Franc found dollar’s problem spot. Forecast as of 13.11.2023

2023.11.13 2023.11.13
Franc found dollar’s problem spot. Forecast as of 13.11.2023

Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/

The main drivers in the USDCHF‘s decline have been geopolitics and the Swiss national bank’s interventions, but all can change before the end of the year. Let’s discuss it and make a trading plan.

Weekly fundamental forecast for franc

The quieter you go, the further you reach. A central bank’s slower actions can often result in the consolidation of a national currency. For example, look at the franc, which became the leader of the G10 currency rate even though the SNB’s rate hikes were not as high and fast as the Fed’s. The Swissie has looked overpriced for a long time, but it still plays tricks on those who believe the USDCHF will rally.

The bears seemed to be losing at the beginning of October. The rapid growth of US Treasury yields, rumors of the end of the SNB’s tightening, and reduced risks of the US economy’s recession turned the franc into a whipping boy. However, the military conflict in the Middle East renewed interest in the franc as a safe haven currency. The Swissie has shown the best performance among the G10 currencies.

G10 currency trends since the beginning of the conflict in the Middle East

Source: Reuters.

Much time has passed since then. Investors’ concerns seem to fade away as oil and gold return to the levels recorded before the terrorist attacks on Israel. The market estimates the current invasion of Gaza as a geopolitical de-escalation since the conflict hasn’t spread outside the country. Have the USDCHF bears lost, then? They haven’t! The pair won’t move up. Why?

Reaction to Developments in Israel

Source: Bloomberg.

Most central banks are ready to end tightening. Moreover, the SNB’s restrictions were slower because it used balance reduction to protect the country against imported inflation. Since the global economic crisis, foreign reserve holdings have increased seven times and currently significantly exceed the financing needs of the country’s banking system. As the regulator estimates, the balance sheet has been reduced by 23% and is currently around $730 billion.

Interestingly, the slower rate hike and currency interventions to support the franc and protect the country against imported inflation have proved efficient. The Swiss national bank managed to get inflation back to a target range of 0%-2%, where it has been for four months already, in contrast to most other central banks. These levels are expected to last until at least 2025.

Weekly trading plan for USDCHF

So, what’s in store for the franc? It has lost its “geopolitics” trump, and the SNB’s currency interventions are not as required as before. Should we expect the USDCHF to grow? We could, but I’d rather expect the US economy to slow down, treasury yields to drop, and the USD to weaken against the major currencies. At the same time, a breakout of support at 0.8995 will be a reason to sell the greenback against the Swissie.

Price chart of USDCHF in real time mode