The EUR/CHF pair stayed steady as traders responded to strong Swiss retail sales and weak manufacturing data from the Eurozone. Swiss retail sales rose by 2.7% year-on-year in October, surpassing the expected 1.2%. This suggests that Swiss consumers are holding up well despite larger economic issues.

Update on Eurozone Manufacturing Data

Manufacturing in the Eurozone has weakened. The Manufacturing PMI fell to 49.6, the lowest point in five months. The Output Index also decreased to 50.4, marking a nine-month low. In the Eurozone, Spain’s PMI dropped from 52.1 to 51.5, while Italy’s PMI increased to 50.6, indicating some improvement. Germany’s PMI fell to 48.2, also a nine-month low. Traders are awaiting key data releases, including the Eurozone’s Core Harmonized Index of Consumer Prices and Swiss CPI. Other important Eurozone figures, such as the Composite PMI, Services PMI, and Producer Price Index, will soon be available. The Euro is a key currency that is heavily traded, influenced by interest rates set by the European Central Bank (ECB), and economic factors including inflation and trade balance. The economic performance of major Eurozone countries, like Germany, France, Italy, and Spain, significantly affects the Euro’s value, impacting investment and monetary policy decisions. Reflecting on the data from late November 2023, we see a clear difference between a surprisingly strong Swiss consumer sector and a weakening Eurozone manufacturing industry. Swiss retail sales recorded a solid 2.7% annual rise, while Eurozone Manufacturing PMI fell to a contraction level of 49.6. This trend indicates that the Swiss Franc has stronger support compared to the Euro. Recent inflation reports confirmed this perspective, strengthening the trend. The preliminary Eurozone Core HICP for November slowed more than anticipated, landing at 2.5%, which eases pressure on the ECB to maintain high rates. Conversely, Swiss CPI released on Wednesday was 1.8%, slightly above expectations, reducing the need for the Swiss National Bank (SNB) to ease its policies.

Policy Divergence and Trading Strategies

The growing difference in policy between the ECB and the SNB is an important indicator for the next few weeks. A struggling Eurozone economy and declining inflation gives the ECB room to adopt a more lenient approach to encourage growth. In contrast, strong Swiss data reinforces the SNB’s commitment to price stability, making rate cuts unlikely in the immediate future. For derivative traders, this environment is favorable for strategies that could profit from a decline in the EUR/CHF exchange rate. Consider purchasing EUR/CHF put options that expire in January 2026 to prepare for a move towards the 0.9200 level. Establishing bearish put spreads might also be a smart way to lower upfront expenses while targeting a specific downward trend. Historically, periods of policy divergence, like we experienced in parts of 2023, have resulted in a stronger franc. Current economic numbers reflect this trend, with Germany’s manufacturing PMI slipping to a nine-month low of 48.2, which heavily impacts the whole Eurozone. The weakness in Germany, the Eurozone’s largest economy, is not expected to change quickly, continuing to weigh on the Euro. The main risk to this outlook lies with the upcoming Eurozone Services PMI data. A strong reading in the services sector, which has shown more resilience than manufacturing, could support the Euro and slow the decline of the pair. Keeping an eye on the health of the service sector in Germany and France will be crucial for managing any short-term rebounds. Create your live VT Markets account and start trading now.

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