USD/CHF rose for the Friday session as traders reacted to rumors around the markets that the French were about to lose their AAA bond rating by S&P. The move happened, and as a result the European currencies on the whole lost for the session. The Swiss are heavily exposed to the Europeans, and as a side effect, the Swiss economy will suffer as well.
The Swiss are currently working against their currency via central bank actions, and the Swiss National Bank even has imposed a “minimum rate” of 1.20 in the EUR/CHF pair as a result. This of course will work against the Franc in general, and all XXX/CHF pairs will react to actions.
With the EUR/CHF seemingly interested in attempting to reach the 1.20 level, there is a real chance that we could see intervention in that pair by the SNB soon. If this happens, the Franc will lose value against most currencies, and this pair will be no different.
Beyond intervention, the Franc is overvalued anyway. The Swiss send over 80% of their exports to the EU, and the EU is going into recession. This simply cannot be a good thing for the Swiss economy going forward. Add to that the fact that the US economy is actually improving, and you have a nice fundamental case for a higher USD/CHF pair.
The 0.95 level that we are currently sitting just over is a major point on the charts, and as a result you could see more of a grind than a shot straight up. In fact, the weekly chart shows the candle as a hammer, but it is just under a lot of “noise” in the markets all the way up to the parity level. Because of this – while we are very bullish of this pair, we expect the move to be hard fought over the long run.
The yellow box on the chart shows where we believe support is found for the move. The area was the site of a breakout recently and it has been retested. With this in mind, we are buying this pair on dips and expect to see much higher rates later this year.
Written by FX Empire