EUR/CHF breaks outThe EUR/CHF looks quite interesting heading into the ECB rate decision.
On the back of news from Germany will unlock 500 billion euros for defense and infrastructure investments, we have seen European bond yields surge higher, with those on the benchmark 10-year German bund rising nearly sharply to 2.75%, the highest level since November 2023. The euro has rallied across the board, with the EUR/USD climbing to 1.0780. The single currency has also gained ground against most other major currencies, including the pound, franc and yen.
The euro has climbed on expectation that increased government expenditure could stoke inflation. This, in turn, may increase the case for European Central Bank to cut rates more gradually than previously expected.
But the ECB is unlikely to keep its policy unchanged at Thursday’s meeting, with almost all economists expecting the central bank to trim rates by a further 25 basis points. It is what Lagarde will say at the ECB press conference that will be important.
In light of the threats of tariffs, Lagarde may try to be a bit more cautious and that may hurt the euro slightly. But the dips may well be bought, leading to fresh gains for euro crosses.
The EUR/CHF has broken out today, taking out key resistance at 0.9500-0.9517 and moving decisively above its 200-day average. It may now ease a little from 0.9600 resistance, but the path of least resistance is to the upside. 0.9700 could be next target from here, and eventually a rise towards parity wouldn't surprise me.
By Fawad Razaqzada, market analyst with FOREX.com
