EURCHF

The CHF has been strong, much stronger than some have been anticipating. This article will outline some of the reasons for CHF strength and suggest sensible places that risk can be managed in case the EURCHF picks up (spoiler alert, it is expected to).

Some explanation for the recent CHF strength

Trade surplus

Credit Agricole point out that Switzerland has had a record trade surplus, ‘Of special note, Switzerland recently posted its largest monthly trade surplus in history, thanks largely to record exports from Swiss firms. Although exporters had surely hedged part of their future receivables, such a solid performance could have still translated into larger CHF buying’.

Gold

20% of Switzerland’s exports comprise of gold. 70% of all gold is refined in Switzerland, so gold prices heavily influence the CHF as well as the USD.

Some reasons for the EURCHF to turn around.

1. Sight deposits are picking up from the SNB

2. Historical intervention area

The EURCHF pair is quite near the area where the SNB intervened in FX markets to bring stability to the pair in May 2020.

3. Technically significant

There is a massive demand area where the SNB intervened. This is an obvious area to put stops under for a low risk, high reward monthly play.

4. The SNB

The SNB does not like a strong CHF. They are ready to actively weaken the ‘highly valued CHF’ through FX interventions. This fact alone is enough to give quite a lot of confidence. However, timing is always the key.