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Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

Christopher Vecchio, CFA, Senior Strategist

Euro Outlook:

  • While the major EUR/USD has been steadily declining, it’s been a mixed bag for EUR/CHF and other non-major EUR-crosses.
  • EUR/SEK rates may be benefiting from the seasonal tailwind of Swedish equity dividend season, while EUR/NOK rates may be undercut by stronger energy prices (even after the Suez Canal incident).
  • According to the IG Client Sentiment Index, EUR/CHF has a bearish bias in the near-term.

Non-Major EUR-crosses Favor Risk-On

Much attention in FX markets these days has been revolving around the impact of US Treasury yields on various USD-pairs. And while EUR/USD rates have been steadily declining, the same cannot be said for a slew of other EUR-crosses. Indeed, EUR/CHF rates have been consolidating in a symmetrical triangle for several weeks, while the Nordic crosses are offering disparate outcomes. But a general tone is taking shape: a more risk-on environment may soon emerge.


Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

One of the more active commodities in the past week has been the price of oil (both brent and crude), largely thanks to the Suez Canal incident. Incidentally, with the Norwegian Krone effectively twice as sensitive to energy prices as the Canadian Dollar (energy is 20% of Norwegian GDP versus 11% of Canadian GDP), a pair like EUR/NOK has been pulled lower. Price action has not offered much clarity in recent weeks after trading into (and through) the vertex of the symmetrical triangle formed by the rising trendline from the January 2013/July 2019 lows and the March 2020/January 2021 highs.

EUR/NOK rates recently treated the rising trendline from the January 2013/July 2019 lows as resistance, and the pair finds itself hugging the downtrend from the March 2020/January 2021 highs again. If symmetrical triangles are neutral patterns, then technically speaking, we’re in bearish breakout territory. Bearish momentum continues to improve, with daily Slow Stochastics breaking through their median line and racing towards oversold territory and daily MACD turning lower anew below its signal line. EUR/NOK rates are below their daily EMA envelope, which has aligned in bearish sequential order.

But the lack of follow-through is somewhat concerning, which is why a more decisive break below the yearly low established at 10.0032 would be the necessary trigger before a bearish directional move is likely to succeed.


Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

EUR/SEK rates have traded higher through range resistance dating back to late-December 2020, although there is a case to be made that said resistance was actually established when July 2020 low formed. Coupled with the breakout above the March 1 bearish piercing candle, EUR/SEK rates appear to have made a decisive pivot away from the March and October 2020 downtrend. Furthermore, bullish momentum is improving, with daily MACD rising above its signal line and daily Slow Stochastics rising into overbought territory.

But it’s difficult to ignore the potential seasonal impact that the Swedish equity dividend season is having on the pair. From 2010 to 2019 (ignoring the 2020 pandemic data), EUR/SEK rose approximately +2.2% during the period from the end of March to the end of May. If we’re entering a period of normalcy post-pandemic, then EUR/SEK rates may have a bit of a cushion underneath them for the foreseeable future; a return to the rising trendline from the January 2013/July 2019 lows is possible (closer to 10.4000).


Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

EUR/CHF rates have been consolidating since we last checked in at the end of February, when it was noted that “in context of the break of the downtrend from the April 2018 and May 2019 highs, it appears that we have another piece of evidence suggesting a bottoming effort is taking place. EUR/CHF rates may soon find resistance in the 1.1077/1.1106 area, a cluster of Fibonacci retracements dating back to the post-EUR/CHF floor highs.”

The passing of time has yielded the clarity of a symmetrical triangle having formed in recent weeks around the aforementioned Fibonacci retracements. While more patience is required, in context of the preceding move, traders may want to keep an eye on potential bullish resolution in EUR/CHF rates.

IG Client Sentiment Index: EUR/CHF Rate Forecast (March 30, 2021) (Chart 4)

Euro Forecast: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook

EUR/CHF: Retail trader data shows 52.50% of traders are net-long with the ratio of traders long to short at 1.11 to 1. The number of traders net-long is 9.82% lower than yesterday and 10.37% lower from last week, while the number of traders net-short is 20.83% lower than yesterday and 12.50% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/CHF prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/CHF-bearish contrarian trading bias.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.