The uptrend in USD/CHF is fading

For every three times that EUR/USD goes up or down one US dollar will be worth 0.8 euros or 0.6 pounds. This means that when USD/CHF rises or falls one US dollar will be worth an equivalent amount to 0.8 Swiss francs (the inverse of this ratio applies as well).

As one might expect, the correlation coefficient between USD/CHF and other major currencies is substantial. A quick overview of the charts above shows that USD/CHF has a very strong correlation with EUR/USD. This means that, if USD/CHF rises by 1%, then EUR/USD should rise by 0.8% as well. This means that the two currencies move in lock step generally, and this corresponds very closely with the current scenario for both currencies.

The Eurozone is not going down in flames any time soon either as long as it’s being kept together in false unity by political means (remember: a big chunk of the eurozone consists of VERY fiscally irresponsible nations!).

Is USD/CHF going up?

No. It hasn’t been near as stable in the last few weeks compared to before the spike, so that’s a very good sign. CHF will be nursing its wounds for a little while, but eventually, it will be back up right where it was before the recent spike. What are the odds that EUR/USD and USD/CHF will continue their upward trends? Very good. If anything, USD/CHF might make a slight jump but overall there is no way that USD/CHF will head back down.

Also, considering that the top 10 world economies consist of 8 countries using the US dollar and 2 using the Euro, it’s pretty safe to say that neither of these currencies are going anywhere.

Does USD/CHF move in lockstep?

There are excellent odds at this point. The two currencies move together more often than not and close very close to one another when they do move in different directions (e.g. the eurozone lost nearly a quarter of its value in days when USD/CHF increased). If a large amount of USD is swapped for CHF, then the Fed will most likely put more money into circulation in an attempt to meet this demand.

This creates an influx of currency into the system, which is why the dollar has a very strong upward trend (just like the euro does with euros). This is what is called a “float”. Floating means that supply and demand exchange hands freely and trade at whatever prices are mutually beneficial. At this point, USD/CHF has risen to its highest point in four years, so we can expect a little slump coming soon. When that slump happens, CHF will probably lose some of its value but USD/CHF should remain strong.

CHF suddenly found itself on the black market, would the price increase?

Yes, it would. The fact that USD/CHF has risen from ~1.08 to ~1.15 in five days is certainly in doubt. But that is exactly why the downtrend was short-lived: it was a temporary spike and not a legitimate trend anymore at this point, making the likelihood of an eventual reversal very low (in fact about as low as it could possibly go).

How is USD/CHF determined?

Because there are two standards of currency (USD and CHF), the ratio of USD to Swiss Francs changes according to supply and demand. If the dollar falls due to a surplus in supply, then the value of CHF will increase relative to the dollar (i.e. USD/CHF will rise). If the dollar rises due to a shortage of supply, then the value of CHF will decrease relative to the dollar (i.e. USD/CHF will fall).