Should you buy or sell the EUR/CHF as it moves to parity?
- The EUR/CHF pair has crashed to the lowest level since 2015.
- On Monday, the pair managed to move below the parity level.
- The sell-off will likely continue in the coming months.
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The Swiss franc has been in a strong demand lately as demand for safe-havens rise. The EUR/CHF pair has crashed to the lowest level since 2015 and is at parity. On the other hand, the USD/CHF pair has been moving sideways since the two pairs are seen as safe-havens.
SNB out of options?
The Swiss franc pair has been in a strong bullish trend lately as a strong Switzerland economy coincides with safe-haven demand.
Recent data from the country shows that the economy is doing well. For example, the unemployment rate has fallen to about 2.3% while inflation is ticking upwards as well. Data published last week revealed that the inflation rate jumped to above 2.0% for the first time in years.
Therefore, this performance will put the Swiss National Bank (SNB) under pressure to intervene. At this time, a rate cut will only make the inflation situation worse while signs that the bank will hike interest rates could strengthen the franc.
The SNB prefers a weak Swiss franc because of the country’s dependence on exports. Therefore, a weaker franc makes its exports substantially cheaper in a highly competitive market. In the past months, the bank has lamented about the strength of the franc.
The SNB has also intervened in the market by aggressively selling the Swiss franc. Data published last week showed that sight deposits increased by just 0.07% Swiss franc, meaning that the bank intervened modestly.
And in a statement last week, Andrea Maechler, an SNB member, said that the bank was ready to intervene in the coming months. The challenge is whether any such interventions will work out.
The daily chart shows that the EUR/CHF pair crashed below the parity level of 1.00 on Monday. This was the first time it did that in more than 7 years. The pair has been in a strong bearish trend and has moved below the 25-day and 50-day moving averages.
The Relative Strength Index (RSI) has also moved below the oversold level. Therefore, there is a likelihood that the pair will continue falling as bears target the next key support level at 0.9900.