How To Trade USD/CHF
The USD/CHF is a major pair in the binary options market, and it is actually a special pair. The main reason for this is because the Swiss Franc is considered to be a safe haven asset, which means it is a currency that can be trusted during market turmoil. When there is a crisis or a weakening sentiment in the US and European markets, people look for safe haven assets to protect their investments, and the Swiss Franc is one of such instruments. To understand what the safe haven asset means, think about gold. Whenever there is are troubles in the Forex and stock markets, people tend to buy gold in order to protect their funds.
However, the Swiss Franc seems to be special because people trade it even if the Swiss interest rate is negative, reaching -0.75% at the moment, which is a record low. The Swiss central bank cut rates because they consider the currency is overvalued and the bank decided to stimulate the domestic economy. The negative rate means that whenever the client wants to deposit Swiss Francs to a bank, he will have to pay for it rather than get a percentage as a gain.
In fact, people are not such familiarized with negative rates because this approach is recent. Whenever we think about a deposit, it is easy to imagine a percentage gain, right? Well, things are different with the Swiss Franc, which makes it unique and challenging for trading.
The USD/CHF price performance is tracking the economic differences between the Swiss and American economies. So, whenever there is a sharp change in interest rate in one of the countries, a sharp price movement of the USD/CHF pair should follow as well. For example, when the Swiss rate was cut to negative territory, USD/CHF lost over 16% in a single day and then recovered some losses.
As for the US, the most important economic reports and news are the following: the Federal Open Market Committee meeting and press conferences with the minutes, consumer price index, Fed member performances, Nonfarm Payrolls report, GDP growth report, ISM index in the manufacturing and non-manufacturing sectors, applications for unemployment benefits and retail sales.
The Swiss economic news and reports are focused on the Swiss National Bank rate decisions since they are the main drivers. Additionally, you should look for the KOF index, which is a kind of PMI-like index, and also the consumer price index that shows the inflation.
You should understand one particular thing about the USD/CHF pair – the Swiss National Bank (SNB) is the boss there, and whenever you note a sharp movement in the pair that seems to have no visible fundamental covering it, you should check if the SNB intervened with some policies.
To understand how challenging the USD/CHF pair is, you should know that in early 2015, the Swiss National Bank made a decision to cut rates to the negative territory, which pushed the USD/CHF pair down by 16% within a day. The brokers were hit from behind and had to cover the losses of their customers.
The SNB is very active in the domestic market, so, as a Forex or binary options trader, you should know that this bank is the main driver of the USD/CHF pair.
Traders also enjoyed how the USD/CHF pair correlated with the EUR/CHF pair. The pairs are inversely proportional, and Forex traders along with the binary options traders used to open positions in opposite directions.
Important Economic Releases To Watch In Switzerland
The Swiss Franc reacts to the domestic economic changes, which is natural for any other national currency. Switzerland is an exporting country and it is not part of the European Union. To understand the export level, you should know that the chocolate industry is one of the most important in the world. The currency value is quite essential for the national companies. This is why the central bank is always trying to devalue the currencies – the bank has to support the domestic companies by doing this.
As you can guess, the Swiss National Bank meetings end with press conferences and whenever there are big surprises for the general public, the currency may be shaken in one direction or another. The curious fact is that despite the negative rates for over 2 years, USD/CHF is still traded below parity, which means traders still have much confidence in the Swiss currency and buy it without considering the difficult circumstances.
As mentioned above, you should also keep an eye on the consumer price index and the KOF indicator, which may give you ideas about the future direction of the Swiss economy and the USD/CHF price as well.
Important Economic Releases To Watch In United States
In the US, which is the largest economy in the world and which comes with major reports every week, the most important economic indicators are the following: Nonfarm Payrolls, released monthly, and the consumer prices index, which shows inflation and has a big share of the GDP. Additionally, you may watch the ISM index (from the Institute for Supply Management) in the manufacturing and non-manufacturing sectors, GDP growth, retail sales, producer price index (PPI), ADP’s private payrolls, applications for unemployment benefits, durable goods orders, and more.
What To Expect From Economic Releases
In conclusion, the most important things to watch are the central bank decisions in the both countries – the Federal Reserve in the US and the Swiss National Bank in Switzerland. The Federal Open Market Committee (FOMC) of the Fed is holding meetings every 6 weeks and come with detailed minutes that show the future projections. During the press conferences following the meetings, the USD may record sharp moves against its rivals, including the CHF.
As for the Swiss bank, we don’t know what to tell you since the bank is known for making unexpected and surprising decisions.
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References and Further Reading:
- Market heterogeneities and the causal structure of volatility (Paul E Lynch & Gilles O Zumbach)
- Heterogeneous volatility cascade in financial markets (Gilles Zumbach, Paul Lynch)
- A STOCHASTIC CASCADE MODEL FOR FX DYNAMICS (WOLFGANG BREYMANN, SHOALEH GHASHGHAIE, PETER TALKNER)
- Financial forecasting using ANFIS networks with Quantum-behaved Particle Swarm Optimization (Ahmad Bagheria, Hamed Mohammadi Peyhanib, Mohsen Akbar)
- Increasing exchange rate volatility during the recent float (Michael Frömmel & Lukas Menkhoff)