Mapping the Market: Euro nears critical test against Swiss franc

By Robert Fullem

Aug. 25 (Reuters) - The euro has spent years grinding lower against the Swiss franc, but a recent recovery is now approaching a pivotal juncture that could determine whether the single currency keeps climbing or slides back into its old pattern of weakness.

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Diverging monetary policy has helped the rebound. The European Central Bank's concerns about inflation contrast with the Swiss National Bank's decision to hold rates at zero, making euro-denominated assets more appealing than francs.

This shift has helped lift the euro off multi-year lows hit in March and pushed it above its 100-week moving average, a longer-term gauge that analysts use to smooth out short-term price swings and reveal the underlying trend. Having cleared that hurdle, the euro is now closing in on its 200-week moving average, a level it has only rarely managed to breach and even more rarely held above for any length of time. History shows that the periods when it did hold above this average — 2017-2018 and 2003-2008 — coincided with buoyant global stock markets and a general willingness among investors to take on risk.

That backdrop makes the coming test especially significant. Should the euro break decisively above the 200-week average, now at 0.9489, according to data supplied by LSEG, analysts would look for a move toward the 2024 peak of 0.9930, with a stop along the way at the 2025 high of 0.9662.

But a failure to clear the 200-week moving average after such a determined approach could dent sentiment, potentially dragging the currency down to 0.9200 and possibly back to this year's low of 0.8979, which could revive expectations of a return to its long-term downtrend.

Though the euro retreated slightly last week, the 100-week moving average appears to be providing support, so another go at the 200-week average remains possible.

What the chart shows: