- The Swiss Franc has found its feet after investors turn risk averse on Monday morning.
- The launch of an EU probe into big tech giants’ practices and renewed attacks on Kyiv are unsettling markets.
- USD/CHF reaches an upside target and pulls back.
The Swiss Franc (CHF) edges higher on Monday as increased risk aversion pushes investors into safe-havens, of which the Swiss Franc is one of the best known.
The flight to safety comes on the news that the European Union (EU) has launched an investigation into big tech giants such as Apple, Google and Meta on Monday, according to ABC News.
The news that Russia has launched hypersonic missiles at Ukraine’s capital Kyiv may have further unsettled markets.
Major European indices such as the DAX, CAC40 and FTSE 100 are down by roughly half a percent on Monday at the time of publication. US Futures are off by a quarter of a percent.
Swiss Franc benefits from safety trade
The Swiss Franc is gaining at the expense of competitors as risk aversion permeates markets at the start of the week. The news on Monday that the EU Commission has launched an investigation into big tech companies for suspected “non-compliance” of its Digital Markets Act (DMA) has been given as a key factor rattling investors.
The DMA seeks to broadly level the playing field in digital markets by preventing online big tech platforms from acting as “gatekeepers” and thereby monopolizing digital ecosystems.
The Commission “suspects that the measures put in place by these gatekeepers fall short of effective compliance of their obligations under the DMA,” according to the EU’s press release.
In Kyiv, meanwhile, a series of hypersonic missiles escalated the conflict in Ukraine, causing damage to buildings and wounding two civilians in the central Pechersk district, as well as damaging buildings in the Solomiansky, Holosiyvsky and Dnipro districts, according to the Independent.
Technical Analysis: Swiss Franc meets first target for breakout and pulls back
USD/CHF, the number of Swiss Francs purchasable with one US Dollar (USD), is trading in the upper 0.8900s after breaking out and rallying above a range it had been yo-yoing in since the middle of February.
The pair has met the conservative target for the breakout at 0.8984 and has pulled back. The target is calculated as the 0.618 Fibonacci extension of the height of the range extended from the breakout point higher.
US Dollar versus Swiss Franc: 4-hour chart
The next target for the breakout is at 0.9052, the full height (1.000 ratio) of the range extrapolated higher.
There is a risk the pair could correct lower before attempting the next target. The Moving Average Convergence/ Divergence (MACD) indicator has just crossed below its signal line on the 4-hour chart, indicating the probability the pair will pull back.
If the correction continues it could target at the midpoint of the breakout rally, situated at roughly 0.8930.
Beyond that, the pair is overall seen continuing the short-term uptrend that formed prior to the range and its breakout higher.
It would take a break back below 0.8729 to suggest a short-term trend reversal and the start of a deeper slide.
The first target for such a move would be the 0.618 Fib. extrapolation of the height of the range at 0.8632, followed by the full extrapolation at 0.8577, which is also close to the 0.8551 January 31 lows, another key support level to the downside.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
