When trading on the Forex market, the positions are obviously based on the forecast of the evolution of the prices and on the difference between the currencies of a couple but it is equally interesting to use the interest rates of each of the currencies to make profits again more. We then explain to you how to take advantage of USD/CHF rates by explaining how to analyze them and where they are set by the competent bodies.
What Is USD/CHF?
The parity between the US dollar and the Swiss franc is called USD/CHF. It is therefore the exchange rate of the greenback expressed in Swiss francs. USD/CHF encompasses about 4% of total annual foreign exchange transactions, becoming the fifth most traded currency pair in the world. Its historical volatility is quite high with 130 pips maximum discount since its first quotation. This pair is listed in 4 or 5 decimals depending on the broker and its exchange rate is floating because it depends on the demand and the offer. The USD/CHF pair is what is called a trend pair which means, to be clear, that its movements, whether bullish or bearish, are both strong and long which is therefore ideal for the swing trading method. Among other things, the Swiss franc is considered as a safe haven and this greatly influences the prices of this pair in a period of recession in the financial markets.
Which Organizations Set the USD/CHF Rate?
Currency interest rates are set independently by the competent bodies that depend directly on the country or group of countries to which they belong. As for the USD/CHF, the dollar interest rate is set by the Fed, the US Federal Reserve. As regards the interest rate of the Swiss franc, the assignment is entrusted to the SNB, the Swiss National Bank. Interest rates are obviously not fixed and are regularly revalued upwards or downwards. The economic calendar shows these changes. Why Does the Interest Rate Affect The USD/CHF Price? When one of the aforementioned bodies decides to revise the interest rate of its currency, there is usually a change in the price of the pair in question. It is indeed all the more interesting to sell a currency the higher the interest rate and vice versa.
One of the special features of the USD/CHF currency pair is undoubtedly its strong dependence on the economic situation. As a rule, we observe a fall in this pair when growth is high and a rise in times of crisis. This phenomenon can be explained by the fact that the Swiss franc tends to play a role of refuge value when other economic values lose points. This fact has been verified historically for a long time and is explained by the importance of the Swiss franc at the international level. In the course of the last great economic crises this currency has greatly appreciated.In fact, the Swiss economy is currently one of the most prosperous and the country seems to miraculously escape the global crisis, above all thanks to the large gold reserves possessed by the Swiss banking system. Investors therefore tend to feel reassured about the Swiss franc, a sentiment strengthened even in the long term as Switzerland is regarded as a tax haven. Some economists even go so far as to say that, according to their studies, Switzerland is the only country in the world that really deserves its triple A. The analysis of this currency pair, which is still reserved for more experienced traders, can very quickly generate attractive profits due to the strength and importance of its movements, both upward and downward.
What Are the Advantages of The USD/CHF as an Asset?
We now propose to find out what the real benefits of the USD/CHF currency pair are as an asset to be traded. This couple deserves all your attention because it has many advantages. First, although it is somewhat less volatile than some other currency pairs and in particular less liquid than the euro or the pound, the USD/CHF is very easy to trade because of its liquidity. This currency pair is in fact very influenced by data such as political and economic instability, especially during international crises, as investors in this case appreciate the refuge value represented by the Swiss franc.You can also use the pound sterling data for dealing with the USD/CHF currency pair as there are many similarities in terms of price and technical features. You can then use the British currency to analyze the USD/CHF price. The supports with which you can invest in this currency pair are also varied and you can use in particular online Forex, of course, as well as ETS, long-term contracts and options. Another advantage of this currency pair is the fact that the flow of information concerning them is almost continuous. This means that the economic data from Switzerland and the United States are abundant and that it is therefore very easy to carry out a coherent fundamental analysis of this asset.
What Are the Drawbacks?
Now that you know the different advantages of the USD/CHF currency pair, we suggest that you find out what its flaws are and therefore the risks to be taken into consideration before embarking on your speculation. First of all, the fact that the Swiss franc is considered a safe haven can be both a quality and a defect. In fact, even the US dollar is considered as a reserve currency especially in times of crisis and can therefore be difficult, during periods of uncertainty, to know to what value investors will be oriented and therefore how the currency pair will behave.
We must also be wary of the risks associated with the leverage effect on this value. In fact, due to the high volatility of the USD/CHF currency pair, the use of leverage can be risky if you do not have sufficient capital to meet the required margin. However, without leverage, the volatility remains relatively below that proposed by most other currency pairs of the market with less marked peaks and falls and therefore the possibility of lower income in the short or medium term.
Currency Pairs Related to USD/CHF
As you certainly know already, there are numerous correlations between the evolution of exchange rates of different money market currencies. We therefore propose to discover here the positive and negative correlations of USD/CHF with other pairs. As for the positive correlations, that is the currency pairs that generally evolve in the same direction as the USD/CHF, we find in particular the pairs GPB/USD, AUD/USD and EUR/USD. This is due to the fact that in these cases the quoted currency is the US dollar and therefore the changes that interest it affect all these currency pairs. Similarly, there are also negative correlations of the USD/CHF currency pair with other pairs and, as a rule, this currency pair will evolve in a reverse direction to that of the USD/JPY and USD/CAD pairs.
In this case, the US dollar is the base currency. There is also a strong negative correlation between USD/CHF and EUR/USD. It is therefore advisable to take a buying position on the USD/CHF when the EUR/USD price is lower and vice versa. Finally, a last negative correlation to be noted here is that with the GPB/USD due to the positive correlation between the Swiss franc, the euro and the pound sterling. The use of positive or negative correlations between the different currency pairs is in particular very interesting when you carry out a day trading strategy because they allow you to predict rapid short-term developments.
To conclude this article, we offer a complete history of the USD/CHF currency pair. This currency pair has been known since 1850, when the Swiss franc was launched on the market. Since then, USD/CHF has become the sixth most traded currency pair in the world while at its origins it served primarily to ensure the stability of trade between Switzerland and the United States. US investments in Switzerland now account for around 130 billion dollars that make the United States the number one investor in Switzerland, which has obviously contributed to increasing the awareness of this pair.
On the other hand, Switzerland is the second largest trading partner of the United States immediately after Germany. However, it is above all the great depression that made the Swiss franc the refuge value we know today. During this period, in fact, the Swiss currency appreciated compared to all the others, except for the yen, to such an extent that the SNB had to intervene in the foreign exchange market to stop its growth with the aim of halving the appreciation of this currency compared to the euro. The operation finally failed in 2014 with even a rebound of the Swiss franc of almost 25% in just a few minutes. As demonstrated by this historical USD/CHF, SNB decisions and interventions play a key role in how traders face this pair. It is therefore an indicator to follow.
Tips for Trading the USD/CHF
To trade this currency pair, it is necessary to consider several important indicators such as news on the economic policy of both countries. You already know that in the United States this policy is conducted by the Federal Reserve while in Switzerland the Swiss National Bank is in charge. The latter often carries out transactions in the foreign exchange market to control the quotation of its currency. The EUR/CHF quotation may also influence that of the USD/CHF because there is a positive correlation between these two parities
Where and How to Trade the USD/CHF?
Individuals wishing to invest in the foreign exchange market by dealing in particular with USD/CHF or other currency pairs can now do so via online trading platforms. Just sign up for itbfx.com and create an account to start investing in the foreign exchange market.