USD/CHF (“Swissy”)

Posted by Scriptaty | 9:41 PM

The Swiss franc holds a place among the majors because of Switzerland’s unique stature in the global financial marketplace. It is estimated that about one-third of the world’s private assets are domiciled in Switzerland. Given its historical neutrality and legendary privacy laws, Switzerland’s currency is frequently viewed as a safe-haven alternative to the U.S. dollar in times of geo-political uncertainty.

This was especially true during the Cold War, but it has become less of a factor since then (the last conspicuous appearance occurring in the run-up to the Iraq war). The Swiss National Bank (SNB) is one of the more active central banks when it comes to influencing its currency, but this mostly applies to the franc’s level relative to the Euro (EUR/CHF), since the vast majority of Swiss trade is with the Eurozone. Traders should closely follow SNB comments, especially when EUR/CHF is near the extremes of 1.50-1.60, which has been the SNB’s preferred range since early 2003.

The Swiss franc shares many of the same characteristics as the British pound in terms of volatility and liquidity, and also tends to act as a leader in major dollar moves.

However, while pound moves often stem from UK-specific news, the Swissy tends to more closely mimic EUR/USD, but with greater volatility. This makes the Swissy ideal to watch as a leading indicator for the larger EUR/USD.

Like the pound, the Swissy will tend to move very fast and exhibit little if any pullback in dollar-driven moves, again favoring traders who are quick on the trigger. False breaks of technical levels are also a common feature of USD/CHF in relatively calm markets; traders should adjust order levels and position sizes in a similar fashion to the pound. EUR/CHF exerts a strong pull on the Swissy and traders need to pay attention to major cross levels as well.

Liquidity in USD/CHF is never very good, but it evaporates quickly following the European close, leading to frequent stop-loss driven moves in the North American afternoon.

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