According to the latest economic assessment by the EY ITEM Club, a UK-based economic forecasting club established in 1977 to provide independent research, the negative impact of the global Covid-19 pandemic will last three years. The forecast notes the UK economy will recover to levels at the end of 2019 by 2023. Assumption of the outlook includes a partial re-opening of the economy in May, further easing of restrictions in June, and a positive impact of the government's stimulus. The report highlights a likely recovery in the second half of 2020, with a return to annualized growth in 2021. Short-term downside pressures for the GBP/CHF are elevated after price action ascended into its resistance zone.
The Force Index, a next-generation technical indicator, was able to cross above the 0 center-line but remains below its horizontal resistance level with bears retaining dominance over this currency pair. After a slide below its ascending support level, the Force Index is positioned to extend its contraction below its descending resistance level, as marked by the green rectangle. Breakdown pressures on the GBP/CHF will increase following a return into negative territory by this technical indicator.
Switzerland revised its 2020 assessment to the downside, as communicated by the State Secretariat for Economic Affairs in Bern. After reducing the GDP outlook to an annualized contraction of 6.7%, worse than during the 2008 global financial crisis, it cautioned about expectations for a swift recovery. It added that, unless the virus resurges, the Alpine nation may embark on a fragile recovery in 2021. Given the safe-have status of the Swiss Franc, the GBP/CHF is favored to complete a breakdown below its resistance zone located between 1.2038 and 1.2140, as marked by the red rectangle.
Bearish pressures intensified after the ascending 38.2 Fibonacci Retracement Fan Support Level crossed into its resistance zone. While a temporary bullish push cannot be excluded, the GBP/CHF is likely to succumb to near-term negative developments. A healthy correction, fueled by a pending profit-taking sell-off, is anticipated to force price action into its short-term support zone. This zone is located between 1.1611 and 1.1710, as identified by the grey rectangle. You can learn more about the Fibonacci Retracement Fan here.
GBP/CHF Technical Trading Set-Up - Breakdown Scenario
- Short Entry @ 1.2090
- Take Profit @ 1.1700
- Stop Loss @ 1.2200
- Downside Potential: 390 pips
- Upside Risk: 110 pips
- Risk/Reward Ratio: 3.55
Should the Force Index bounce off of its descending resistance level, which acts as temporary support, the GBP/CHF could attempt a breakout. The long-term outlook remains bullish for this currency pair, but a short-term correction is required to maintain the advance. Failure to enter one now positions price action for a more violent pull-back at a future point. The next resistance zone is located between 1.2333 and 1.2408.
GBP/CHF Technical Trading Set-Up - Breakout Scenario
- Long Entry @ 1.2240
- Take Profit @ 1.2400
- Stop Loss @ 1.2270
- Upside Potential: 160 pips
- Downside Risk: 70 pips
- Risk/Reward Ratio: 2.29
