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USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

2011-12-07 06:39:00
Jamie Saettele, CMT, David Rodriguez, Ilya Spivak,
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Swiss Franc / US Dollar Technical Forecast

Monthly Chart

USDCHF_US_Dollar_Swiss_Franc_Exchange_Rate_Forecast_body_usdchf.png, USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

Prepared by Jamie Saettele, CMT

The USDCHF is at long term resistance from “the channel that extends off of the 2009 and 2011 lows (with the parallel extending from the 2010 high). This channel resistance is reinforced by pivots (both support and resistance) from December 2010 to April 2011.” Favor the upside as long as price is above 9164. Upside levels of interest are 9470 and the 2011 high at 9770. Coming under 9164 would trigger a bearish bias, shifting focus to 9065 and 8960.

Swiss Franc / US Dollar Interest Rate Forecast

Currency, Central Bank

US Dollar, US Federal Reserve

Swiss Franc, Swiss National Bank

Net USDCHF Spread

Signal

1-Year Expectations(Basis Points)

5

(16)

21

Bullish

Yield in 1 Year(Percent)

0.30

(0.12)

0.42

Bullish

USDCHF_US_Dollar_Swiss_Franc_Exchange_Rate_Forecast_body_Picture_6.png, USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

US Dollar / Swiss Franc Interest Rate Trading Bias: Neutral

The US Dollar/Swiss Franc currency pair has mostly disconnected relative interest rates, giving us an effectively neutral yield-based forecast for the coming month. In fact, the Swiss Franc’s correlation to broader markets has mostly fallen apart as the USDCHF and EURCHF stick to very wide trading ranges.

What could ultimately push the Swiss Franc beyond recent levels against the Euro and the US Dollar? We’re not entirely sure. As it stands, the Swiss National Bank has made noise about potentially intervening in the Euro/Swiss Franc exchange rate to keep the CHF weak.

Barring any significant action, we expect mostly range-bound price action in CHF pairs.

View a guide on trading currencies using interest rate expectations.

Swiss Franc / US Dollar Valuation Forecast

USDCHF Valuation Forecast: Bullish

USDCHF_US_Dollar_Swiss_Franc_Exchange_Rate_Forecast_body_Picture_7.png, USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

Source: Bloomberg

SNB intervention continues to erode the Franc’s appeal as the safe haven, helping to trim the currency’s overvaluation against the US Dollar. More of the same appears likely going forward unless an outright Eurozone meltdown scuttles the central bank’s ability to hold off panic-driven capital inflows. Otherwise, slowing growth in the common currency area is likely to keep SNB policy at the dovish end of the spectrum while intervention fears contain safety-linked demand amid lower-level sovereign risk jitters and broadly slowing global recovery.

What is Purchasing Power Parity?

One of the oldest and most basic fundamental approaches to determining the “fair” exchange rate of one currency to another relies on the concept of Purchasing Power Parity. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. For example, if a pencil costs €1 in Europe and $1.20 in the US, the “fair” EURUSD exchange rate should be 1.20. For our purposes, we will use the PPP values provided annually by Bloomberg. We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar.

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