Many traders seem to think so, as the rally in USD/CHF took an even steeper tilt. The pair climbed for a fourth consecutive day on Friday and extended its winning streak to two years, which is a rare feat for any currency.
The Swiss Franc has been in free-fall since the European Central Bank decided to end quantitative easing at the end of March. That decision has also been taken as a sign that low-interest rates are here to say and that there will be fewer inflationary pressures in Europe this year than previously thought. Against a backdrop of generally lackluster economic readings from the Eurozone, the chances for a large EUR-CHF reversal have increased significantly.
USD/CHF
It has been one of the most elegant currencies to trade in recent times, as its chart has been mostly confined to one channel, with relatively tight levels defining both boundaries. That offers plenty of resistance and support, which presents buy and sell opportunities.
Indeed, EUR/CHF recently reached a high at 1.0575 and has since slipped back slightly.
But the rally in USD/CHF is taking a new twist and it is one that does not seem to be backed by fundamental news. The pair climbed for a fourth consecutive day on Friday and extended its winning streak to two years, which is a rare feat for any currency. The boost was triggered by outflows from the USD Exchange-Traded Fund (ticker: UUP) as the world’s most widely held Treasury ETF ended the week with its third consecutive weekly loss of 2.3 percent.
At the same time, traders also seem to be moving out of the Eurozone because of its dovish comments from ECB President Mario Draghi. The central bank is expected to hold rates steady at record lows for some time yet, but that does not necessarily mean a rate hike in December. Even if the governing council does decide to raise interest rates further, it is likely to be gradual and rather less aggressive than many analysts had initially anticipated.
Why is CHF rallying?
One of the longest-lasting risks to the Swiss economy is from negative interest rates, a policy that has seen Germany introduce. Negative rates have already been used by Switzerland in some instances, but there are concerns about how this will affect its competitiveness. The negative rate on the Swiss National Bank’s (SNB) deposits was recently lifted back to zero after an outcry about what would happen if those rates were allowed to be put back into effect. The SNB actually received an average of SFr925 per month in funds from savers who wanted to squirrel away their money at negative interest rates.
There is no doubt that the Swiss Franc has been one of the most elegant currencies to trade in recent times, as its chart has been mostly confined to one channel, with relatively tight levels defining both boundaries. That offers plenty of resistance and support, which presents buy and sell opportunities.
How much longer can CHF rally?
The Swiss Franc has rallied quite a bit, but it still looks like the next move will be down. That could change if traders think that Europe is going to improve and that USD/CHF will have to move higher against a backdrop of rising inflation. Given all the talk about a Eurozone recovery, there are plenty of reasons for the Swiss Franc to move higher. If a broad-based rally does take hold in USD/CHF again this weekend, it is likely that we could see the pair at 1.09 and test the channel resistance at 1.1020.
Is the rally overdone as USD/CHF extends its winning streak to a two-year high?
The Swiss Franc has been in free-fall since the European Central Bank decided to end quantitative easing at the end of March. That decision has also been taken as a sign that low-interest rates are here to say and that there will be fewer inflationary pressures in Europe this year than previously thought. Against a backdrop of generally lackluster economic readings from the Eurozone, the chances for a large EUR-CHF reversal have increased significantly.
