Forex Currencies: The USD/CHF
  1. Forex Currencies: Introduction
  2. Forex Currencies: Trading Strategies
  3. Forex Currencies: Ways To Trade
  4. Forex Currencies: The Four Major Pairs
  5. Forex Currencies: The EUR/USD
  6. Forex Currencies: The USD/JPY
  7. Forex Currencies: The GBP/USD
  8. Forex Currencies: The USD/CHF
  9. Forex Currencies: Commodity Pairs (USD/CAD, USD/AUD, USD/NZD)
  10. Forex Currencies: Currency Cross Rates
  11. Forex Currencies: Emerging Market Currencies
  12. Forex Currencies: Conclusion

Forex Currencies: The USD/CHF

By Brian Perry

Switzerland
is known as a stable, safe and prosperous nation. Surrounded by the Alps and with a reputation for neutrality, Switzerland has long appeared to be almost a world unto itself. Economically, this reputation has been enhanced by the famous secrecy of the Swiss banking system. Although Swiss banking rules have loosened somewhat in the past 10 years, Switzerland remains an international hub of private banking, insurance and investment management. In addition, Swiss citizens enjoy one of the highest standards of living in the world. (To read more about Swiss banking, see What are the Gnomes of Zurich? and How do I open a Swiss bank account and what makes them so special?)

Although the country remains outside the European Union to maintain its neutrality, Switzerland does enjoy extensive trade with its European neighbors, the United States, and other countries around the world. Switzerland is also home to large multinational corporations such as the banking giants, UBS (NYSE:UBS) and Credit Suisse (NYSE:CS), and the consumer products company, Nestle.

The Swiss Franc
Switzerland's currency plays an important role in the international capital markets. Because of Switzerland's historic political neutrality and reputation for stable and discreet banking, the Swiss franc is commonly viewed as a safe haven in international capital markets. As such, many investors prefer to hold a portion of their assets in the Swiss franc. Many other traders flee to the safety of the Swiss franc during times of international turmoil. Therefore, when volatility appears in the financial markets, investors often bid up the Swiss franc at the expense of other currencies.

Trading the U.S. Dollar/Swiss Franc
Although it is somewhat less liquid than the euro and the pound, the Swiss franc is still an easy currency to trade. The factor most likely to cause large movements in the value of the Swiss franc is international political and economic instability. When either political or economic turmoil increases, investors flee to the perceived safety of the Swiss franc. When volatility decreases, the Swiss franc typically sees less interest from traders and investors.

While the Swiss franc often does rise against most other currencies during volatile periods, forecasting the relative performance of the Swiss franc versus the U.S. dollar can be difficult, because the U.S. dollar is also viewed as a safe haven during times of turmoil. Therefore, it is not always easy to determine whether the Swiss franc or the U.S. dollar will be the preferred source of safety during an international crisis. Since each crisis is unique, a determination must be made as to whether the Swiss franc or the U.S. dollar is the preferred option for investors seeking safety.

During less volatile times, traders should note that the Swiss franc has a very high correlation to the euro. When the value of the euro increases, so too does that of the franc. If investors witness a rise or decline in the euro without a corresponding move in the franc, they may want to consider initiating a trade based on the belief that the franc will eventually resume its historical correlation with the euro. Although this type of relative value trade is extremely popular in the financial markets (and often profitable), traders should bear in mind that there is no guarantee that markets will revert to their historical mean. (To learn about another popular pair that includes the "Swissie", see Making Sense Of The Euro/Swiss Franc Relationship.)

Forex Currencies: Commodity Pairs (USD/CAD, USD/AUD, USD/NZD)

  1. Forex Currencies: Introduction
  2. Forex Currencies: Trading Strategies
  3. Forex Currencies: Ways To Trade
  4. Forex Currencies: The Four Major Pairs
  5. Forex Currencies: The EUR/USD
  6. Forex Currencies: The USD/JPY
  7. Forex Currencies: The GBP/USD
  8. Forex Currencies: The USD/CHF
  9. Forex Currencies: Commodity Pairs (USD/CAD, USD/AUD, USD/NZD)
  10. Forex Currencies: Currency Cross Rates
  11. Forex Currencies: Emerging Market Currencies
  12. Forex Currencies: Conclusion


RELATED TERMS
  1. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  2. Contagion

    The spread of market changes or disturbances from one region ...
  3. Currency

    Currency is a generally accepted form of money, including coins ...
  4. Stock Market Crash

    A rapid and often unanticipated drop in stock prices.
  5. Regional Asset Liquidation Agreement (RALA)

    An agreement between an asset manager and the Federal Deposit ...
  6. Transfer Risk

    The risk that a local currency cannot be converted into the currency ...
RELATED FAQS
  1. What is arbitrage?

    Arbitrage is basically buying in one market and simultaneously selling in another, profiting from a temporary difference. ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. What are the goals of covered interest arbitrage?

    The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
  4. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  5. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  6. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center