The EUR/CHF currency pair is stuck in a narrow trading range. This is due to different policies from the European Central Bank (ECB) and the Swiss National Bank (SNB). Both the International Monetary Fund (IMF) and the Swiss government have lowered their growth forecasts for 2025. They now expect Swiss economic growth to be 1.3%, down from the earlier estimate of 1.7%. The ECB has paused its cycle of rate cuts after eight decreases, while the SNB took a softer approach in June by lowering its policy rate to 0%. Swiss inflation data has been mixed. Consumer prices fell by 0.1% year-on-year in May but increased a little by 0.1% in June.

Eurozone Economic Sentiment

In the Eurozone, economic sentiment seems to be getting better. The Sentix Investor Confidence Index rose to 4.5 in July. The Swiss Franc remains popular as a safe-haven asset, even with the SNB’s relaxed monetary policy. Switzerland’s economy relies heavily on its service sector and strong exports, especially in watches, pharmaceuticals, and food. Political and economic stability, along with favorable tax policies, boosts the Swiss Franc’s value. There is also a slight connection between the Franc, Gold, and Oil prices. Due to the different monetary policies of the SNB and the ECB, the EUR/CHF pair is unlikely to break its current range unless there’s a significant policy shift or an external event. With the SNB’s more accommodating stance and its June rate cut to 0%, the central bank aims to stimulate demand but accepts some risk of currency appreciation. This choice, made after subdued inflation in May and a small rebound in June, suggests that rising domestic prices are not a major concern for Bern. On the other hand, the ECB’s decision to stop its rate cuts after eight reductions signals that policymakers in Frankfurt prefer to take time to see the broader economic effects of their previous actions. Recent sentiment readings in the Eurozone, including the rise in the Sentix Confidence Index to 4.5, indicate a better outlook for investors. However, this is unlikely to create significant optimism for the euro unless real economic performance improves.

Swiss Franc’s Risk-Off Reputation

It’s important to recognize that the Swiss Franc continues to enjoy its status as a risk-off asset. Despite the recent dovish actions by the SNB, the currency hasn’t sharply depreciated. This indicates that market participants still value Switzerland’s political and economic stability, even with low yields. Sectors driven by exports, like pharmaceuticals and luxury goods, are less affected by weaknesses in the domestic economy. This buffer, along with advantages from tax and regulations, may help keep pressure off the Franc. For those trading derivatives, particularly directional pairs like EUR/CHF, the risk-reward outlook is less attractive in the current situation. With both central banks sending mixed signals—one pausing and the other easing—it’s harder to account for sustained volatility. Traders might consider reducing leverage or adjusting to lower delta positions for short-term strategies. The short-term implied volatility remains slightly high compared to realized volatility, indicating that options are reasonably priced but not cheap. We also need to watch the weak link between the Franc and commodities like Gold and Oil. While the connections are not strong, commodities often act as hedges and confidence indicators, especially for currencies considered safe havens. A sharp increase in commodity prices, especially crude oil, could shift sentiment towards safe-haven flows. Considering all this, with the Eurozone slowly stabilizing and Switzerland maintaining strong fundamentals, it is wise to focus on relative macro signals instead of just technical indicators for now. Positions should reflect that policy differences are unlikely to be resolved soon, and any significant movement will probably need an external catalyst. Create your live VT Markets account and start trading now.

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