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A Guide to USD/CHF Trading

TABLE OF CONTENTS

A Guide to USD/CHF Trading

A Guide to USD/CHF Trading

Vantage Updated Updated Wed, 2024 June 19 09:16

USD/CHF is known as a “major” currency pair and is one of the most commonly traded in the foreign exchange market [1]. It represents a significant percentage of daily trading, which is favoured amongst veteran traders and newcomers alike. 

USD/CHF encapsulates the economies of the United States Dollar (USD) and the Swiss Franc (CHF). At its core, the USD stands tall as the official currency of the United States, commanding authority in global trade, finance and investment circles. With its status as the world’s reserve currency, the dollar wields immense influence on the international stage, shaping the global economic landscape. 

This comprehensive guide explores everything you need to know about trading the USD/CHF currency pair, also known as “swissie” in the forex market. 

Key Points

  • USD/CHF is a major currency pair known for high trading volume and significant daily transactions in the forex market.
  • Trading USD/CHF involves speculating on the exchange rate between the US Dollar and the Swiss Franc, influenced by economic dynamics and interest rate decisions.
  • The Swiss Franc’s safe-haven status, high liquidity, and volatility potential make USD/CHF a favoured pair for various trading strategies, from day trading to long-term position trading.

What is USD/CHF Trading? 

USD/CHF trading involves speculating on the exchange rate between the US dollar (USD) and the Swiss franc (CHF). The exchange rate tells you how many Swiss francs you need to buy one US dollar. 

When it comes to USD/CHF trading, each fluctuation in the exchange rate tells a story of economic dynamics. For example, an exchange rate of 0.9050 indicates that 1 USD is equivalent to CHF 0.9050, depicting the relative value of the two currencies. Traders and investors flock to the USD/CHF market to capitalise on these fluctuations, whether it’s to speculate on currency movements, hedge risks or facilitate international transactions.

USD/CHF History 

The history of USD/CHF is a story of the Swiss franc (CHF) slowly gaining popularity, essentially due to the swissie being a safe haven currency. Early on, the Bretton Woods system pegged currencies to gold, keeping the exchange rate stable at just above CHF 4 per USD. However, the end of this system in the 1970s ushered in an era of volatility, with events like the Plaza Accord boosting CHF. Since 2010, USD/CHF has exhibited more stability, though there have been notable bouts of volatility, like in 2015 when the Swiss National Bank decided to abandon the franc’s peg to the euro. 

Why Trade USD/CHF? 

USD/CHF offers a compelling proposition for traders seeking a balance between stability, liquidity and potential for profit. Here’s a closer look at the key benefits of trading USD/CHF:

  • Safe-Haven Appeal: The Swiss franc’s reputation as a safe-haven currency is a major draw for traders. Switzerland has historically been known for its strong banking system and political stability. During periods of economic turmoil or geopolitical uncertainty, investors flock to CHF, seeking its stability. This can provide a buffer against broader market volatility and means selling USD/CHF. 

  • Liquidity Advantage: As one of the most actively traded currency pairs globally, USD/CHF boasts high liquidity. This translates to tighter spreads and easier entry and exit from positions. For traders, this means they can execute trades efficiently with minimal slippage.

  • Volatility Potential: While CHF offers stability, USD/CHF still experiences fluctuations, creating opportunities for traders. These fluctuations can be driven by various factors, including economic data releases, interest rate decisions and geopolitical events. By understanding these drivers and employing sound trading strategies, traders can capitalise on these market movements. 

  • Hedging Potential: USD/CHF can be a valuable tool for hedging other currency exposures. For instance, the Swiss economy is naturally very closely tied to the wider European economy. So, a company with significant business operations in Europe might use short USD/CHF positions to hedge against potential depreciation of the euro relative to USD. 

  • Versatility for Different Trading Styles: USD/CHF caters to various trading styles. Day traders can exploit short-term price movements within a single day. Position traders can take a longer-term view (weeks, months) based on fundamental analysis. Swing traders can hold positions for a few days or weeks using technical analysis.  

Historical Trends of USD/CHF 

2008 [2]  

The year 2008 witnessed a watershed moment for the USD/CHF market. The global financial crisis, a period of severe economic downturn, triggered a flight to safety by investors. The Swiss franc, renowned for its stability and safe-haven status, become highly sought-after. This resulted in a significant weakening of the USD against the CHF. The exchange rate plummeted, reaching levels not seen in the 1970s.  

2011

The eurozone sovereign debt crisis in 2011 saw CHF’s safe-haven appeal increase massively. The swissie increased in value sharply, causing the Swiss National Bank to step in with unprecedented measures to try to reduce the value of the franc. However, the bank stopped short of direct intervention. 

2022 [3]

The years leading up to 2022 saw a trend of relative stability in the USD/CHF market. The global economic recovery continued, albeit at a moderate pace. The US dollar regained some ground, but the CHF maintained its value. This period was characterised by a more balanced exchange rate, with fluctuations occurring due to various factors like interest rate decisions, geopolitical events, and economic data releases. 

USD/CHF Prediction

Chart 1: USD/CHF performance over the past year

Over the last 12 months, the USD/CHF price fell by roughly 1%. 

At the time of writing, Trading Economics global macro models project that USD/CHF will be at 0.9116 by the end of Q1 2024 and 0.9437 in June 2025. [4]

What Moves USD/CHF? 

1. Economic Conditions:

The US economy stands as a cornerstone, with its health directly impacting the value of USD. Robust economic growth typically bolsters the dollar, reflecting positively on its exchange rate. Conversely, periods of recession or sluggish growth can weaken USD, affecting its value in the forex market. Key economic indicators such as employment data, GDP figures and consumer confidence all contribute to these fluctuations, providing insight into the overall economic health of the nation. 

Similarly, the performance of the Swiss economy holds sway over the value of CHF. A strong Swiss economy serves as a pillar of support, bolstering the Swiss franc’s value and solidifying its position in the currency market. Conversely, economic weaknesses within Switzerland can lead to depreciation of CHF, impacting the exchange rate relative to other currencies. Thus, factors such as industrial production, trade balances and especially the inflation rate all factor into the assessment of the Swiss economy and its influence on the value of CHF. 

2. Interest Rates: 

Decisions made by the US Federal Reserve (Fed) regarding interest rates can attract foreign investment, bolstering demand for USD and subsequently strengthening its value. Conversely, lower interest rates set by the Fed can diminish the dollar’s allure, potentially leading to depreciation as investors seek higher returns elsewhere. 

When the Swiss National Bank (SNB) opts for higher interest rates, it enhances the attractiveness of CHF to investors seeking yield, thereby potentially strengthening its position against the dollar and other currencies. Conversely, lower interest rates implemented by the SNB may diminish the appeal of CHF, leading to a decrease in its value relative to other currencies. That would mean USD/CHF appreciating. 

As such, both the Fed and SNB decisions regarding interest rates are closely monitored by investors and traders alike, as they directly impact currency dynamics and exchange rates in the global marketplace. 

3. Political Events: 

A geopolitical event can serve as a catalyst for currency movements, potentially favouring CHF as it is a safe-haven asset. During periods of heightened political instability or conflicts, investors often flock to the stability offered by CHF, leading to an increase in demand and subsequent appreciation against currencies such as USD. 

Moreover, political events within the US can also exert influence on the value of the dollar. Domestic political developments, including shifts in policy, regulatory changes or uncertainty surrounding elections, can significantly impact investor sentiment and currency exchange rates. 

For instance, uncertainty surrounding key policy decisions, or the outcome of elections can lead to fluctuations in the dollar’s value as investors adjust their positions in response to evolving political scenarios. As such, political events both domestically and internationally are closely monitored by market participants, as they play a pivotal role in shaping currency dynamics and exchange rate movements. 

4. Safe-Haven Status: 

Safe-haven status is a defining characteristic of the Swiss franc, playing a pivotal role in shaping its exchange rate dynamics. CHF has garnered a formidable reputation as a safe-haven currency, particularly during times of global economic turmoil or geopolitical uncertainty. Investors seeking refuge from volatile markets often turn to the stability offered by CHF, viewing it as a reliable store of value amidst turbulent times. 

As a result, during periods of heightened risk aversion, there is a notable surge in demand for CHF, driving its value upwards relative to riskier currencies such as AUD or CAD. This phenomenon underscores CHF’s resilience and status as a preferred haven for investors navigating an uncertain economic environment. 

5. Supply and Demand: 

Investor sentiment towards each currency is a key determinant. If investors exhibit greater confidence in the outlook of the US economy, they are likely to increase their demand for USD, buoying its value relative to CHF. This heightened demand for USD strengthens its position in the currency market against CHF. Conversely, if investors perceive CHF as a bastion of stability amidst global uncertainties, they may opt to sell USD and acquire CHF, thereby increasing the supply of USD and boosting demand for CHF. As a result, this shift in sentiment can lead to a weakening of the USD against CHF, as the latter gains favour among investors seeking safety and stability. 

Read our complete article guide to supply and demand to help you better understand the concept.

USD/CHF Correlations [5] 

Positive Correlations

GBP/SEK

Similar to other safe-haven pairs, USD plays a role here. During periods of global risk aversion, investors often seek refuge in the dollar. While they might also favour CHF and GBP, USD’s dominant role sometimes indirectly influences these currencies, as a strong USD can sometimes lead to increased demand for the GBP due to the UK’s close economic ties with the US. This indirect USD influence can contribute to the positive correlation between USD/CHF and GBP/SEK. 

Switzerland and the UK are both well-established, developed economies with strong financial systems. Sweden, on the other hand, is a developed economy with a more export-oriented nature. During periods of global economic slowdown, investors might favour the stability of the CHF and GBP, leading to their appreciation against the SEK, which can be perceived as riskier. This difference in economic profiles can contribute to the positive correlation. 

USD/CNH 

Both currency pairs prominently feature the US Dollar (USD). This shared presence means that movements in USD can have a significant impact on both pairs. For example, if the USD strengthens due to factors like rising US interest rates or positive economic data, it can lead to a simultaneous appreciation of USD in both the USD/CHF and USD/CNH pairs. 

The US and China are the world’s two largest economies, and their trade relationship is vast and complex. Changes in this relationship, such as trade wars or tariff agreements, can impact both currencies. For example, a trade deal between the US and China might strengthen both USD and CNH, leading to a positive correlation between USD/CHF and USD/CNH. 

Negative Correlations 

GBP/MXN

USD often plays a leading role in global risk aversion. When investors flock to the USD as a safe haven, it can strengthen against other currencies, including the GBP. This, in turn, can weaken the GBP relative to the MXN, contributing to the negative correlation. 

Mexico’s export-oriented economy relies heavily on commodities like oil. When commodity prices decline due to a global economic slowdown, the MXN can strengthen relative to the GBP, which is less directly tied to commodities. This adds another layer to the negative correlation between USD/CHF and GBP/MXN. 

CHF/SGD 

Switzerland and Singapore boast distinct economic landscapes. Switzerland, known for its political stability and strong banking sector, prioritises its currency’s stability. Singapore, a financial hub and export-oriented economy, is more sensitive to global economic cycles. When the global economy weakens, CHF might strengthen as a safe haven, while SGD weakens due to lower demand for Singapore exports. This economic divergence can contribute to the negative correlation between USD/CHF and CHF/SGD. 

How to Trade USD/CHF

USD/CHF is a popular currency pair for forex traders due to its relatively low volatility compared to other major pairs. Here’s an overview of how you can approach trading USD/CHF: 

Trade USD/CHF Using Fundamental Analysis

This involves researching economic factors that influence USD and CHF, such as interest rates, inflation, economic growth and geopolitical events. Analysing central bank policies (Federal Reserve and Swiss National Bank) is crucial, as they can significantly impact the exchange rate. 

By focusing on economic news and events, you can use fundamental analysis to trade USD/CHF. The key is to identify how these events might influence the relative strength of the US and Swiss economies and consequently, the exchange rate. 

For example, a strong US jobs report indicating a booming US economy could lead investors to favour the USD, potentially weakening USD/CHF. Conversely, a surprise interest rate cut by the Fed might decrease the attractiveness of USD-denominated assets, weakening USD and strengthening CHF. 

In 2022, the outbreak of the Russia-Ukraine war triggered a flight to safety, causing CHF to appreciate against USD as investors sought the stability of the Swiss franc. Later that year, the Fed began raising interest rates to combat inflation, which strengthened the USD against CHF as investors sought higher returns on US assets. 

Trade USD/CHF Using Technical Analysis

This involves studying historical price charts and technical indicators to identify potential trading opportunities. Technical analysis for USD/CHF involves studying historical price charts and technical indicators to identify potential entry and exit points for trades. These indicators attempt to capture trends, momentum and support/resistance levels that might influence future price movements. 

Popular indicators for USD/CHF include moving averages, which smooth out price fluctuations to reveal trends and Relative Strength Index (RSI), which gauges whether the currency pair is overbought or oversold. For example, if USD/CHF is consistently trading above a 50-day moving average and the RSI is nearing a 70 (indicating overbought territory), a technical analyst might interpret this as a signal for a potential short-term reversal, suggesting a possible selling opportunity in USD/CHF. 

Popular indicators you can use to trade USD/CHF include:

  • Moving Averages (MA): These smooth out price fluctuations to reveal underlying trends. Common MAs include the 50-day, 100-day and 200-day moving averages. A price consistently trading above its moving averages suggests an uptrend, while trading below suggests a downtrend. 

  • Relative Strength Index (RSI): This measures the momentum of price movements and indicates whether the currency pair is overbought (above 70) or oversold (below 30). Traders might look to buy near oversold zones, anticipating a reversal, or sell near overbought zones. 

  • Moving Average Convergence Divergence (MACD): This indicator combines a moving average and a signal line to identify trend direction, strength and potential reversals. When the MACD line (fast moving average) crosses above the signal line (slow moving average), it suggests a bullish signal and vice versa for a bearish signal. Divergence occurs when the price movement diverges from the MACD, potentially indicating an upcoming trend reversal. 

It’s important to remember that technical analysis doesn’t predict the future with certainty, but it can be a valuable tool for identifying trading opportunities when combined with other analysis methods. 

Risk Management 

Risk management is absolutely crucial when trading USD/CHF, or any forex pair for that matter. The foreign exchange market is inherently volatile and even seemingly sound strategies can be disrupted by unexpected events. Here’s why risk management is essential: 

  • Limits potential losses: By employing tools like stop-loss orders, you predetermine the maximum amount you’re willing to lose on a trade. This helps prevent emotional decisions and protects your capital from catastrophic losses, especially during periods of sudden price swings. 

  • Maintains trading discipline: A well-defined risk management plan, including position sizing (limiting the amount you allocate per trade) and take-profit levels, enforces discipline. This prevents impulsive decisions based on greed or fear, promoting a more measured and controlled approach to trading.

  • Preserve capital for future opportunities: Effective risk management safeguards your trading capital, allowing you to participate in the market over the long term. One large, unmanaged loss can significantly impact your ability to capitalise on future trades and potentially force you out of the market prematurely.  

USD/CHF Trading Strategies

Before going into individual strategy, let’s talk about what it means to go long USD/CHF and short USD/CHF. 

What it means to go long USD/CHF

When you go long USD/CHF, you are essentially buying USD with the expectation that its value will increase relative to CHF. 

If USD strengthens against CHF, you can sell your USD at a higher price later, profiting from the difference.

What it means to short USD/CHF

Conversely, going short USD/CHF means you are borrowing US dollars to sell them in the market, with the expectation that their value will decrease compared to CHF. 

If USD weakens against CHF, you can repurchase USD later at a lower price to return your borrowed amount and pocket the difference as profit. 

Understanding these basic concepts is essential for formulating any trading strategy for USD/CHF. 

Now, let’s explore some popular approaches:

Day Trading

This strategy involves opening and closing positions within a single trading day, capitalising on short-term price movements. Day traders rely heavily on technical analysis to identify quick entry and exit points. 

Position Trading

This approach takes a longer-term perspective, holding positions for weeks, months or even years. Position traders focus on fundamental analysis to identify long-term trends in the United States and Swiss economies.

Swing Trading

Swing trading falls somewhere between day trading and position trading. Swing traders hold positions for days or weeks, aiming to capture profits from larger price swings. They often utilise a combination of technical and fundamental analysis. 

Explore our article on ‘position trading vs swing trading’ to help you determine which strategy is more suitable for you.

Sentiment Trading

This strategy involves assessing market sentiment towards USD and CHF to determine entry and exit points. Sentiment analysis may include news events, economic data releases and social media discussions. 

News Trading

This approach focuses on exploiting short-term market reactions to major news events affecting the USD or CHF. News traders require discipline and swift execution to capitalise on market movements that take place in micro-seconds. 

Choosing the right strategy depends on your risk tolerance, time horizon and trading style. 

Best Time to Trade USD/CHF

The foreign exchange market, unlike traditional stock exchanges, operates 24/5, offering continuous trading opportunities. However, for USD/CHF specifically, some windows offer more favourable conditions than others. 

The overlap between major trading sessions is a key factor influencing volatility in the USD/CHF currency pair. Here’s why: 

  • Global Liquidity: When major financial centres like London, New York and Tokyo are open simultaneously, overall market liquidity (the ease with which currencies can be bought and sold) is at its peak. This increased liquidity often translates to higher trading volume and potentially greater price swings in USD/CHF. 

The golden hours for USD/CHF are during the London overlap (8:00 AM – 12:00 PM GMT). This period is when the London session (a major hub for forex trading) overlaps with either the New York or Tokyo session and is considered prime time for USD/CHF trading. During this time, you may encounter increased volatility due to the combined influence of European and American or Asian market participants. This overlap can also coincide with the release of key economic data from these regions, further fuelling market movement. 

While the London session overlap offers potentially higher volatility, the “best” time to trade USD/CHF ultimately depends on your individual circumstances. 

Final Thoughts

USD/CHF is a favoured currency pair for both new and experienced traders due to its stability and liquidity. Traders can leverage various strategies such as day trading, position trading, and swing trading, each offering unique advantages based on market conditions and individual risk tolerance. Understanding the economic factors, interest rates, and geopolitical events that influence USD/CHF is crucial for successful trading. By staying informed and employing sound risk management techniques, traders can effectively navigate the USD/CHF market and capitalize on its movements.

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FAQs for USD/CHF Trading

What is the Spread on USD/CHF at Vantage?

At Vantage, we offer highly competitive spreads for USD/CHF trading via CFDs. Traders can benefit from spreads as low as 1 pip during periods of high liquidity. With RAW accounts, spreads start at 0.0 pip, while for Standard accounts, they start at 1.0 pip.

Is USD/CHF a Good Pair to Trade?

The USD/CHF currency pair is a popular choice for forex traders. It is considered relatively liquid, meaning there’s usually enough trading volume to execute orders without significant slippage. CHF is also often considered a safe-haven currency, meaning that investors tend to flock to it during global uncertainty or market turmoil. However, it’s important to note that the dynamics of the USD/CHF pair can be influenced by various factors, including geopolitical events, economic data releases, and shifts in risk sentiment, which may impact its behaviour in the market. 

What are Some Tips for Trading USD/CHF?

 Here are some tips to enhance your trading experience: 

  • Utilise technical indicators such as moving averages, Relative Strength Index (RSI) and Fibonacci retracements. These tools can help identify trends and potential reversal points in USD/CHF. 

  • Stay informed about economic news and events from both the US and Switzerland. Central bank decisions, employment figures, GDP statistics and geopolitical events can impact the pair. 

  • Given the lower volatility of USD/CHF, consider tighter stop-loss orders compared to more volatile pairs. Proper risk management is crucial for successful trading. 

What are Some Common Mistakes to Avoid When Trading USD/CHF?

  1. Failing to plan and set realistic goals: Without a well-defined trading plan and clear objectives, you risk making impulsive decisions. Set realistic goals and outline your strategy before entering trades. 
  2. Not understanding the market: Lack of knowledge about the forex market, including factors influencing USD/CHF, can lead to poor decisions. 
  3. Over-leveraging: Using excessive leverage can amplify gains but also magnify losses. Be cautious with leverage and manage your risk effectively. 
  4. Not managing risk: Neglecting risk management practices, such as setting stop-loss orders and diversifying your portfolio, can be detrimental. Always protect your capital and limit potential losses.

References

  1. “USD/CHF: What it is, How it Works, Recent History – Investopedia” https://www.investopedia.com/terms/forex/u/usd-chf-us-dollar-swiss-franc-currency-pair.asp Accessed 15 May 2024 
  2. “The financial crisis of 2008 and the Swiss ‘miracle’ – swissinfo.ch.” The financial crisis of 2008 and the Swiss ‘miracle’ – SWI swissinfo.ch. Accessed 15 May 2024.
  3. “US Dollar (USD) To Swiss Franc (CHF) Exchange Rate History – Exchange Rates.” https://www.exchange-rates.org/exchange-rate-history/usd-chf. Accessed 15 May 2024.
  4. “USDCHF US Dollar Swiss Franc – Trading Economics.” https://tradingeconomics.com/usdchf:cur. Accessed 15 May 2024.
  5. “USDCHF Top Correlation – myfxbook.” https://www.myfxbook.com/forex-market/correlation/USDCHF. Accessed 15 May 2024.
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