EURCHF Analysis (Dec, 2021) Will the EU Bounce Back?!
The new variant has caused a major stir across the world... however in countries with a strong vaccine programme the deaths have been limited compared to the original wave of COVID19. What's interesting is that although economically Europe are starting to bounce bank the recovery looks difficult with various countries within the euro zone having debt issues.
Despite recent progress on the economic front, for Europe in 2022, risks still seem to be tilted to the downside. Managing the recovery to make it sustained and sustainable will prove to be difficult under any circumstance, regardless of Omicron. - Brink
What we've found is that potentially if signs begin to look promising EURCHF could potentially be bullish on stronger economic data in EU compared to Switzerland.
Logikfx Technology Summary
Overall, the technology summary is already showing early bullish signs for EURCHF which suggests buyers could be building up for a move in the near future...
What we're seeing is the following indicators start showing bullish economic data releases suggesting relatively the EUR is stronger than the CHF.
What we'll be interest to see if the trade analysis and other relative analysis areas point towards the same direction which may give a stronger indication of a bullish move.
Macro Currency Strength Meter
The macro currency strength meter showed bullish signs between October and early November... more recently CHF has started to show bearish economic data over the past two weeks creating a divergence between EUR and CHF.
This gap between 4th Dec and the time of this post shows potentially a growing divergence of bullish European data and bearish Swiss data.
What this does overall is create a bullish fundamental bias for EURCHF disregarding all other factors other than the currency strength meter.
GDP Differential
The GDP differentials overall have been bullish for Europe with a forecast of 4% growth rates in comparison to Switzerland's 3% forecast we can expect EURCHF to attract more bullish investors.
These forecasts from the IMF currently also agree with the most recent economic releases data summarised by the macro currency strength metre for a bullish EURCHF.
Trade Analysis (Imports/ Exports)
Gold prices were analysed against EURCHF which uncovered a strong negative correlation.
There was a clear period of bullish movement in gold over the past 15 years, a strong bull trend had emerged. During this same period, the EURCHF exchange rates took a massive bearish downtrend reinforcing the correlation.
More recently we can see gold prices starting to congest and potentially pulling back before climbing further if the markets are shaken by further uncertainty from new variants...
What we can see overall currently is that with gold prices taking a slight dip EURCHF may see some bullish signs to come.
Roche holding (ROG) is a company analysed against EURCHF to determine what relationship and correlations we can uncover.
During the analysis we found that ROG prices too had a negative correlation against EURCHF.
This time round though ROG has seen great stock performance which is actually bearish for EURCHF so does not agree with the current outlook... to be extra confident we would expect ROG prices to start falling which may confirm buyers are also looking to buy EURCHF.
Finally, we move onto one of Europe's largest vehicle manufacturers. Volkswagen is a staple car amongst many households and no surprise we have another negative correlation against EURCHF.
Similar to ROG we see that VW prices have increased significantly over the past year with EURCHF taking a dip in the same period. Recently, VW has started seeing bullish spikes in price suggesting the current exchange rate support levels may not hold...
Overall, our trade analysis is not agreeing with the bullish fundamental data we're seeing being released.
Maybe we're too early with the idea making it one to watch out for and to keep an eye on in the weeks to come as any sort of negative price changes from commodities and companies analysed could see positive movements in EURCHF.
Interest Rate Differentials
The interest rate differentials have been negative for the past 6 or so years with Switzerland being one of the first countries in the world to start negative interest rates...
However since 2015 when we saw the differentials favour for Europe we saw EURCHF start to rise suggesting that we may be in for more bullish movements if Europe continues to maintain or even increase their current interest rates.
Overall, the interest rate differentials agree with the bullish outlook.
Stock Market Analysis (STOXX600)
The STOXX600 is one of Europe's largest stock market indices tracking the performance of the top 600 companies across Europe.
What we've found when analysed this data against EURCHF is that the STOXX600 has recovered from pre-pandemic levels and actually seen further bullish movements.
This is overall a bullish sign for EURCHF as it suggests that Europeans are becoming wealthier in comparison to the Swiss population suggesting inflationary pressures to come may require investors to hedge their investments by being bullish on EURCHF.
Hedge Fund Positions
Overall, the hedge fund positioning has seen a positive differential however the overall open interest for EUR positions is still in a negative open interest meaning hedge funds are currently short EUR but also short CHF.
This would mean if we were to be bullish right now there's no clear sentiment in the markets and your view may be against market expectations.
More confidence would be seen if open interest for EUR was positive, so the blue line being in the positive region of the chart as this would indicate a positive open interest and hedge funds showing they are overall net long the EUR.
Price Charts
Price charts have seen EURCHF take a steep dip over the past few months now reaching an important level of support which may see traders and investors go bullish as seen in early 2015.
If history was to repeat itself we may be prepared for a potential upside move...
