Swiss Franc gets boost from safe-haven demand
- The Swiss Franc has found its feet after investors turn risk averse on Monday morning.
- The launch of an EU probe into big tech giants' practices and renewed attacks on Kyiv are unsettling markets.
- USD/CHF reaches an upside target and pulls back.
The Swiss Franc (CHF) edges higher on Monday as increased risk aversion pushes investors into safe-havens, of which the Swiss Franc is one of the best known.
The flight to safety comes on the news that the European Union (EU) has launched an investigation into big tech giants such as Apple, Google and Meta on Monday, according to ABC News.
The news that Russia has launched hypersonic missiles at Ukraine’s capital Kyiv may have further unsettled markets.
Major European indices such as the DAX, CAC40 and FTSE 100 are down by roughly half a percent on Monday at the time of publication. US Futures are off by a quarter of a percent.
Swiss Franc benefits from safety trade
The Swiss Franc is gaining at the expense of competitors as risk aversion permeates markets at the start of the week. The news on Monday that the EU Commission has launched an investigation into big tech companies for suspected “non-compliance” of its Digital Markets Act (DMA) has been given as a key factor rattling investors.
The DMA seeks to broadly level the playing field in digital markets by preventing online big tech platforms from acting as “gatekeepers” and thereby monopolizing digital ecosystems.
The Commission “suspects that the measures put in place by these gatekeepers fall short of effective compliance of their obligations under the DMA,” according to the EU’s press release.
In Kyiv, meanwhile, a series of hypersonic missiles escalated the conflict in Ukraine, causing damage to buildings and wounding two civilians in the central Pechersk district, as well as damaging buildings in the Solomiansky, Holosiyvsky and Dnipro districts, according to the Independent.
Technical Analysis: Swiss Franc meets first target for breakout and pulls back
USD/CHF, the number of Swiss Francs purchasable with one US Dollar (USD), is trading in the upper 0.8900s after breaking out and rallying above a range it had been yo-yoing in since the middle of February.
The pair has met the conservative target for the breakout at 0.8984 and has pulled back. The target is calculated as the 0.618 Fibonacci extension of the height of the range extended from the breakout point higher.
US Dollar versus Swiss Franc: 4-hour chart
The next target for the breakout is at 0.9052, the full height (1.000 ratio) of the range extrapolated higher.
There is a risk the pair could correct lower before attempting the next target. The Moving Average Convergence/ Divergence (MACD) indicator has just crossed below its signal line on the 4-hour chart, indicating the probability the pair will pull back.
If the correction continues it could target at the midpoint of the breakout rally, situated at roughly 0.8930.
Beyond that, the pair is overall seen continuing the short-term uptrend that formed prior to the range and its breakout higher.
It would take a break back below 0.8729 to suggest a short-term trend reversal and the start of a deeper slide.
The first target for such a move would be the 0.618 Fib. extrapolation of the height of the range at 0.8632, followed by the full extrapolation at 0.8577, which is also close to the 0.8551 January 31 lows, another key support level to the downside.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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