GBP/CHF could surge higher in 2018

Among the major currencies, one of the potential winners in 2018 could be the British pound. There is a good possibility sterling will bounce back strongly as UK wages recover, putting further upward pressure on inflation, which is already well above the Bank of England’s target. As more Europeans probably move back to their home nations due to Brexit, net immigration could fall, reducing the supply of work force, thereby pushing up wages. Meanwhile the Swiss franc could lose out as Switzerland’s battle with deflation and a high exchange rate continues. Consequently, the Swiss National Bank would be keen to keep its monetary policy extraordinarily loose at a time when other major central banks, including the Bank of England, tighten their belts. One caveat in this bullish outlook is if the Swiss franc finds demand from safe haven flows, say as a result of a stock market correction. Even so, this could prove be a temporary boost.

As we approach the end of this year, the GBP/CHF is threatening to break above its long-term, 10-year-old, bearish trend line which has been place since before the financial crisis. It has already managed to climb back above the 2015 low, formed when the SNB dropped the 1.20 EUR/CHF peg. The rebound has helped to lift the pair above the psychologically important and key resistance at 1.30. If the GBP/CHF manages to break higher as we expect it to, then the next immediate upside targets would be at 1.3420 and 1.4000, levels which were formerly support. In the longer-term, we think the GBP/CHF will be able to climb above the pivotal 1.5500 area, but we will cross that bridge when we get to it. As things stand, we would turn cautious in our long-term bullish outlook in the event price breaks back below 1.30 on a monthly closing basis.

Source: eSignal and FOREX.com.