Swiss Franc Continues to Dominate Ahead of Economic Data

Forex

Summary:

The weakness of the Canadian Dollar (CAD) was mainly due to weak economic data and the neutral monetary policy of the Swiss National Bank (SNB), strengthening the Swiss Franc (CHF)....

SELL CADCHF

Close Time

CLOSED

0.62300

Entry Price

0.62000

0.62900

0.57850 +0.00068 +0.12%

1.7

Pips

Loss

0.62000

0.62317

Exit Price

0.62300

Entry Price

0.62900

Overview

On February 25, 2025, the CAD/CHF pair traded around 0.6249, falling sharply due to pressure from weak Canadian economic data and the SNB's monetary policy. The Bank of Canada (BoC) maintained interest rates at 4.00%, however, GDP in the fourth quarter of 2024 grew by only 0.6%, lower than the forecast of 0.8%, while inflation fell to 2.8%. This raised concerns that the BoC may ease policy sooner than expected. The Canadian manufacturing PMI in February 2025 fell to 48.0, below the 50 threshold, indicating a contraction in the manufacturing sector, putting pressure on the CAD.

In contrast, the SNB kept interest rates at 1.25% with a neutral stance, but the CHF was supported by its safe-haven status and solid economic data. The Swiss manufacturing PMI for February 2025 came in at 51.5, above the forecast of 50.8, and exports rose 4.0% thanks to demand from the European Union. Geopolitical tensions in Europe, especially the conflict in Ukraine, have strengthened the CHF's safe-haven status. Meanwhile, WTI crude oil prices fell slightly to $78.00/barrel, negatively affecting the CAD given Canada's heavy reliance on energy exports.

Market psychology

Market sentiment on February 25, 2025 was skewed to anxiety, with the VIX at 22 and the Fear and Greed Index falling to 27, reflecting concerns about the global economy. Investors turned to CHF as a safe-haven asset on the back of solid Swiss economic data, while the CAD sold off on the weak Canadian economic outlook. Data from CME Group showed that CAD/CHF futures short volume rose 22% for the week, with major funds such as UBS reducing their CAD positions and increasing their CHF holdings, reinforcing the downward pressure on the pair.

CHF trading volumes in the foreign exchange market increased by 18%, especially in the CAD/CHF pair, with volumes reaching $90 billion/day, a two-month high. In contrast, the CAD lost value, with the CAD's relative strength index against the G10 currency basket falling to its lowest level since November 2024. A report from Credit Suisse on February 24, 2025 predicted that CAD/CHF could fall another 1-2% if the BoC signals policy easing, but if the SNB raises interest rates, the CHF could recover slightly, reducing pressure on the pair.

Technical analysis

Bollinger Bands (20,0,2): CAD/CHF is currently below the middle band of the Bollinger Bands, indicating a strong bearish bias. A further push to the lower band at 0.6230 could signal high volatility and a potential further decline.

Ichimoku Kinko Hyo (9,26,52): Price is below the Ichimoku cloud, along with the Chikou Span line crossing below the price, confirming the downtrend.

Stochastic Oscillator (5,3,3): The Stochastic indicator is in the oversold zone, indicating a possible short-term upward correction. However, in the context of a strong downtrend, this signal should be considered carefully.

Trading Recommendations

Entry: Consider opening a sell position when price breaks below the important support level of 0.6230.

Take Profit: The target for profit can be placed at 0.6200, the next strong support level.

Stop Loss: Place a stop loss above the 0.6290 resistance level to limit risk in case the market reverses.

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