What is USD/CHF?
USD/CHF is the currency pair that shows the value of the US Dollar against the Swiss Franc. The left side of the pair is called the base currency, in this case the USD, and the right side is called the quote currency, in this case the CHF. This exchange rate tells you how many Swiss Franc you need to buy one US Dollar. For example, if the USD/CHF pair is trading at 0.9900, it means that you need 0.9900 Swiss Franc to buy one US Dollar. So, when the pair is going up in price, the US Dollar is said to be appreciating or getting stronger and the Swiss Franc is depreciating or getting weaker, and vice versa when the pair is going down in price. The Swiss Franc is also nicknamed “swissie”.
What are common charts to use when trading USD/CHF?
There are different ways you can display the exchange rate price movements on a chart. The most common ways include a line chart or a bar chart, but the most popular and used one is the candlestick chart. The candlestick chart shows you instantly and in real time where the price has opened, closed and how much up and down it went on any given timeframe.
Let’s say you want to check USD/CHF price on a daily timeframe. You go to your charting software, select the timeframe and select the candlestick chart (if it’s not set by default). This is what you would see on tradingview.com
Is USD/CHF an easy pair to trade?
USD/CHF can be a hard pair to trade because both the currencies are considered safe havens in the FX space. You can often see the pair ranging in the short term and you need to have a very good divergence in fundamentals between the two to catch trends. You can have a monetary policy divergence between the two central banks backing the currencies, the Federal Reserve (the Fed) for the USD and the Swiss National Bank (SNB) for the CHF. For example, if the Federal Reserve is about to start tightening its monetary policy raising interest rates and the Swiss National Bank is cutting them or not doing anything, then you have a policy divergence and, in such cases, you would see the relative currency pair USD/CHF appreciate or going up. On the other hand, when the market expects bad times coupled with the Federal Reserve cutting interest rates, you will see USD/CHF going down as the market prefers the CHF for things like country neutrality and low debt. Below you can see the chart showing 4 years of price action and the fundamental reasons behind it.
What session is best to trade USD/CHF?
The best times to trade USD/CHF is during the European and North American Session. During these sessions not only European and American traders are active, but it’s also when we get major economic releases for both countries and their respective central banks meetings. Moreover, the first part of the North American session overlaps with the European Session, therefore liquidity is at its peak.
Why is USD/CHF important?
Currency exchange rates are important for the respective countries. A weak currency can increase exports and thus growth because foreigners will have a stronger currency and more purchasing power leading to them demanding more goods and services from the country that has a weak currency. A too weak currency though can spell trouble because it may increase inflation and the central bank has a mandate of keeping inflation stable, so if it increases too much, the central bank will start to increase interest rates which will strengthen the currency. On the other hand, when the currency is too strong it increases imports and diminishes exports because foreigners will buy less goods and services because their purchasing power will be weaker. This can create a trade deficit (more imports than exports).
Will USD/CHF go up or down in 2023?
In the current context of aggressive Fed tightening, the USD/CHF pair should maintain the uptrend. In 2023 though things may change. The recession is caused by high inflation and aggressive monetary tightening from central banks. Recessions are generally deflationary, and we should see the Fed start easing probably sometime in the second half of the next year. So, once the Fed is near the end of its tightening cycle and the market will expect the Fed to ease monetary policy to heal the economy and start to focus on growth, we should see again a downtrend in USD/CHF lasting several months.
Is USD/CHF at risk of another black swan event?
There may be a black swan event in this cycle as it’s hard to not see one amid record high inflation and record fast monetary tightening after decades of low inflation and low interest rates. The CHF black swan event of 2015 when the Swiss Franc plummeted by double digit percent in a day was caused by the unexpected removal by the SNB of the peg. The CHF is no longer pegged to EUR and thus a CHF specific event is unlikely this time.
Is USD/CHF strong?
As of now the USD/CHF pair is in an uptrend due to aggressive Fed tightening. Both the central banks are raising interest rates, but the Fed is doing it with bigger magnitude than the SNB, so even if both the currencies are safe havens, the USD is preferred. There’s also lots of foreign debt, especially in the emerging market economies denominated in USD, which now amid global recession and aggressive Fed tightening is being liquidated back in USD increasing the demand for the greenback.
How to trade USD/CHF?
The best way to trade currencies in general is to have a fundamental idea for direction, which is generally based on macroeconomics such as central bank’s monetary policy, growth, inflation and so on, and technical analysis for risk management. For example, let’s say that you view the aggressive Fed as a tailwind for the USD in general. So, you will want to mainly take long positions in USD/CHF. You also need to manage your risk though. Where can you enter in order to have a small risk exposure but a bigger profit potential? You can use technical analysis.
So, you open the USD/CHF chart and use technical concepts like support and resistance, trendlines, Fibonacci ratios, indicators and so on to decide where to open a trade. For example, in the chart below you can see how you could use a simple inverted head and shoulders pattern breakout to enter a long position. You could place a stop loss below the most recent swing level (the right shoulder), so your loss would be little and limited. Your profit potential could be anything from 3 to 4 times the amount risked, making it a low-risk high reward trade.
Where can I trade USD/CHF?
You can trade USD/CHF or any other Forex pair with a broker. Always choose a good, reputable, and regulated broker to avoid unnecessary problems. When you open a trading account with a broker, you will have to supply your KYC documents and, once approved, deposit money to be able to trade. Finally, you can use the broker trading platform to execute your trades. Most retail brokers let you also trade on MetaTrader 4 or MetaTrader 5, which are two of the most famous and popular trading platforms among retail traders. Most retail brokers offer CFD trading for Forex, although you can also trade USD/CHF via other derivatives like futures or options that trade on exchanges but are more expensive than CFDs.
USD/CHF correlation
An important correlation you should be aware of is that between the currency pair and the yield spread. Generally, investors care about three things: return, risk and liquidity. Bonds interest rates are called yields, that’s how much you will get every year if you buy the relative bond. So, if you can get a higher return in a country than another, you would take the chance, right? But investors also care about the risk and liquidity. The risk is that you may get a lower return compared to inflation and/or future interest rates and liquidity is how easy and fast it is to convert an asset into cash. So, if those last two things are seen as bad for an investor, then even if the return is higher, the investor would shy away from putting his money into that country.
Below, you can see the yield spread between the US and the Swiss bonds (blue line) and USD/CHF exchange rate (orange line). You can see how the currency pair is correlated with the yield spread which generally leads the currency pair. Sometimes though there are divergences and those happen because of other fundamental things happening in the economies or the world. That’s why it’s important for you to keep up with the ongoing developments in the world to always be aware of what’s going on and what may happen next.
