Dollar – Swiss in the spotlight

Overall, 2006 was a bearish year for the U.S. dollar/Swiss franc pair (USD/CHF). Continued strength in the Swiss economy prompted the Swiss National Bank to raise interest rates five times, resulting in a market that started out near 1.3200 and finished around 1.2200.

The year was punctuated by a relatively swift decline between April and May, when the market dropped 10 full points. The pair subsequently recovered somewhat, trading in a choppy fashion into October — only to sell off again and test the year’s low in early December.

This analysis reviews an entire year of trading using daily data from Jan. 2, 2006 to Dec. 29, 2006 — a total of 260 trading days. With the goal of describing the USD/CHF’s unique trading tendencies and characteristics, the study details the daily ranges, close-to-close changes, typical lows for days that close higher, and typical highs for days that close lower.

Also, hourly data from Nov. 1, 2006 through Dec. 29, 2006 is used to determine the most volatile periods during the currency pair’s 24-hour trading session. Together, this information can help traders determine the market’s likely moves and stop placement and profit targets, among other things.

Analyzing market behavior in this manner allows you to trade with factbased expectations for a market rather than casual observation or “feel.” There is no arguing, for example, that most of the intraday volatility in the USD/CHF occurred from 7 - 10 a.m. CT (something that makes sense, by the way, given that this represents an overlap of the European and U.S. forex trading sessions), or that the dollar-Swiss rarely traded more than 0.0050 above the previous day’s close and still closed lower on the day. “Currency characteristics: USD/CHF” summarizes other highlights from this study.

This analysis can be incorporated into a trading system or used as a basis for setting targets and determining appropriate stop-loss points. Two things to keep in mind: First, conditions will change over time. Second, and more specifically, the trend of the market will skew the data noticeably. As a result, this analysis should be performed on a regular basis.