The recent 4-week rally of EUR/CHF from 19 June has started to show signs of exhaustion. Political uncertainties, particularly in France, have had a significant impact on the movement of the currency pair. The ongoing weakness of the France CAC 40 has triggered a negative feedback loop towards EUR/CHF.
The EUR/CHF cross pair has managed to recover its initial losses inflicted from 10 June to 19 June due to political uncertainties arising from the abrupt French legislation snap election announcement made by French President Macron on 9 June. The rally of 295 pips/3.10% from the 19 June low to hit an intraday high of 0.9774 on 15 July was driven by the onset of the 2nd round of the French legislation election on 7 July. However, the election resulted in a hung parliament, as none of the parties managed to gain a single majority foothold.
Based on a three-month rolling performance time frame, the French benchmark stock index, CAC 40, has continued to languish post the 2nd round of the French legislation election. It has recorded a loss of -5% and has underperformed against other major stock indices such as the German DAX, UK FTSE 100, US S&P 500, and US Nasdaq 100.
The weakness seen in the French CAC 40 seems to have a negative feedback loop cascading effect on the EUR/CHF cross pair. The correlation coefficient has increased significantly, indicating a strong correlation between the performance of the stock index and the currency pair.
The recent 4-week rally of EUR/CHF has stalled at a key resistance area of 0.9780. This level confluences with the former medium-term ascending channel support and the 61.8% Fibonacci retracement level. The weekly MACD trend indicator and the 4-hour RSI momentum indicator both suggest bearish momentum conditions. A break below the near-term support at 0.9680 may lead to further weakness in the currency pair, with intermediate support levels at 0.9600 and 0.9480. On the other hand, a clearance above 0.9780 could negate the bearish tone and lead to intermediate resistance levels at 0.9840 and 0.9925.
The recent rally of EUR/CHF has shown signs of exhaustion, influenced by political uncertainties and the weak performance of the French stock index. Technical indicators suggest a bearish outlook for the currency pair in the short to medium term. Traders and investors should closely monitor key resistance and support levels for potential trading opportunities.