- The Swiss National Bank has held its policy rate at 0% most of this past year. That isn’t about to change.
- The US dollar has risen a bit against the Swiss franc during trading here on Wednesday. But first, let's take a look at some of the fundamental analysis before we start talking about levels.
- The Swiss National Bank has held its policy rate at 0 throughout the entire back half of the year, resisting market pressure to cut into negative territory despite low inflation.
- Right now, Swiss inflation is forecast to be 0.3% for the year. This floor makes the Swiss franc attractive relative to other currencies with actively falling rates.
That being said, almost anything will pay you over the franc, so while it makes it stubborn, the reality is that you are still going to get more mileage out of a currency like the South African rand. The Swiss franc is a safe haven, and with all of the geopolitical tensions, it does make a certain amount of sense that it has attracted a bit of momentum over the last year or so.
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Interest Rate Differentials and Technical Levels
The Federal Reserve cutting rates shrinks the interest rate differential between these 2 currencies. Of course, there is some uncertainty about Jerome Powell and his replacement. There are political problems in the sense that there's a lot of pressure out there in DC for aggressive rate cuts.
The Swiss economy has been showing some surprises, like the KOF economic barometer, which has recently surprised to the upside, hitting a 1-year high, suggesting that the Swiss economy is handling the strong currency fairly well. Conversely, the US data is somewhat mixed, with rising unemployment worrying some investors, although the ADP numbers today were reasonable.
This is a bearish pair, but if we can break above the 0.8140 level, it will change the entire narrative. As things stand right now, I prefer to buy dips, and as this has touched the 0.79 level, a suspiciously solid level, I am looking at you, Swiss National Bank, as a simple trade.
You just go with the interest rate spread, and you take a bite, you collect your profit, you wait for it to fall, and you do it again. It's worked brilliantly since July. I have not seen the breakout that I wanted to see, and I don't know that we're going to see it anytime soon.
So, I have resigned myself to being a range-bound trader in this pair. It's an excellent setup. The closer we get to the 0.79 level, the more interested I am in buying, and of course, if we were to break down below there, then you have to worry about the Swiss National Bank getting involved. They've already made more than 1 comment about their strong currency.
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