EUR/CHF Heads Towards 1, as Fundamentals Keep Risk Sentiment Going

Posted Monday, February 28, 2022 by
Skerdian Meta • 2 min read

Can EUR/CHF reach parity at 1 in Q2?

The risk sentiment has been hit hard during the last two weeks, with stock markets going through a considerable retreat, while safe havens such as gold, the CHF and the JPY have turned bullish. Gold (XAU) approached the $2,000 level last week, but it has retreated lower to $1,900, although the risk sentiment remains subdued.

Last night, markets opened with a gap downwards for most risk assets, such as stocks and risk currencies. Since the opening, the risk sentiment has improved a little, as Russia-Ukraine talks have started in Belarus, and it is interesting to note that Sputnik News (the Russian media) is referring to this as ‘Russia-Ukraine peace talks’. It may not be indicative of anything yet, but it might be something to be wary about. Ukraine’s aim in these talks is to get Russia to de-escalate and call for its troops to retreat.

EUR/CHF remains on a downtrend, which started about a year ago, and after a retrace higher early this month, as the ECB started to sound hawkish due to increasing inflation. This morning, the Spanish inflation report for this month showed another jump, to the highest levels in more than three decades.

Spain February Preliminary CPI YoY

February preliminary CPI YoY +7.4% vs +6.1% prior
January CPI +6.1%
February HICP YoY +7.5%
Prior HICP +6.2%

The headline reading saw Spanish consumer inflation jump to its highest level since 1989, as price pressures continue to surge in the Euro area. This won’t be of much comfort for the ECB, as it just reaffirms that inflation is likely to be a persistent problem for the time being. So now, this pair seems to be heading for parity at $1, after the failure to reverse higher earlier this month.

Switzerland Q4 GDP

Switzerland Q4 GDP +0.3% vs +0.4% expected
Q3 GDP +1.7%

There was modest growth for the Swiss economy towards the end of last year, but inflation is still the most important metric to the SNB, and that reaffirms that their current policy stance is much needed for now.