CAD/CHF: Sellers Press for Control Amid Economic Divergence

Market Overview

On Tuesday, 26th November 2024, CAD/CHF found itself under significant bearish pressure, primarily driven by contrasting economic developments in Canada and Switzerland. Canada displayed resilience through stronger-than-expected retail sales, reflecting robust domestic demand. However, persistent volatility in the Canadian dollar, partly due to government spending measures, has left the currency vulnerable. Conversely, the Swiss franc, regarded as a safe-haven asset, has strengthened amidst rising global uncertainties and geopolitical tensions. This divergence has fuelled the current bearish sentiment for CAD/CHF, with investors favouring the stability of the Swiss currency, particularly as threats of import tariffs from Donald Trump on Canadian goods further weighed on the CAD.

Technical Analysis

From a technical perspective, the daily chart of CAD/CHF reveals bearish momentum taking over after price bounced off a mid-term descending trendline. Price touched this trendline, met selling pressure, and subsequently pulled back from the resistance area of 0.64064, which coincided with the trendline. Furthermore, today’s price action broke below the previous support level at 0.62851, indicating a continuation of the downward momentum. This breach weakened a critical support level, paving the way for additional downside.

The next downside target for CAD/CHF stands at 0.62521, which serves as the first immediate support. If bearish pressure persists and this level is broken, subsequent targets are 0.62349 and 0.62101. These targets align with Fibonacci extensions and prior key support zones. Should the current bearish momentum endure, there is potential for further declines beyond these levels.

Momentum oscillators continue to favour the bearish scenario. The Relative Strength Index (RSI) remains around 42, indicating growing selling pressure. The MACD is also nearing negative territory, with both MACD lines diverging, suggesting a weakening bullish momentum and signalling a retreat from buyers.

Key Levels

• Resistance Levels:
  • 0.64064 (Major Resistance Area)
  • 0.63314 (61.8% Fibonacci Retracement)
  • 0.62851 (Broken Support, now resistance)
• Support Levels:
  • 0.62521 (Immediate Support)
  • 0.62349 (Next Support Level)
  • 0.62101 (Further Downside Target)

Alternative Scenario

A potential reversal scenario would be validated if the price recovers and sustains above the 0.63314 mark, which coincides with the 61.8% Fibonacci retracement level. In such a scenario, there would be an increased likelihood of the pair moving towards the previous high at 0.64064.

Key Events to Watch

On Tuesday, 26th November, two key events from Canada could significantly impact CAD/CHF. The first is Corporate Profits, which are expected to increase by 1.5%. This growth could signal an improvement in Canada’s business sector and lend support to the Canadian dollar. The second is Wholesale Sales, projected to grow by 0.9%, indicating improved economic demand and internal sales performance. Both releases could enhance CAD strength. On Wednesday, 27th November, the Swiss ZEW Economic Expectations are set for release, with forecasts at -7.7. A reading matching or falling below expectations could signal a bleak outlook for the Swiss economy, potentially weakening the CHF. With these upcoming events, there is a possibility for CAD to gain against CHF should Canadian data outshine Swiss releases.

Conclusion

CAD/CHF remains under downward pressure due to the divergence between the strengthening Swiss franc and a volatile CAD. Price action targets further declines unless support levels hold, with sentiment largely hinging on upcoming economic data releases from both Canada and Switzerland.