Franc is to opt for tactical retreat. Forecast as of 07.06.2023

2023.06.07 2023.06.07
Franc is to opt for tactical retreat. Forecast as of 07.06.2023logo

The shift from tightening monetary policy to easing it, as a rule, leads to a USDCHF drop. Most often, this process is accompanied by a recession. However, in 2023, investors made a mistake in the timing of its onset. Let’s talk about these topics and draw up a trading plan

Monthly Swiss franc fundamental forecast

It is not enough to know what to do in Forex. It is also important to choose the right time. Despite the growing optimism of hedge funds regarding the franc, the slowdown in Swiss inflation, the lower likelihood of a recession in the US economy, as well as the increase in the World Bank’s forecast for global GDP indicate that it is too early to sell the USDCHF. However, the time for bears will surely come.

The CHF net longs have entered the positive area for the first time since early 2021. UBS and JP Morgan make positive forecasts. So, the Swiss franc could be strengthening versus the US dollar soon.

Dynamics of CHF speculative positions

Source: Bloomberg

USDCHF sellers are easy to understand. Monetary tightening cycles are coming to an end. They are usually followed by rate cuts. During such periods, the franc is strengthening. Indeed, the trade-weighted Swissie appreciated 10% during the Fed and ECB rate cuts in 2001-2002. It rose by 13% after central banks began buying assets amid the global economic crisis of 2008-2009. The Fed’s monetary expansion in 2019-2020 dropped the franc by 7%.

Although the Swiss franc’s trade-weighted exchange rate seems too high, given the difference in inflation, its long-term rate is not at all overvalued. This opinion is shared by JP Morgan, which predicts a USDCHF drop to 0.86 by March 2024. UBS expects to see the pair at 0.87 by September, 0.85 by December, 0.84 by March, and 0.83 by June 2023. Bank relies on the SNB’s determination to fight inflation and repatriate capital back home after a long period of negative rates.

Thomas Jordan noted that the Swiss National Bank should return inflation to the 2% target as soon as possible in order to prevent inflation expectations from fixing at elevated levels. His deputy, Martin Schlegel, said further tightening of monetary policy could not be ruled out. The derivatives market expects the main interest rate to rise by 25 basis points to 1.75% at the SNB meeting on June 22.

However, a slowdown in core inflation to 1.9% in May, below the ceiling of the central bank’s target range, and consumer prices to 2.2% suggest that the monetary tightening cycle is coming to an end.

Dynamics of Swiss inflation


Source: Bloomberg

Particularly encouraging is the fact that services inflation remains below 2%. That is, the price pressure in Switzerland is not as fixed at elevated levels as in other countries.

Monthly trading plan for USDCHF

However, perhaps the main reason not to sell USDCHF right away is the fallacy of the idea of an imminent recession in the US economy. If in 2022, those who talked about the transient nature of high inflation were wrong, then in 2023, the prophets of the Apocalypse were also wrong. In my opinion, it makes sense to move from short-term purchases of the US dollar against the franc entered on the breakout of resistance at 0.911 to medium-term sales on the rebound from 0.914, 0.9175, and 0.9225.



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.

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