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FOREX: GBPCHF Topside Momentum Extends, Fresh 8-Week High

FOREX
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  • Swiss Franc underperformance on Wednesday has contributed to GBPCHF extending its most recent topside momentum, reaching the highest level since July 30 at 1.1358. We pointed out in the lead up to last week’s BOE decision that the cross had broken above the 50-day EMA, and it has subsequently extended through the Aug 19 high at 1.1264, bolstering the recovery from the carry unwind/risk off induced selloff in early August.
  • Most analysts believe the SNB will cut rates by 25bps tomorrow, however, we highlight JPMorgan’s call for a bolder 50bp move, citing the focus will be on any indication of SNB discomfort with franc strength.
  • Latest price action signals scope for a stronger GBPCHF recovery and exponential moving averages have now converged into bull mode. This could target a move towards resistance around 1.15, a psychological/inflection point over the past two years. Additionally, trendline resistance from the 2021 highs intersects just above the 1.15 handle, bolstering the technical significance of this area (see chart below).
  • Goldman Sachs said that assuming US growth continues to outperform, and the Fed still eases quickly, this pattern should support further upside in GBP, particularly versus safe havens like CHF. They also do not see current bullish GBP positioning as enough of a headwind when the broader pro-cyclical backdrop is driving gains and is likely to remain supportive.
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  • Swiss Franc underperformance on Wednesday has contributed to GBPCHF extending its most recent topside momentum, reaching the highest level since July 30 at 1.1358. We pointed out in the lead up to last week’s BOE decision that the cross had broken above the 50-day EMA, and it has subsequently extended through the Aug 19 high at 1.1264, bolstering the recovery from the carry unwind/risk off induced selloff in early August.
  • Most analysts believe the SNB will cut rates by 25bps tomorrow, however, we highlight JPMorgan’s call for a bolder 50bp move, citing the focus will be on any indication of SNB discomfort with franc strength.
  • Latest price action signals scope for a stronger GBPCHF recovery and exponential moving averages have now converged into bull mode. This could target a move towards resistance around 1.15, a psychological/inflection point over the past two years. Additionally, trendline resistance from the 2021 highs intersects just above the 1.15 handle, bolstering the technical significance of this area (see chart below).
  • Goldman Sachs said that assuming US growth continues to outperform, and the Fed still eases quickly, this pattern should support further upside in GBP, particularly versus safe havens like CHF. They also do not see current bullish GBP positioning as enough of a headwind when the broader pro-cyclical backdrop is driving gains and is likely to remain supportive.