Steady Downtrend in EURCHF, As China Economy Slows

EURCHF was bullish for more than a year until May, almost reaching parity, but it made a bearish reversal and fell to 0.92 by early August, as sentiment turned sour in financial markets and safe havens such as the Swiss Franc benefited. Sellers still remain in control despite a bounce higher despite a bounce higher in the first half of August, and they have some targets in mind, as we will explain below.

EUR/CHF Chart Daily – The Fist Target Comes at 0.92

China’s Inflation Data and Eurozone Impact on the Franc

Earlier today, China released its import data, showing a year-over-year growth of just 0.5%, significantly lower than the predicted 2.0%. This marks a sharp drop from the 7.2% year-over-year increase reported in July. As the starting point of the global production cycle, China’s import orders reflect manufacturers’ expectations of future demand. The weaker-than-expected imports highlight a more cautious outlook and suggest weaker domestic demand.

China’s Import-Export by Country

Last week’s inflation numbers from China signaled that domestic demand for August remains weak, reigniting concerns over a potential deflationary trend. Despite these risks, Chinese officials have yet to unveil significant expansionary measures aimed at boosting both consumer and business confidence. This sluggish demand is concerning for European industries, particularly luxury goods, automotive, and machinery sectors, all of which rely heavily on Chinese consumers. The ongoing weakness in China could further strain the profitability of these firms, potentially leading to more downside pressure on the euro, especially against the Swiss franc.

EUR/CHF Performance and Market Factors

In early August, the EUR/CHF pair saw a decline during a global risk-off period, testing the support level of 0.9210, which now serves as a key target before the 0.9 threshold. The pair rebounded and gained around 4 cents in the first half of August, but these gains were short-lived as rising global uncertainties, such as weak economic data and geopolitical tensions in the Middle East, weighed on market sentiment. This coincided with falling bond yields and heightened cautiousness across financial markets, leading to a retracement in EUR/CHF.

Swiss National Bank and Future Outlook

The Swiss National Bank (SNB) remains a critical factor in the outlook for the franc. While the SNB has noted the recent strength of the currency, chairman Thomas Jordan has emphasized that these gains are not necessarily beneficial for the Swiss economy. If the franc appreciates too quickly, the SNB may intervene. However, EUR/CHF has been in a pattern of lower highs and lower lows since June, indicating ongoing pressure on the euro.

Swiss exporters, particularly those represented by the lobby group Swissmem, have called for the SNB to limit the franc’s strength, especially when EUR/CHF was trading near 0.92. Despite these calls, the fundamentals suggest the pair may continue its downward trend, with the potential for increased volatility as the US elections approach in November.

EUR/CHF Live Chart