Why is USDCHF a Popular Asset for Trading
The USDCHF is one of the most liquid currency pairs. Perhaps not like the EURUSD or the GBPUSD, but still in the top of any liquidity charts.
The pair reflects the differences between the two major economies: the United States and Switzerland. As everyone in this world knows, Switzerland enjoys a special status: it is a neutral country and a neutral territory throughout its history. The same is valid for its currency, the Swiss Franc (CHF).
Viewed as a safe trading asset, the CHF gets volatile in risky trending environments. Just like the JPY, it is viewed by traders as a flight to safety when volatility spikes.
What’s interesting is that the same happens from time to time with the U.S. Dollar. As the world’s reserve currency, it is one of the most popular trading assets part of the Forex dashboard.
While for most of the currency pairs it is about interest rates and how they rise and fall, for these two currencies it is more than that. Consider the CHF and the Swiss National Bank (SNB) for instance.
The SNB keeps the interest rate level in the negative territory for years. Yet, the CHF has elevated levels, as Forex traders value the currency for its safety, rather than anything else.
Another thing to consider when it comes to the CHF pairs is that the SNB likes to intervene in the Forex market often. This makes any Forex education course useless as central banking intervention takes out the market rhythm and distorts market flows.
The best example comes from the time when the SNB imposed a 1.20 floor or limit on the EURCHF pair. The so-called peg caused a massive disruption in the trading flows as classic correlations broke or just disappeared.
Instead, new and artificial ones formed. Like, for instance, the one between the USDCHF and the EURUSD.
They moved in an inversed correlation, almost a hundred percent correlated price action, for as long as the SNB kept the 1.20 peg in place. Eventually, it had to get rid of it, and for any Forex broker active at that time it was a challenging market.
Because traders look for safety in the CHF, they buy it in risk-off environments. Naturally, the SNB considers the currency way overvalued and desperately tries to depreciate it.
As one of the most influential economies in the world, the Swiss economy, according to the SNB, would benefit more from a lower currency as it will stimulate exports.
With low spreads and relatively high liquidity, traders can easily buy or sell large volumes without suffering from slippage.
When trading the USDCHF pair, focus on all the relevant economic data out of the United States, like the NFP (Non-Farm Payrolls), CPI (Consumer Price Index) or the Unemployment Rate. On top of that, from Switzerland, the one thing that matters the most is what the SNB does with the interest rates and with its currency interventions.
Few traders know that the SNB is a privately held institution and it acts in the interest of its shareholders. More precisely, one of its main objectives is to make a profit, and will do whatever it takes to maximize shareholders’ wealth.