The Swiss Franc and the SNB – What to Consider

 

Hello there, this is tradingpedia.com and this video deals with one of the strongest, if not the strongest currency pair on the FX dashboard – the Swiss Franc (CHF). We will cover the particularities of this currency and the Swiss National Bank (SNB).

The Swiss Franc (CHF) – Safe Haven Currency

What you see here is the monthly USDCHF – all the data available on this broker. As you can see, the USDCHF at one point in time was even 2, and now the focus is on 1, the parity level. It flirted with this level for the last year.

What is this chart telling us? The CHF is viewed as a safe-haven currency. Therefore, this is the first thing to consider. It means that investors are willing to take additional costs to gain exposure to the CHF. When bad things happen, and they do (recessions), when the economy enters a recession, then investors look for protection in various assets.
The CHF is such an asset. The JPY is another. But the CHF is the desired currency for investors to keep their funds.

The Swiss National Bank (SNB)

The SNB is in charge with setting the interest rate on the CHF. This is one of the most active central banks in the world. It intervenes actively to support the decline or stop the appreciation of the CHF. Even so, it has a very hard time managing to do so.

This vertical line that you see here is the mayhem created in 2015 when the SNB dropped the 1.20 exchange rate on the EURCHF. So, the CHF was bought so aggressively by the international community that the SNB imposed an artificial floor on the EURCHF at 1.20 and then at one point in time in 2015 in January, the SNB dropped the floor.

As such, it was no market anymore for the CHF as it effectively went to 0.72 from parity. In the meantime, it recovered, but nevertheless it shows the strong demand for the CHF from the international community.

Nowadays, the SNB is very active in diversifying flows from the CHF. For instance, the SNB is an investor in the tech sector in the United States. It owns shares in companies like Apply, Microsoft, and so on. In order to pay for them, it must sell CHF and buy USD, and this way it supports a higher USDCHF.

The SNB charges -0.75% in Switzerland and some of the commercial banks transferred that rate to deposits bigger than CHF100k. Yet, those deposits exist and the USDCHF has a hard time reaching parity.

Therefore, next time when you trade the CHF think of the fact that there is always an entity that makes no secret that it intervenes only on one side – selling the CHF. So, between buying CHF and selling CHF keep in mind that the SNB favors a weak CHF.

The CHF is the stronger currency on the FX market at this point in time. the SNB does not have an interest rate decision every month or six-weeks like other central banks, but it delivers its statement quarterly. It is very important to monitor the SNB website and Twitter account because the bank announces the changes in ownership of foreign ownership of assets, and so on.

Conclusion

To sum up, the CHF depends a lot on the SNB policy, and there are not many important economic news out of Switzerland that really move the CHF. Therefore, the focus sits with the international flows, geopolitics, macroeconomics, and with the actions of the SNB.

SNB is a private entity as its shares are listed on the stock exchange. It acts, more or less as a hedge fund. It has diversified assets all over the world and it has a budge for FX interventions to sell the CHF. This is why the USD has a hard time rallying against the CHF.

Thank you for being here and have a great day – bye, bye.