In February, the EUR/CHF pair reached a low of 1.1442 before starting a major rally. The pair is currently trading at slightly lower than 1.2000. From the YTD low, the pair has risen by almost five percent.
The current rally on the pair came mostly because of the Swiss National Bank. The bank officials have talked about the need to leave the rates unchanged for a longer period than expected. In a recent interview, the SNB president said that the bank was not inclined to hike rates with the aim of stabilizing price developments and supporting economic activity. They believe that the Franc is over-valued. A weak Franc is potentially better for the country because it derives most of its income from exports. The bank’s interest rates remain at negative 0.75% while the three-month Libor is between -1.25% and -0.25%.
On the other hand, the ECB has indicated its desire to hike rates. They have showed that they could start the normalization process as soon as September.
The pair is currently trading at 1.1978. At these levels, the question is whether the pair will continue the upward momentum or start a reversal. There is a likelihood that a dovish SNB and a somewhat hawkish ECB may lead the pair higher. However, markets will be watching out for short term declines as traders process the data and as some long traders may wind up their trades. The point to watch is the 1.1900 which is an important Fibonacci Retracement level.