EURCHF on watch as speculation about ECB QE grows

The EUR/CHF might not be the most important pair at the moment, but it could be on the verge of a potentially large move in the coming days and weeks. The forgotten pair recently came to life as it surged from around 1.0650 to around 1.0975 in a relatively short period. As a result, several resistance levels broke down, as too did the long-term bearish trend. However, since the second week of May, price has understandably gone into consolidation after that upsurge.

Market participants are probably waiting to hear from the European Central Bank and in particular what their plans are regarding QE: continue as planned or taper the stimulus package early thanks to recent improvement in Eurozone data. The Swiss National Bank will be very happy if the ECB were to drop its dovish stance and start tightening policy. So too will be the EUR/CHF bulls, probably.

But as speculation about early tapering of ECB QE grows, the euro could potentially rise further. This could put further upward pressure on the EUR/CHF pair. However, we will put this view on hold until and unless the cross shows a clear bullish signal again, for example a breakout from its triangle consolidation pattern to the upside. If this were to happen then the EUR/CHF could head towards the prior reference points at 1.0975, 1.1030 or even 1.1200, the high almost reached in early 2016.

However the bullish idea would become invalid in the short term in the event the EUR/CHF were to break below the key 1.0852-72 support range as highlighted in the chart. In this potential scenario, we may see a deeper correction or a complete reversal, so one has to be very careful if that support does give way. In this case, the gap that was left behind in April may get fully or partially filled before price makes its next move. Levels such as 1.0800 and 1.0710 may then become the next bearish objectives.