Setting Up for a Breakout From Consolidation

Summary:

This consolidation phase has seen a convergence between a descending trendline and the horizontal support zone, potentially providing a launching point for bullish momentum from the local lows.

BUY EURCHF

Close Time

CLOSED

0.93500

Entry Price

0.96700

0.92200

0.92325 -0.00183 -0.20%

29.5

Pips

Profit

0.92200

0.93795

Exit Price

0.93500

Entry Price

0.96700

Fundamentals

All eyes will be on the European Central Bank (ECB) this Thursday during the European trading session, where a widely expected 25-basis-point cut to the Main Refinancing Operations Rate would bring it down to 3.4%. This rate cut aligns with the ECB's continued effort to ease inflationary pressures while providing a stimulus to the Eurozone economy. ECB President Christine Lagarde acknowledged that although inflation remains elevated, restrictive monetary policies are starting to lose their potency, which may help revive economic growth in the Eurozone.

In addition to these developments, ECB board member Yannis Stournaras advocated for two more rate cuts before the end of the year, with further easing expected into 2025. Another board member, François Villeroy, suggested the ECB might soon announce additional rate cuts, while Peter Kazimir called for caution and data-dependent decisions for December. Meanwhile, Gabriel Makhlouf, an ECB policymaker, highlighted risks from wage growth and persistent inflation in the services sector, though inflation is expected to fall to 2% by the end of next year.

Recent inflation data supports the ECB's dovish stance. Eurozone inflation, measured by the Harmonized Index of Consumer Prices (HICP), dropped to 1.8% year-over-year in September, falling below the central bank’s target. Combined with stagnant GDP growth, this inflation dip strengthens the case for continued monetary easing in the coming months.

In Germany, August retail sales rose by 1.6% month-over-month, according to Destatis, following a 1.5% increase in July. This marks two consecutive months of growth, signaling a rebound in consumer spending despite broader economic uncertainties in the Eurozone. Annualized retail sales growth in Germany reached 2.1%, indicating resilience in Europe's largest economy amid ongoing inflation and weaker regional GDP growth.

Meanwhile, on September 26, the Swiss National Bank (SNB) cut its policy rate by 25 basis points, bringing it down to 1%. This is the lowest level since early 2023 and marks the SNB’s third rate cut this year, as inflation in Switzerland has remained within the SNB's 0% to 2% target range for the past 15 months. Thomas Jordan, the SNB’s Chairman, hinted that further rate cuts could be necessary in the coming quarters to ensure price stability over the medium term. The SNB also lowered its inflation forecast, now expecting just 0.6% consumer price growth by 2027, signaling a more dovish outlook.

Additionally, the SNB’s Vice Chairman, Martin Schlegel, indicated that there are no plans to reintroduce negative interest rates, affirming that the current neutral stance will likely persist in the near term. This suggests the central bank’s policies may remain stable, traditionally supporting confidence in the Swiss franc. Setting Up for a Breakout From Consolidation_1

Setting Up for a Breakout From Consolidation_1

Technical Analysis

The EURCHF pair has been consolidating in recent weeks, hovering around the key support level of 0.9350. This consolidation phase has seen a convergence between a descending trendline and the horizontal support zone, potentially providing a launching point for bullish momentum from the local lows. The price action in this area indicates a significant support zone that could help sustain the pair’s value.

If EURCHF manages to break above the descending trendline acting as resistance, it could pave the way for further upside, targeting the 0.9673 zone. This level coincides with the 100- and 200-period moving averages, which are approaching the current price, signaling a possible breakout. Additionally, the Relative Strength Index (RSI) is hovering around the 50 level, reflecting the ongoing consolidation but also suggesting that this accumulation phase might be nearing an end. A decisive breakout above the trendline could indicate a shift toward bullish momentum, with potential gains in the near term.

Trading Recommendations

Trading direction: Buy

Entry price: 0.9350

Target price: 0.9670

Stop loss: 0.9220

Validity: Oct 29, 2024 15:00:00

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