The US dollar continues to grind higher against the Swiss franc, as the interest rate differential remains the major mover of this currency pair.
Potential signal
I am a buyer, in small pieces on every 30 to 40 pip drop, building a position for a longer-term trade.
I would have a stop at 0.7650 and a target of parity. (1.00)
The USD/CHF pair has rallied a bit during the trading session on Thursday as market participants continue to see this as an interest rate play. After all, the US dollar offers quite a bit more than the Swiss franc as the Swiss National Bank is stubbornly sticking to its 0% rate policy. This is something that isn’t likely to change anytime soon.
If that’s going to continue to be the case, then I think you have to look at this through the prism of a market that when we dip you are probably looking for buying opportunities. The interest rate differential has plenty of traders running to the US dollar in multiple pairs, but the Swiss franc is particularly vulnerable.
That being said, there is a bit of a safety play to be said about the Swiss franc, but that is starting to go the way of the dodo bird as the Swiss National Bank is very active in general and I think more than willing to intervene if the Swiss franc appreciates too much.
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Monetary Policy and Intervention Risks
So, for those of you looking for the franc to appreciate drastically during a war, it’s a combination of the Swiss National Bank and its intervention threats with the interest rate markets that have kept the market elevated.
With that being the case, I think you have to look at this through the prism of trying to pick up the swap, aiming for the 0.80 level and if we can break above there then we can really get moving. If we turn around and fall, I suspect we will see plenty of support near the 50-day EMA.
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