2023.04.27 2023.04.27
Franc celebrates the victory. Forecast as of 27.04.2023Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/
The Swiss franc has outperformed both the US dollar and the Japanese yen as the best safe haven. Furthermore, the Swiss economy is strong, and the SNB stays determined. Therefore, the USDCHF rally is due to continue. Let us discuss the Forex outlook and make up a trading plan.
Monthly Swiss franc fundamental forecast
The Swiss franc has become the best safe-haven currency in Forex and the G10 top performer. Although Credit Agricole says the franc, the euro, and the pound are the most overbought currencies, the CHF looks like the best-performing currency in the foreign exchange market.
After it became clear that the US dollar is not a competitor due to the expected recession in the USA, the franc and the yen met in the final contest. The Japanese yen was left behind due to the unwillingness of the new BoJ governor, Kazuo Ueda, to make adjustments to the ultra-easy monetary policy and the 17th consecutive month of the current account deficit in Japan. Expectations for a continuation of the SNB rate hiking cycle and the Swiss trade surplus have sent the CHFJPY up. The last time the pair was seen at current levels was in the 1980s.
Dynamics of franc and yen
Source: Bloomberg.
If the US dollar is unable to serve as a safe haven due to the vulnerability of the US economy, and the yen weakens due to the Bank of Japan, the status of the main safe-haven currency goes to the franc without an alternative. Amid the growing fears of a new round of the banking crisis and recession in the USA, the USDCHF downtrend looks natural.
According to Barclays, the franc will continue to be popular. The CHF will be supported by the SNB’s use of its strength as a buffer against inflation, as well as the stability of the Swiss banking system. New stresses and an outflow of capital from it are unlikely. At the same time, the central bank will seek to keep the euro against the Swissy close to parity with the help of foreign exchange interventions and rate hikes.
The SNB monetary tightening cycle hasn’t finished yet. According to the consensus forecast of Bloomberg experts, this will happen in June, after which the interest rate will continue to plateau until September 2024. Thus, the current tightening of monetary policy will include 225 basis points and an increase in the rate to 1.75%.
Dynamics of SNB interest rate
Source: Bloomberg.
The SNB officials say the central bank isn’t going to stop. Martin Schlegel, Vice Chairman of the Governing Board, said that although inflation in the country is not as enormous as in other countries, it continues to be at uncomfortably high levels. They are clearly higher than what the SNB associates with price stability. In this regard, a further increase in rates is not excluded.
Monthly trading plan for USDCHF
Although inflation in Switzerland slowed down from 3.4% to 2.9% in March, it is still far from the target of 0-2%, which implies a continuation of the monetary restriction cycle. An important point is that the SNB rates will be on a plateau longer than the federal funds rate, which will support the USDCHF downtrend. The pair reached its previously set target of 0.89 and is due to be falling. The recommendation is to sell with targets of 0.88 and 0.865.
Price chart of USDCHF in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
Rate this article:
( {{count}} {{title}} )