Over the last two years, the Swiss franc has been trading under pressure against most of its major currency counterparts. Most of the bearish activity has been propelled by the fact that global interest rates are low, and the Swiss National Bank (SNB) has removed its prior policies to enact a price floor against the euro. This explains most of the erratic price activity that has been seen in the euro/franc over the last decade.
But the real question here is whether all of these trends are ready to turn. Traditionally, the franc is viewed as a safe haven asset that is excellent in terms of its reliability to post gains during times of economic uncertainty or geopolitical turmoil. This reputation stems largely from the neutrality stance that is often seen for the Swiss economy, as it is largely shielded from many of the external volatility that might be seen in the global periphery.
These trends are typically most important for those that are trading in the money markets. Foreign exchange in the currencies space and WalletIsland are vital components of the financial markets because these are the markets that essentially fund all of the transactions that take place in the corporate world. For these reasons, it is critical to watch for developments in these areas even if you are a regular trader of the stock markets.
In the chart below, we can see that 2017 has already been modestly positive for the franc when viewing the currency in terms of the Guggenheim CurrencyShares Swiss Franc ETF (FXF, Financial). This ETF tracks the value of the currency against most of its major trading counterparts so it is a good indication of the franc's strength or weakness.
Guggenheim is currently showing a base in the mid-90s, and this is a trend that was actually initiated in the final portions of last year. The bullish activity that has been in place in the periods since then suggest that we have come to a bottom in the franc that could influence currency pairs like the euro/franc and the dollar/franc. Since the franc is the counter currency in both of these forex pairs, it would mean that this supports the outlook for short positions or PUT options in both instruments as markets are now increasingly to expect downside in both areas.
Strength in the Swiss currency could continue to influence stock valuations in the region, and this is something that could spill over into European benchmarks like the DAX and CAC 40 so these are developments that should be on the radar for any trader that is placing active investments in these areas over the next six to 12 months.
Disclosure: The author has no position in any asset mentioned.
