Pound-Swiss Franc Rate Pierces Above 1.30, Technical Bull Flag Bodes for Further Strength
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- GBP/CHF completing bull flag with upside potential
- Break above 1.3121 would confirm extension higher
- But UK politics prove for a volatile Sterling
The Pound's outlook against Switzerland's Franc remains a positive one in the short-term we believe, with a particularly useful chart pattern likely to encourage further buying interest.
The Pound-to-Franc exchange rate (GBP/CHF) is trading in the mid-1.30s after rising about a cent since last week when it was trading in the mid 1.29s.
It is moving up to the highs of the current consolidation and previously broke above a key trendline drawn from the 2018 highs, which is an overall bullish sign.
Longer-term, the pair is predisposed to trading higher as Brexit risks will probably unwind. The chances of a deal of some sort are much greater than a no-deal scenario placing the odds more in favour of greater Pound strength rather than weakness.
The positive overall fundamental outlook compliments a decidedly bullish technical picture. The pair has formed a bull flag continuation pattern. The steep rally in January constitutes the ‘pole’ whilst the sideways consolidation, is the ‘flag square’. Bull flags are extremely bullish patterns.
A break above the 1.3121 flag highs would confirm an extension up to at least 1.3330, at the level of the 200-week moving average (MA). There, there is a risk of a pullback since large MAs often provide tough resistance to trending prices. But eventually it could go even higher.
1.3300 is only a minimum expectation, and a move up all the way to the 1.3700 level is also quite possible using the length of the pole as a guide, which is the usual method for establishing the upside target.
Momentum on the weekly chart, as measured by the RSI indicator, is relatively strong and suggestive of a further upside too, as it is mostly higher than the peak which formed on Jan 21, even though that peak was higher than the current market level.
GBP/CHF is likely to be more sensitive than most GBP pairs to a changes in Brexit sentiment. This is because the Swiss Franc is a safe-haven currency, which means it rises when markets are in turmoil. The past broad backdrop of uncertainty since the referendum will have strengthened the Franc to the detriment of the Pound, this is because being a safe-haven, the Franc is favoured as a safe place to entrust capital.
Although a deal is likely, it has been prevented so far by disagreements over what would happen to the Irish border in the event a solution to keep it open could not be found, even after a transition period. This is the so called Irish backstop problem.
New rumours floating around suggest the EU and UK are making progress towards a new compromise over the vexxed issue of the Irish border. If new concessions are made which bring us closer to a final deal, which satisfies the majority of UK parliamentarians, it could reduce uncertainty and promote a rise in GBP pairs.
Gains may be especially sharp in the GBP/CHF pair, because simultaneously as the Pound is rising, the Franc will probably be weakening as safe-haven flows reverse, and this would propel the pair even more rapidly higher than in a normal Sterling pair.
Most analysts think there is a very low probability of a 'no deal' Brexit. Since most Brexit scenarios involving a deal are expected to lead to an appreciation in Sterling, the outlook is generally held as bullish for the currency, and therefore even more bullish for GBP/CHF.
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