EUR/CHF bears back in control ahead of the ECB

• EUR/CHF a keen focus with the ECB coming up.
• ECB base case expectations sees a 20bps rate cut with tiering.

German growth downgrades are weighing on the euro and the EUR/CHF has run into supply ahead of the highly anticipated European Central Bank meeting tomorrow which makes for downside risks in the euro with a large QE announcement expected. As per yesterday's EUR/CHF analysis, the cross has given up the ghost and succumbed to the bearishness around the euro and fallen back into the hands of the bears. - The markets expect the ECB’s deposit rate to be moved further into negative territory with measures to reduce the impact of negative rates on bank profitability.

Base case sees a 20bps rate cut with tiering

"Our base case sees a 20bps rate cut with tiering, €40bn/m of QE, and no rate hikes until at least mid-2021. We're more comfortable with the rates view than QE, as QE will likely be a contentious decision," analysts at TD Securities argued, adding "Tactically, even a small QE package could be supportive of a rally in EUR rates. From a strategic perspective, we continue to hold a steepening bias for the curve as well as tighter front-end spreads."

Should there be a risk-off event in coming days, thre will be increased demand for safe-haven assets which could see the CHF higher - That said, signs that the SNB has recently intervened in the FX market have distorted demand for the CHF and the central bank will certainly look to support EUR/CHF should the euro fall heavily in coming day's/ weeks.

EUR/CHF levels

To the downside, a break back below the prior descending resistance opens risk back to the 1.08 handle. On the upside, the 1.0970s and beyond the 25th July swing lows to attract commitment from the bulls. 1.1070 would be the first target as a combination of the late July resistance and late June support - This area has a confluence of the 38.2% Fibonacci retracement of the April swing highs to Sep swing lows.