back to August 2018 (and beyond), and also just encompassing the January 2019 lows.
The pair is likely to find it tough to break below this level.
Waning downside momentum measured by the RSI indicator, which has actually entered oversold territory below 30, is another reason to see heightened risks of a pause, a bounce, or a sideways trend evolving, with the August lows as its floor and the 1.2400 level, or thereabouts, as its ceiling.
Given the strong prior downtrend, however, there is still a good chance of an eventual break below the lows in the direction of the broader downtrend.
A break below 1.2200 would probably provide confirmation of a continuation down to an initial target at 1.2100.
The daily chart shows the pair in a clearly established downtrend which has just touched down on a major historic support level.
The outlook is similar to that of the 4hr chart - we see a probable sideways trend evolving and then a probable break lower, although for the medium-term which is the timeframe we use the daily chart to analyse, the pair will probably break lower to a target at 1.2000.
The weekly chart shows the historic support level more clearly.
Obviously, the pair could simply break through the hard floor and go lower in line with the recent trend, but there is also a chance it could reverse and go higher too.
Assuming the former we see a chance of a move all the way down to the 1.1790 level; if the latter, however, the pair could rise up to 1.2800 perhaps.
The weekly chart is used to analyse the long-term trend which is defined as the next couple of months.
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The Swiss Franc: Watching Risk
The main driver of the Swiss Franc is likely to remain global investor risk sentiment over coming days.
It is a safe-haven currency which means it rises when risk aversion takes hold and falls when confidence returns.
Risk trends, which have been shaky due to fears about global growth, are currently stabilising after data out today showed U.S. retail sales beat estimates in June, coming out at 0.4% rather than the 0.1% forecast.
The S&P 500 stock index, a favoured barometer of risk is marginally up as the latest earnings figures, on the whole beat estimates.
Recent Chinese GDP data for the 2nd quarter came out at 6.2% in line with estimates. Although it was the lowest print since 1992, Chinese retail sales and industrial production data, released at the same time, beat expectations and provided sentiment with a boost.
Overall the result seems to have been interpreted by investors as ‘not as bad as thought’ resulting in a small uptick in sentiment. If fears continue to ease it will probably weigh on the Swiss Franc going forward.
Another dampener, especially in the case of GBP/CHF, is heightened Brexit fears after both conservative leadership candidates said they would get rid of the Irish backstop in a televised debate.
Such a move would effectively render null and void the withdrawal agreement with the EU and pave the way for a ‘no-deal’ Brexit.
Fears of a ‘no-deal’ Brexit are supporting the Swiss Franc whilst simultaneously weighing on Sterling, and are a major cause of the steep downtrend the pair has been in.
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