Mapping the Market: Swiss franc could extend sharp rally vs euro on French budget woes

The Swiss franc has rallied sharply over the last week against ​the euro as France’s budget concerns spread through Europe’s bond market, and ​is closing in on levels that could potentially put ‌it ​on a path toward its record high against the single currency, technical analysis indicates.

Click here for a detailed technical analysis chart. The euro has come under growing pressure from concerns over France's high debt and political gridlock as next ‌year's presidential election gets closer. The exchange rate is usually quoted as the number of francs per euro, so a falling line on the chart means the Swiss currency is getting stronger.

Technical analysts use several tools to determine where a currency might be headed, including trendlines, moving averages and earlier highs and lows. A moving average ‌smooths out daily price swings by tracking the average price over a set period, such as 200 days or 200 weeks. This helps show which ‌way a market is really heading. Before worries about France's finances boiled over last week, the euro had been climbing toward a descending trendline. That line connects a series of lower and lower peaks against the franc. It also sat close to the 200-week moving average, which made the area doubly important.

Had it surpassed those markers, it would have indicated a more bullish outlook for the ⁠euro. Instead, ​the euro pulled back, which analysts call a "rejection." ⁠It's a sign that momentum has shifted to sellers of the euro. The exchange rate is now nearing two closely watched levels. One is the 200-day moving average at 0.9235. The other ⁠is 0.9227, the halfway point of the euro's recent rally against the franc. Traders pay attention to these halfway points, known as 50% retracements, because markets often pause or reverse there.

A ​fall below that area would make it more likely that the franc pushes the euro down to earlier lows near 0.9200, and possibly to ⁠this year's low of 0.8969. If that happened, attention would turn to the euro's all-time low against the franc, below 0.87, according to LSEG data. That record was set in 2015, when Switzerland ⁠shocked markets ​by announcing it would no longer stop the franc from strengthening.

However, if markets worry less about France's budget and the euro recovers, a rise above the downtrend line would make the outlook more positive for the euro. That line is currently near 0.95 and falling. What the chart shows:

(Mapping ⁠the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not ‌constitute investment advice or ‌trading recommendations. ) (Robert Fullem is a Reuters market analyst. The views expressed are his own. ​Editing by Burton Frierson and David Gaffen)