EUR/CHF has shown a consistent correlation with key European stock indices such as the France CAC and Germany DAX. Last week, the correlation coefficients between EUR/CHF and the CAC 40 and DAX were at a high positive reading of 0.82 and 0.84 respectively. This indicates that movements in the European stock markets have a direct impact on EUR/CHF, highlighting the interdependence between these financial instruments.
Weak China Inflation and Its Implications
The recent data on China’s core inflation and producer prices for August have raised concerns about the state of internal demand in the country. The continued decline in consumer inflation rate and factory gate prices indicate a lackluster consumer demand in China. This trend could have adverse effects on European manufacturers of luxury goods, cars, and machinery, as China is a significant market for these products. The potential decrease in profits for European firms may further contribute to downside pressure on the France CAC and Germany DAX.
EUR/CHF Technical Analysis
EUR/CHF is currently hovering around the key intermediate support level of 0.9255. During the last global risk-off episode, EUR/CHF managed to hold above this level but faced resistance at the 200-day moving average around 0.9580. The weekly MACD trend indicator has also breached below its centerline, indicating a potential downtrend for EUR/CHF. If the critical resistance level of 0.9780 is not surpassed, EUR/CHF could see further weakness towards medium-term support levels at 0.9085 and 0.8890. However, a breakout above 0.9780 could signal a bullish sentiment and a potential rally towards the long-term resistance zone of 1.0040/1.1000.
The correlation between EUR/CHF and European stock indices, coupled with weak China inflation data, suggests a challenging environment for European companies reliant on Chinese consumer demand. The potential decline in profits for luxury goods, cars, and machinery manufacturers could have a cascading effect on the France CAC and Germany DAX. Traders and investors should closely monitor key support and resistance levels for EUR/CHF to gauge the market sentiment and potential future movements.