Known as the "Swissie", the pairing of the US dollar and the Swiss Franc provides a steadying appeal to veteran traders because of Switzerland's long-standing stable economic and political situation. The USD/CHF bridge together two of the world's largest economies, thus making it one of the most popular currency pairs in the fx market today accounting for almost 5% of the total yearly forex transactions.
Coded as the USD/CHF wherein it indicates how much francs it is needed to by one US dollar, this pair often gets negatively correlated with the GBP/USD and the EUR/USD.
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History of the USD/CHF
We already know the history of the US dollar dating back to 1792 when the US Congress mandated in its constitution the creation of the US dollar as the nation's official currency. Other than the United States, it serves as legal tender in several other countries and is widely regarded today as the world's unofficial reserve currency.
The Swiss Franc goes back to the 1700s—almost the same period as the US dollar—when Switzerland still uses a variety of coins and bills in circulation. To regulate currency, the Swiss government put into law the creation of the Swiss Franc to become the singular monetary currency in the country.
Experiencing almost zero-inflation, the Swiss Franc is often seen as a "safe haven" currency and is backed up by gold reserves.
Understanding USD/CHF Price Fluctuations
This currency pairing shows how much Swiss Francs (CHF) it takes to buy 1 US dollar (USD). For example, if the current rate of the USD/CHF is 0.85 and moves up to 1.08, then the USD has appreciated against the Swiss Francs it now cost more Francs to buy 1 US dollar.
On the other hand, if the value depreciates from 1.08 to 0.05, it now costs lesser Swiss Francs to buy one US dollar, this means the CHF has appreciated against the US dollar.
Understanding USD/CHF Rates
The value of this pairing indicates how much Swiss Francs is needed to exchange it into one US dollar. For example, if the pair is trading at 1.08, it suggests that it requires 1.08 Swiss francs to exchange it into 1.00 US dollar. If the rate is 0.9540, this means it costs only 0.9540 francs to buy 1.00 US dollar.
Factors That May Affect the USD/CHF Pair
With the US dollar remaining as the most trusted currency on the planet and the Swiss Franc gaining price against the Greenback, there are still some factors that may affect the dream currency pairing of the Swiss Franc and the United States dollar. Here are some unforeseen forces you may need to look out for when you plan to trade this currency pair.
- Monetary Policies: You need to monitor policies involving monetary issues arising from both countries. The United States have their own US Federal Reserve that holds a US Federal Open Market Committee meetings numerous times a year. During these assemblies, interest rates are decided and from there, one can get an idea of where the US economy is heading. On the Switzerland side, the Swiss National Bank's decision on setting its desired interest rate (LIBOR) also affects the value of the CHF.
- Economic Indicators: The US Bureau of Labor Statistics' US Non-Farm Payroll report is one such economic report that greatly determine the value of the US dollar. Other economic reports like inflation rate, retail sales date and consumer spending reports can also affect the value of the US currency. The same can be said of the Swiss Francs as the country's inflation data and KOF indicator can also shed light on the direction of the Swiss Franc's value.
- Other main factors include geo-political situation in both countries, the effect of gold pricing and the movement of the rates of other currency pairs.
Pros of Trading USD/CHF
Traders prefer the safe refuge provided by this currency pair because it tends to offer high liquidity even during an economic crisis. This pair is also sensitive to economic and geo-political events, thus making it a more predictable currency pair. In this age of free-flowing information, any trader can easily get an abundance of economic, monetary and political data coming from both countries. This greatly helps traders in coming up with a correct analysis of the pair's value in the forex market.
However, the USD/CHF's volatility is lower compared to other currency pairs such as the GBP/USD or the EUR/USD. This means the USD/CHF offers lesser trading opportunities.
Trading USD/CHF via CFD
Traders can speculate on the price difference of currency pair of USD/CHF between the beginning and conclusion of the trade via Contract-for-difference (CFD).
CFD is a financial instrument and trading method that involves a brokering agreement between a broker and a trader, where one party agrees to pay the other party the difference in the price of the asset between the start and end of the trade.
Why Trade Currency Pairs in eToro?
eToro has a user-friendly interface and innovative trading platform that allows traders to trade forex on their own time without transaction fees. This online brokerage also allows its clients to trade for $30 for every $1 in their portfolio because it gives out a maximum of x30 leverage for currency pairs like USD/CHF.
How to Trade USD/CHF Currency Pair on eToro?
- Login or create an account with eToro if you don't have one.
- Click "Discover".
- Select "Currencies".
- Choose "USDCHF".
- Choose "BUY" or "SELL" depending on the how you wish to trade.
- Enter an amount or number of units you wish to trade.
- Set the stop loss, leverage, and take profit parameters.
- Click "Open Trade".
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