Short-Term Forex Technical Outlook: GBP/CHF (Update)

Written by David Song, Currency Analyst
The GBP/CHF slipped lower this week following the rise in risk aversion, and the pair is likely to hold its current range over the near-term as investors weigh the outlook for future policy.

Currency Pair: GBP/CHF
Chart: 60 Min Charts
Short-Term Bias: Flat

Analysis Update




The GBP/CHF attempted to push during the overnight but held a tight range following the drop in market sentiment, and the pair may face increased selling pressures over the next few hours of trading as European equity prices slip lower. Meanwhile, the record drop in Swiss producer and import prices continues to raise the risks for deflation, and as the region faces its worst economic downturn in over a quarter century, the SNB may increase its purchases of foreign currencies as the central bank attempts to stem the downside risks for growth and inflation. As a result, market participants may continue to prop up the currency pair on expectations for an intervention however, as the Bank of England holds a dovish policy stance and expands its asset purchase program in order to shore up the economy, the pound-franc may continue to trade sideways as the outlook for future policy remains uncertain. However, the fundamental event risks scheduled for the next 24 hours could call for a shift in our outlook.




Analysis




The GBP/CHF slipped lower this week following the rise in risk aversion, and the pair is likely to hold its current range over the near-term as investors weigh the outlook for future policy. After reaching a high of 1.8976 in November, the pound-franc slipped to a low of 1.5124 on 12/29 due to the drop in market sentiment, and the lack of momentum to retrace the sell-off from December is likely to keep the pair within a tight range over the following week. However, as investors hold long-term expectations for higher interest rates in the U.K., increased speculation for an economic recovery paired with prospects for a rate hike could lead the pair higher over the month but nevertheless, as BoE Governor Mervyn King expects a ‘protracted recovery’ and forecasts inflation to remain below the 2% target until 2012, fundamental headwinds are likely to weigh on the exchange rate going forward. Over the next few hours of trading, we may see the GBP/CHF push higher to fill-in the gap from the 120 SMA but at the same time, falling equity prices are likely to weigh on the broad market, and a downturn in market sentiment could lead the pair towards 1.6580-90 (38.2% Fib) to test for short-term support. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.