At least 5% of the enormous forex trading volume consists of USDCHF or ‘Swissy’ transactions. Therefore, this market is unanimously favored by all types of speculators globally.
The economies underpinning both currencies are tremendously developed with impressive commercial dealings and quality of life. Hence, the Swiss franc and dollar have been perceived by many investors as safe-haven currencies.
CHF (Confoederatio Helvetica Franc) is the code symbol for Switzerland’s Swiss franc, the country’s legal tender. Of course, USD is the abbreviation for the United States dollar, America’s official circulating medium, and the world’s reserve currency.
The USDCHF exchange rate denotes how many US dollars are required for one Swiss franc. With the current price of 1.08, you need $1.08 to buy one CHF. This article will be a brief but valuable guide to trading the Swissy.
Characteristics of USDCHF
While the United States is an economic juggernaut, the dollar is only marginally weaker than the Swiss franc, and there are a few key reasons for this. Although most experts regard both currencies as ‘safe havens,’ CHF is usually perceived in higher regard.
The monthly chart below predominantly shows an uptrend for this market over the years.
While the size of Switzerland doesn’t compare to the States, the country’s economy boasts more stability, better living standards, and one of the lowest unemployment rates globally.
Another reason has to do with interest rates. Historically, the Swiss National Bank has held a negative 0.75% interest rate for several years, while the Federal Reserve’s interest rate is currently 0.25%.
Investors will often sell their Swiss francs for US dollars to earn attractive interest because of the differential. Something else worth noting about CHFUSD is positively correlated with EURUSD, mostly due to the close commercial ties between Switzerland and the Eurozone.
From a technical perspective, the Swissy is a cheap pair to trade as with many other USD-based pairs. With the vast majority of brokers, traders shouldn’t pay above a 2-pip spread for much of the trading day.
While volatility for this market is on the low end compared to its counterparts, it’s fair to consider this pair as relatively stable and predictable. Overall, the pair is favorable for low, medium, and high-risk trading strategies.
Factors influencing the USDCHF pair
Like any currency pair, price movements of the Swissy are influenced by numerous fundamental factors. Let’s explore a few of them:
- The dollar index (DXY): The DXY is an index tracking the performance of the US dollar against a basket of six currencies, one of them being the Swiss franc. While CHF only makes up about 4% of this instrument, the dollar index affects all the major pairs because of the dollar influence.
So, when DXY is performing well, the Swissy will likely move in the opposite direction and vice versa. The drivers behind the dollar index are the factors affecting the United States’ economy.
- Interest rates and other economic indicators: Monetary policies from central banks are pretty impactful in determining the prices of currency pairs. Generally, a higher interest rate is positive for a currency, while a lower interest rate is negative for a currency.
The respective central banks for Switzerland and America are the Swiss National Bank and the Federal Reserve. When either of these institutions releases new reports for the interest rates, it often produces a considerable effect, especially if the figures are noticeably different from the previous result.
Other economic indicators which have influence include the GDP (Gross Domestic Product), CPI (Consumer Price Index), and employment figures.
Ways of trading USDCHF
As expected, most people predominantly trade the Swissy as a derivative or CFD (contract for difference). This means its value is derived from the price of the underlying markets, and hence, traders don’t need to own the physical currencies.
Below are some of the popular methods of trading USDCHF:
- Spot forex: This avenue is the most prominent way to trade the Swissy primarily because of the high leverage and low capital requirements. This segment of currencies contributes a large portion of the +$6 trillion daily volume and is known for being highly speculative.
Spot forex means you trade the current foreign exchange rate and can receive an immediate settlement of a profit or loss.
- Options: An option is another popular forex derivative where holders are given the right, but not the obligation, to buy or sell USDCHF at a pre-agreed value (known as the strike price). Options also tend to be speculator-driven, and, unlike spot forex, traders only pay a set premium for their losses.
- Futures: This derivative contract involves a process where traders buy or sell USDCHF at a predetermined exchange and expiry date in the future. However, contract settlement is not required to occur at this time.
Historically, corporations or large institutions have utilized futures for hedging motives, but retail traders can access this market relatively easily for speculative purposes.
The best hours to trade USDCHF
Although traders aren’t limited to only opening positions at specific periods because of forex’s 24/5 nature, the Swissy is noticeably active during specific hours, namely the London and New York sessions.
Traders from the Eurozone and the United Kingdom dominate the former period. This means EUR and GBP-based pairs will begin moving more at these times. Although Switzerland isn’t part of the European Union or the United Kingdom, it experiences higher pip movements due to its correlation to EURUSD.
Of course, the New York session is the most active for all pairs, particularly USD-based pairs like the Swissy. Moreover, many high-impact economic reports are released during this time, meaning you can almost always expect action at this session with increasing volatility.
Final word
Overall, the motives for why USDCHF is a heavily traded and incredibly liquid market are easy to comprehend. This market is a prominent major pair sensitive to many known economic and geopolitical developments.
Fortunately, as numerous data is regularly updated about the Swissy, traders can establish a reasonable level of predictability. Another advantage is transaction costs for this instrument are quite low, particularly if you trade in spot forex.
While volatility for this pair isn’t particularly tremendous, traders should approach it with extreme caution and practice the appropriate risk management regardless of the strategies being used.
