EUR/CHF bounced from support around 0.9300 this week after its weakest daily close since July. Investinglive's analysis says the French-German bond yield spread, still elevated, means euro risks have not passed.
EUR/CHF tested waters below the 0.9300 level late last week, posting its weakest daily close since July. The pair then bounced off the region around 0.9300 as the new week began. Investinglive's analyst is not entirely convinced the danger has passed.
The 100-day moving average and trendline support from the March and May lows gave buyers an additional layer of defense. For now, the cluster of support around 0.9300 remains the key line in the sand.
A break below 0.9300 would shift focus lower
A firm break below that level would put the 200-day moving average around 0.9236 in focus next. It could then potentially open a move towards 0.9200.
The key risk is that the French-German bond yield spread continues to stay elevated around 141 bps, not far from the recent highs near 150 bps. A wider yield spread suggests investors still demand a hefty premium to hold French debt, with fiscal concerns continuing to outweigh confidence.
US CPI could be the next catalyst
The longer that situation persists, the greater the risk that some of the unease could spill over into other euro area bond markets. The analyst says the market is not at the stage of labeling this another euro area debt crisis, but calls it a warning signal.
Next, the US CPI report is due tomorrow. A hotter-than-expected reading could push Treasury yields higher and weigh on broader risk sentiment, potentially renewing demand for the franc. It could also drive a further selloff in global bond markets and drag European yields higher, worsening the fiscal risks tied to French debt.
A softer report could give EUR/CHF some light breathing room, but it would not make France's fiscal troubles disappear overnight.
Source: Investinglive
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