Euro Technical Analysis: EUR/CHF, EUR/NOK, EUR/SEK Rates Outlook
- EUR/NOK’s bullish efforts have been thwarted, while EUR/SEK has fallen into the lower half of its sideways range.
- EUR/CHF rates may be carving out a bull flag, having rebounded ahead of the rising trendline from the pandemic swing lows.
- According to the IG Client Sentiment Index, EUR/CHF has a mixed bias in the near-term.
EUR-crosses Hint at Improving Risk Appetite
After the surge in trading volumes and uptick in volatility around the June Federal Reserve policy meeting and quad witching Friday, stability in global bond yields has started to trickle down to FX markets, culminating in a lower volatility environment. But as is often the case, sustained periods of lower volatility tend to translate into increased risk appetite among traders. Indeed, a trio of EUR-crosses suggests that a ‘risk-on’ attitude may be building again.
EUR/NOK RATE TECHNICAL ANALYSIS: DAILY CHART (January 2020 to June 2021) (CHART 1)
In the prior update it was noted that “even if there is a break higher, EUR/NOK rates are still below the rising trendline from the January 2013 and July 2019 lows, evidence that, on a longer-term basis, we remain in bearish breakout territory.” The multi-year rising trendline proved as resistance, rejecting EUR/NOK’s bullish breakout attempt last week. Bearish momentum is developing, with the pair falling to its daily 21-EMA; the daily EMA envelope is compressing, losing its bullish disposition. Daily MACD is starting to shift lower (albeit above its signal line), while daily Slow Stochastics have encroached their median line. A rest of the uptrend from the April, May and June swing lows may be nearing.
EUR/SEK RATE TECHNICAL ANALYSIS: DAILY CHART (January 2020 to June 2021) (CHART 2)
EUR/SEK rates remain in broad sideways range has been carved out dating back to mid-November 2020, where a daily bearish key reversal high has remained untested. As previously noted, “the context of the sideways consolidation since mid-November suggests that it may be a multi-month bear flag in the making, given that EUR/SEK rates have been in a steady holding pattern below the rising trendline from the January 2013/July 2019 lows.” Now moving into the lower half of its range while falling through its daily EMA envelope, EUR/SEK rates may be poised to return to range support near 10.0091.
EUR/CHF RATE TECHNICAL ANALYSIS: DAILY CHART (May 2020 to June 2021) (CHART 3)
In the prior update it was noted that, “more patience is required as the symmetrical triangle has morphed to take on a more encompassing formation; it retains the context of a bullish continuation effort nevertheless.” This interpretation of price action was correct insofar as a triangle had formed, but incorrect with respect to the directional outcome: EUR/CHF rates broke down in early-May.
Instead of a symmetrical triangle, resistance drawn from the 2021 high suggests that a descending channel has been carved out over the last three months. The losses within the channel saw EUR/CHF rates rebound ahead of a confluence of significant technical levels: the rising trendline from the March and November 2020 lows (the pandemic uptrend); the 23.6% Fibonacci retracement of the 2018 high/2020 low range at 1.0858; and the 50% Fibonacci retracement of the 2015 low/2018 high range at 1.0828.
Price action in EUR/CHF rates over the past three months may have been a back-and-fill after the bullish breakout from the multi-month symmetrical triangle that formed between March 2020 and February 2021, in which case bullish resolution should be eyed.
IG Client Sentiment Index: EUR/CHF Rate Forecast (June 23, 2021) (Chart 4)
EUR/CHF: Retail trader data shows 58.33% of traders are net-long with the ratio of traders long to short at 1.40 to 1. The number of traders net-long is 1.76% higher than yesterday and 30.63% lower from last week, while the number of traders net-short is 2.94% lower than yesterday and 34.15% higher 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.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/CHF trading bias.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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