Spreadbetting the USD/CHF

The USD/CHF is one of the most popular and liquid currency pairs available to spread trade. However, due to the fact that it has a minimum spread of around 2 pips with an average, according to IG Index, of around 2.5 pips it is perhaps not a currency pair that automatically attracts traders. Given that there are far more competitive spreads on the AUD/USD and EUR/USD across almost all platforms the USD/CHF is often overlooked in favour of tighter spreads. Despite this, it is an interesting pair to trade being that it consists of two reserve currencies and is the fifth most-traded currency pair on the forex market. The volatility of these two can thus be taken as a proxy of the health of the global market as a whole.

Spreadbetting on the USD/CHF it is important to be aware of several factors which can influence the movement of this pair. Essentially, due to the effects of Swiss neutrality, and the National Bank’s desire to have a stable currency, free from volatility and speculation, the Swiss franc rarely fluctuates wildly. Important fundamental influences such as unemployment and inflation are both kept low and their are very limited prospects of the Swiss National Bank increasing interest rates in the near future. All of these factors make the currency particularly passive to its counterpart the USD.

These factors of stability mean that the USD/CHF is highly influenced by the influence of the worlds leading economy and the effect that news and events have on the value of the USD. Due to this dominating partnership, the USD/CHF is negatively correlated to the EUR/USD. Therefore, when the EUR/USD moves in one direction, the USD/CHF will move conversely in the opposite direction. This happens because the USD is the quote price against the Euro (the second currency) whilst it is the base price (the first currency) in the USD/CHF pairing. Understanding this correlation allows spreadbetters to see how these three currencies interact and create an expected response from price movements between them.

Since the Swiss National Bank are not particularly active in adjusting interest rates this is rarely a stimuli for price movements. However, from the Swiss side the announcements of quarterly GDP are the most influential in establishing both the strength of the economy and any possible likelihood of a rate change. Since this is uncommon, the most price-influencing factor for this pair isthe Federal Reserve and its decisions on the difference between the US and Swiss rate yields. Spread betting on the CHF based on the long-term interest rate strategy of the Federal Reserve can be a successful fundamental technique.

In terms of the typical behaviour of the USD/CHF it can be seen to behave differently to other forex pairs. One particular idiosyncrasy expressed by many spread traders is the tendency for the currency pair to perform false breakouts when it becomes stuck in a ranging market. Some have likened it to the GBP/USD in reference to its volatility despite its strong correlation with the EUR/USD pairing. The passive nature of the Swiss Franc may also explain why the pair frequently disregards areas of technical support and resistance which many forex pairs will struggle to break through. These observations may be general but are worth bearing in mind when spread betting the USD/CHF.