The US Dollar rallied against the Swiss Franc on Wednesday, as we continue to see the interest rate differential above all else drive the markets.
USD/CHF
The US Dollar rallied against the Swiss Franc during early trading on Wednesday as we continue to see this pattern play out. All things being equal, this is a market that is focusing on the 0.79 level and the fact that market participants are chasing yield after all.
The yield has been higher in the United States than Switzerland for quite some time and we are starting to see it expand as the Swiss National Bank is firmly planted at the 0% level. You also have to keep in mind that the Swiss National Bank is threatening intervention if the Swiss Franc does strengthen.
SWISS NATIONAL BANK INTERVENTION
The US Dollar is a safety currency right along with the Swiss Franc, so it does make a certain amount of sense that if you can buy a safety currency and get a yield differential favoring you that you would want the dollar. Right now, the biggest driver of the Swiss Franc softening is the Swiss National Bank.
The Swiss don’t have an issue whatsoever jumping into the market and intervening right away if things get out of control. In that scenario, I think you have to recognize that the Swiss are not to be tested for too long. The market will continue to be a situation that will remain choppy and volatile, but I also recognize that it’s very difficult to short this pair.
I would look at the 0.80 level as a potential ceiling. Anything above there gets the dollar really taking off. Expect a lot of noise, but I do like the idea of buying short-term dips and collecting swap at the end of each session.