Pound-Franc Week Ahead Forecast: Dips to be Short-Lived

Image © Albert Czyzewski, Adobe Images

- GBP/CHF trending sideways

- Any weakness likely to be limited

- UBS see CHF recovery into year end

The Pound-to-Franc exchange rate trades at 1.2759 at the time of writing; a level that will be familiar to those who have been watching this market over recent days.

Like the GBP/EUR exchange rate, GBP/CHF is settling into a rhythm as markets await the outcome of the December 12 election: the Pound will unlikely gain much traction either way until the polls suggest a discernible shift in support towards, or away from, the Conservatives.

However, an expected lack of volatility should give higher confidence to those looking to transact in this market: in short, when the Pound falls against the Franc, we would expect any weakness to be short-lived.

Analysts at PIA First - a technical analysis specialist - say they will be looking to buy any weakness in Sterling against the Franc.

Specifically, any weakness down towards 1.2695 will be brought.

If we look at the below graph we can see this level forms the approximate lower end of the the October 20-present day range. In fact, the Pound has not closed below this level since October 14.

"Price action has continued to range within a triangle formation," say PIA First, "a break of 1.2810 is needed to confirm follow through bullish momentum. Further upside is expected, however, due to the strong resistance above we prefer to buy a break of 1.2695, which will confirm the bullish sentiment."

Concerning the fundamental outlook for the Franc, the sentiment of the global investor community will remain a driving factor for this currency. The Franc is considered a 'funding currency' i.e. investors borrow in Francs owing to the deeply discounted interest rates in Switzerland, and put that money into higher-yielding foreign assets.

When investors are confident and markets are on the up the Franc tends to decline. At present, market confidence is bullish as investors eye a potential 'phase 1' U.S.-China trade deal being struck before year-end.

Ongoing expectations for such a deal will likely keep the Franc under pressure.

However, analysts at UBS, the Swiss-based global investment bank, say they actually look for a Swiss Franc recovery into year-end, as there are too many variables that have to go right for investor sentiment to remain positive.

"We still see the Swiss franc as likely to appreciate against most G10 peers into the new year. Many stars will have to align perfectly—from the US-China and US-EU trade talks to Brexit to the global industrial cycle—for safe-haven demand not to resurface," says Gaétan Peroux, an analyst with UBS.

If his views are correct, we would expect to see GBP/CHF come under pressure into year-end.

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