.jpg)
The end of the strong franc policy and SNB currency interventions could seriously weaken the USDCHF bears. However, in reality the situation turned out to be different. Let’s discuss this topic and make up a trading plan.
Daily Swiss franc fundamental forecast
Looking at the rise in low-yielding assets in March, the Swiss franc’s modest gains look illogical. While gold continues to set new record highs and the yen breaks the trend against the US dollar, USDCHF is inclined to consolidate in the range of 0.874-0.889, although the pair is trading in its lower part.
Monetary restriction cycles tend to be unfavorable for low-yielding assets as investors look for more attractive alternatives. As a result, rate differentials widen, and gold, the yen, and the franc fall in value. However, 2023 was an exception for Swissy and gold. The Swiss currency was the best performer among the G10, while XAUUSD bulls finished in the green for the first time in three years.
USDCHF bears have to thank SNB for this. The Swiss regulator actively used currency interventions to maintain the CHF to prevent imported inflation from entering the country and slowing consumer prices to the range of 0-2%. Even at the cost of losses of $3.6 billion, SNB succeeded. The losses turned out to be less than the anti-record in 2022.
Dynamics of SNB’s profits and losses
Source: Bloomberg.
Since the beginning of 2024, the situation has changed. The SNB signaled the abandonment of the strong franc policy, ending currency interventions, while inflation in Switzerland has been under control for a long time. As a result, in March, the franc became one of the main Forex outsiders, and a rumor appeared in the market that the SNB would reduce rates on March 21, especially since consumer prices in February slowed from 1.3% to 1.2% YoY.
Inflation dynamics in Switzerland
Source: Bloomberg.
VP Bank AG, on the contrary, sees no need for haste. Its officials draw attention to the sharp increase in CPI from 0.2% to 0.6% MoM. In addition, the decline in unemployment in Switzerland from 2.5% to 2.4% indicates a strong labor market. In such conditions, the risks of a new inflation spike are increasing, which will force the SNB to adhere to the policy of holding rates at least until September. This is good news for USDCHF bears.
At the moment, HSBC advises its clients to forget about the SNB’s temporary support of the franc and pay attention to the wide spreads of debt markets in order to buy USDCHF. However, in reality, the yield differential risks narrowing, leading to a further fall of the pair.
Daily USDCHF trading plan
The reason for sales will be US inflation data for February, which is close to Bloomberg forecasts. A 3.1% rise in consumer prices and a slowdown in the core indicator from 3.9% to 3.7% is what the Fed wants to see. As a result, the first reduction in the federal funds rate may come as early as May. This will be the reason for entering USDCHF short trades in the event of a successful breakout of the support at 0.8745.
Price chart of USDCHF in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
