Given the current situation in Italy, it is worth keeping an eye on EUR/CHF. While the Swiss Franc temporarily lost its shine as safe haven, the political situation in Italy has kept the currency bid in recent weeks.
Markets initially reacted positively to the news that a government was formed after all, and that Italy will not head towards new elections in September. Nevertheless, the plan of the new government to increase spending and cut taxes despite the massive debt burden will definitely lead to tensions between Rome and Brussels.
In the medium-term, the Swiss Franc is likely to resume its decline. Rate expectations remain low, especially compared to other major economies, and the SNB has no reason to rush with a rate hike despite negative interest rates.
However, in the short-term, the political situation in Italy will continue to weigh on the Euro and keep the Swiss Franc bid. A further correction in EUR/CHF should not be ruled out. The pair is struggling to get away from 1.15, and a clear break below 1.1445 would signal that another test of 1.1340 is likely to follow.
To the topside, EUR/CHF bulls would need a daily close above 1.1650 for a confirmation that a short-term bottom has been set at 1.1340.
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