USD/CHF Technical Analysis
About the USD/CHF (US Dollar/ Swiss Franc)
The United States dollar/Swiss Franc currency pair denotes the exchange rate between the US dollar and the Swiss franc and expresses it as the number of Swiss Francs needed to buy one US dollar.
For example, if the USD/CHF exchange rate is 0.95000, it means you need 0.95 Swiss Francs to buy one US dollar. In this pair, the US dollar is the base currency, and the Swiss Franc is the quote currency.
With a sizeable daily turnover of about $180 billion, the USD/CHF is the seventh most traded currency pair in the world. The total daily turnover in the forex market is approximately $5.1 trillion, which means the USD/CHF represents about 3.5 percent of this colossal amount.
Breaking Down ‘USD/CHF’
The USD/CHF is one of the most traditionally traded currency pairs on the forex market. The CH stands for ‘Confoederatio Helvetica.’ This is Latin for Switzerland. While the F stands for Franc. What makes this currency pair so appealing?
Two interesting factors:
The Greenback is the world’s largest and most actively traded currency. In fact, it represents approximately half the trading volume of all major currencies. The Swiss franc is popular because Switzerland contains an impressive one-third of the world’s privately owned wealth in its banks.
It’s also worth knowing that Switzerland is not the only nation to use the Swiss franc. Liechtenstein, located between Switzerland and Austria and consisting of just 35,000 citizens, has also adopted the Swiss franc.
What Determines the USD/CHF Exchange Rate?
Several factors can impact the USD/CHF valuation, including:
SNB & US FED Monetary Policies: The Swiss National Bank and the Federal Reserve control the supply of money in the market, to keep the economy on track. A dovish policy, which is also known as expansionary policy, weakens the currency. In contrast, a hawkish monetary policy (contractionary policy) strengthens the corresponding currency.
Economic Events: Any movement in the US and Swiss economic events determines the exchange rates. Top of the line economic events include GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data increases the demand for related currency and impacts the value of either CHF or the US Dollar, causing fluctuations in the USD/CHF exchange rate.
Of the major currency pairs, the USD/JPY and the EUR/USD bear the highest correlation with the USD/CHF.
The USD/JPY has a one-year correlation of 0.83 with the USD/CHF, and the EUR/USD has a one-year inverse relationship with the USD/CHF of -0.96.
Some of the less prominent currency pairs that are highly correlated with the USD/CHF, include: EUR/HKD (-0.96), CHF/HKD (-1.00), HKD/JPY (0.83), USD/CZK (0.93), USD/DKK (0.96), USD/HUF (0.91), USD/SEK (0.88), and USD/SGD (0.89).
Although gold is not a currency by definition, it is often viewed as and traded in the same way as currencies, especially in the modern electronic trading environment.
The Swiss Franc is highly correlated with gold; hence, the USD/CHF and XAU/USD (Gold/United States dollar) have a remarkable one-year inverse correlation of -0.82). When the USD/CHF pair moves higher, gold tends to move lower.
Major Economic Events:
Gross Domestic Product – the Gross domestic product is the central measure of economic growth in the region. Employment Change – The Swiss Franc is sensitive to changes in employment, as slacks in the labor market cause a drop in Inflation rates. Consumer Price Index – Since one of the goals of the SNB is to maintain price stability, they keep an eye on inflation indicators such as the CPI. If the annual CPI deviates from the central bank target, the SNB could make use of its monetary policy tools to keep inflation in check. Trade Balance – The Swiss economy is massively export dependent. Falling export numbers could lead to a decline in economic activity. Retail sales – The headline retail sales report measures the monthly change in the total value of sales at a retail level.
The USD/CHF is traded in amounts denominated in the Swiss Franc. Standard lot Size: 100,000 Mini lot size: 10,000 One pip in decimals 0.0001 Pip Value: $10 (varies with exchange rate)
Profit/Loss = (Bid Price – Ask Price) X Contract Size X Number of Lots / Closing Price