USD/CHF remained soft on Friday, with the pair still trading below 0.8000, set to end the week with a modest gain of just over 0.25%. At the time of writing, the pair is trading at 0.7956, virtually unchanged.
USD/CHF Price Forecast: Technical Outlook
The USD/CHF pair continued to consolidate this week. Although traders are facing movement resistance at the confluence of the 20 and 50-day Simple Moving Averages (SMA) at 0.7974/84, a subsequent breach could take the pair to 0.8000.
The momentum is bearish, as indicated by the Relative Strength Index (RSI), which is hovering below its 50 neutral level.
For bearish continuation, traders need to overcome the October 17 low at 0.7873. If this is crossed, the next support will be the yearly low of 0.7829. Conversely, if USD/CHF climbs above 0.8000, the first resistance will be the 100-day SMA at 0.8022, followed by the October 8 high at 0.8076 and the 0.8100 figure.
USD/CHF Price Chart – Daily
Swiss Franc FAQ
The Swiss franc (CHF) is the official currency of Switzerland. It is one of the top ten most traded currencies globally, with volume exceeding the size of the Swiss economy. Its value is determined by broad market sentiment, the economic health of the country, or actions taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss franc was pegged to the euro (EUR). The peg was suddenly removed, resulting in the value of the franc increasing by more than 20%, sending the markets into turmoil. Even though the peg is no longer in place, the CHF’s fortunes remain highly correlated with the euro due to the Swiss economy’s high dependence on the neighboring Eurozone.
The Swiss franc (CHF) is considered a safe-haven asset, or a currency that investors buy in times of market stress. This is due to Switzerland’s perceived position in the world: a stable economy, a strong export sector, large central bank reserves or a long-term political stance towards neutrality in global conflicts make the country’s currency a good choice for risk-averse investors. In turbulent times the CHF value is likely to strengthen against other currencies, which are considered more risky for investment.
The Swiss National Bank (SNB) meets four times a year to decide on monetary policy – once every quarter, less than other major central banks. The Bank aims to keep the annual inflation rate below 2%. When inflation is above target or is projected to be above target in the near future, the Bank will attempt to control price increases by raising its policy rate. Higher interest rates are generally positive for the Swiss franc (CHF) as it leads to higher yields, making the country a more attractive location for investors. Conversely, low interest rates weaken the CHF.
The release of macroeconomic data in Switzerland is important to assess the state of the economy and can affect the valuation of the Swiss franc (CHF). The Swiss economy is broadly stable, but any sudden changes in economic growth, inflation, the current account or the central bank’s currency reserves are likely to cause changes in the CHF. In general, high economic growth, low unemployment and high confidence are good for the CHF. Conversely, if economic data points to weak momentum, the CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of neighboring eurozone economies. The broader EU is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the eurozone is essential for Switzerland and, thus, the Swiss franc (CHF). With such dependence, some models suggest that the correlation between the position of the euro (EUR) and the CHF is greater than 90%, or close to perfection.
