The EUR/CHF exchange rate continued its strong rebound after this week’s European and Swiss consumer inflation numbers. The pair surged to a high of 0.9830, which is the highest it has been since June 22nd last year. It has risen by more than 6.20% from its lowest point this year.
European and Swiss inflation slipsThe EUR to CHF exchange rate has continued rising this year as the European Central Bank (ECB) and the Swiss National Bank (SNB) diverged.
Data released on Wednesday showed that Europe’s consumer inflation retreated from 2.6% to 2.4%, missing the estimated 2.5%.
Core inflation also retreated from 3.1% in February to 2.9%, also missing the expected 3.0%. Therefore, these numbers mean that the ECB could be forced to slash interest rates earlier than expected.
Most economists believe that the ECB will cut rates either in its meeting in May or in June. That’s because the broader European economy is not doing well. While Spain and Italy are thriving, powerhouses like Germany and France are struggling. The unemployment rate stands at 6.5%.
Meanwhile, data from Switzerland revealed that inflation was moving downwards. The headline consumer inflation dropped from 0.6% in February to 0.0% in March. On a YoY basis, inflation retreated from 1.2% to 1.0%, missing estimates by 1.3%.
Therefore, there is a possibility that the Swiss National Bank (SNB) will deliver another rate cut when it completes its meeting on June 20th. The SNB is fond of surprising the market, so, a rate cut before that date cannot be ruled out.
The implication of all this is that the EUR/CHF pair will continue being a good carry trade opportunity. Carry trade is a situation where investors buy high-yielding currency, in this the euro, and short the other one.
EUR/CHF technical analysis
Turning to the weekly chart, we see that the EUR to CHF exchange rate has been in a strong bullish trend in the past few months. Most recently, it has formed a golden cross pattern, which happens when the 200-day and 50-day moving averages cross each other.
The pair has also jumped above the 61.8% Fibonacci Retracement point. That is a good positive sign since the Average Directional Index (ADX) has jumped above 50. Therefore, the outlook for the pair is extremely bullish, with the next point to watch being the parity level at 1.000.
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