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GBP/CHF has been in a strong up trend against the CHF but this could all be about to change and we could see a significant correction in the GBP. Our view of the fundamentals, sentiment, and key technical levels to look out for below...

We agree with this view - “We now express our GBP bearishness against the CHF, a currency which we feel has struggled excessively so far this year and where the bears now look weary," (Daragh Maher, Head of FX Strategy for the U.S. at HSBC)

Yield Advantage In Favour of GBP to Narrow

The CHF has been under pressure due to its yield disadvantage and also the fact we have had general risk on in the markets – the good news is discounted for the GBP and the bad news for the CHF which points to a rally.

We have a rate of 1.5% in terms of interest rates in terms of the CHF v The GBP at 5.5% but expect the Bank of England to cut in June. Market odds for a June rate cut are about 50/50 we see a cut as more likely and more cuts than the market is expecting...

"Small data misses and signs of modest extra inflation persistence won’t knock the MPC off course. Accordingly, we continue to expect the MPC to cut Bank Rate in June, then again in September and December." (Rob Wood, Economist at Pantheon Macroeconomics) We could even get more cuts inflation is slowing, the economy is stagnant and there is a cost of living crisis so the BoE will cut and cut soon.

CHF to Gain on Its Safe Haven Status

Speculators have bought heavily on the view of the BoE holding rates for longer and we expect them to exit on stop. In addition, the GBP is heavily correlated with risk on and we have seen risk appetite high in financial markets which has helped to support the GBP and pressure the safe haven CHF lower. We view stocks as a bullish extreme and expect a major correction and we also expect geo-political tensions which have eased recently in the Middle East to rise again - we also expect to see increased tensions in the Russia-Ukrainian conflict.

Technical Analysis

Our view of the key levels of support and resistance to look our for on the chart below.



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