EUR/CHF has been closely linked to the performance of key European benchmark stock indices, particularly the France CAC and Germany DAX. The correlation coefficients between EUR/CHF and these stock indices have remained notably high, indicating a strong positive relationship. This correlation has been evident in recent market movements, especially during periods of risk-off sentiment in the global markets.
The latest data on China’s core inflation and producer prices for August have highlighted a concerning trend of lackluster internal demand in the country. The decline in China’s consumer demand is likely to have a detrimental impact on the profits of European manufacturers of luxury goods, cars, and machinery. This, in turn, may lead to further downside pressure on key European equities such as the France CAC and Germany DAX.
It is crucial to monitor the key intermediate support level of 0.9255 on the EUR/CHF. During the recent period of synchronized global risk-off sentiment, EUR/CHF experienced a decline but found support at the 0.9255 level, which had previously acted as a significant swing low. However, the rebound from this level has been limited by the 200-day moving average, suggesting potential resistance around 0.9580. The weekly MACD trend indicator also indicates a bearish tone, potentially leading to lower lows for EUR/CHF.
If EUR/CHF fails to surpass the key medium-term resistance level of 0.9780 and breaks below 0.9255, we could see further weakness in the currency pair. In such a scenario, the next medium-term support levels to watch for are 0.9085 and 0.8890. However, a breakout above 0.9780 could reverse the bearish trend and open up the possibility of a rebound towards the long-term pivotal resistance zone of 1.0040/1.1000. This zone also marks the upper boundary of the long-term secular descending channel that has been in place since April 2018.
Overall, the correlation between EUR/CHF and European stock indices, combined with the impact of weak China inflation on European equities, presents a challenging outlook for the currency pair. Traders and investors should closely monitor key support and resistance levels to gauge potential future movements in EUR/CHF. By staying informed about market developments and policy responses, market participants can better navigate the uncertainties in the current economic landscape.