Before you start trading currencies in Forex market, you need to understand how the price of currency pairs such as EUR/CHF is calculated using what is known as rate analysis. These key rates or currency interest rates have a very strong influence on the development of exchange rates and should be taken into account when calculating your strategies and analyses.
The monetary policies of the European Central Bank and the Swiss National Bank and the difference between them is of course one of the most influential factors in the development of the exchange rate of these two currencies in relation to each other.
Another important thing to watch out for if you trade the EUR/CHF is market concerns about the future of the Eurozone and the European Union. We will therefore follow all news on economic policy and growth in these economic zones.
The Swiss Franc is strongly influenced by the relations between Switzerland and the European Union, which sometimes lead to very high volatility on this currency cross.
Finally, the macroeconomic figures regularly published by these two currency areas can also help to define a medium and long-term trend.
The currency cross EUR/CHF represents the parity Euro/Swiss Franc. It is therefore the quotation of the Euro against the Swiss Franc. The price of this cross corresponds to the value of one Euro expressed in Swiss Francs.
Although the EUR/CHF is not one of the most popular currency pairs in Forex, it still ranks ninth in the most traded currency pair rankings, just after the EUR/JPY or Euro/Yen. The annual trading volume for the EUR/CHF cross is around 2% of all currency market transactions.
The EUR/CHF currency pair is quoted as a number with 4 decimal places, although some brokers sometimes display it with 5 decimal places. Its price is a floating rate, which means that it is subject to the law of supply and demand in the interbank foreign exchange market.
One of the specificities of this currency pair is its high volatility. Indeed, its average volatility observed over the last few years has been 90 pips, which is quite rare on a Forex currency pair.
This volatility is largely due to the fact that the EUR/CHF currency pair is a trend pair. This clearly means that trends in the currency pair usually show long upward and downward movements.
Last but not least, the last but not least asset of the EUR/CHF cross is the Swiss Franc, which has long been considered a safe haven because of Switzerland's financial strength, which is renowned for its banks. As a result, when global economic markets are at a low ebb and the general climate is pessimistic, the Swiss franc sells very well.
We have just seen together that several major factors such as the interest rate policy of the ECB or the European economic policy have a direct and major influence on the price of the EUR/CHF currency pair. But you must also take into account other influential factors that also have a more or less important impact on the evolution of this value. Here are the other elements to be included in your analysis:
One of the most influential and therefore most useful elements if you are considering trading the EUR/CHF currency pair is European politics. This is particularly useful if you are adopting a medium to short term investment strategy.
We will therefore focus in particular on the concerns that investors may have regarding the euro zone and the European Union to a lesser extent and which, as you probably already know, have a strong influence on the evolution of this exchange rate.
Indeed, it is noticeable that when investor concerns are significant, this has a negative impact on all assets in this block. Of course, the eurozone currency, the EUR, is also affected by this fear sentiment and, as the CHF plays a safe haven role here, there is significant pressure on the EUR/CHF price in this case.
There are many events to watch to anticipate and analyse market concerns in the euro zone and the 19 countries that make it up. These include national and European elections, major referenda and major economic reforms.
To better understand what impact the policies of the eurozone countries can have on the price of the EUR/CHF currency pair, we can cite the concrete and current example of Italy. Indeed, during the spring of 2018, two bets considered Eurosceptics, the 5 Star Movement and the Northern League, joined forces to form a government alliance. At the announcement of this coalition, the EUR/CHF, which was then following an upward trend, stopped gaining points and then lost nearly 4% of its value in the space of only two weeks. Subsequently and a few months later, as the Italian government dismantled the former government's labour market reform, marking the beginning of new fears about the country's deficit problem, investors decided to massively sell their Italian domestic bonds in order to buy German bonds, considered safer and supported by the various rating agencies. The impact of this event is a little more complex to understand. Indeed, following these massive purchases of Bunds, the yields on this bond fell and this led to a smaller spread between these yields and the yields on the Swiss bond. This of course benefited the CHF and again contributed to the EUR/CHF exchange rate losing points.
These few examples give a better understanding of the role played by the important political and economic decisions of the euro area countries. You should therefore keep a close eye on all these events as well as political and economic events affecting Switzerland and use them as a point of entry or exit or as a basis for your strategies and position maintenance.
Let's end this article dedicated to the EUR/CHF currency pair with a few tips to help you better analyse this cross.
First of all, you must systematically check that the data you obtain through your technical analyses coincide with the technical data of the German Bund over 10 years, since it is known that these two assets must show a positive correlation.
As explained above, the rate of the EUR/CHF currency cross is particularly responsive to the various communications, announcements and forecasts from the two major central banks that govern these currency zones, namely the ECB for the euro zone and the SNB for Switzerland. You should therefore pay particular attention to all events related to these two financial institutions with regard to economic and monetary plans.
Of course, the other important element to be analysed in the framework of your strategy on the EUR/CHF course concerns the policies pursued in Europe and more particularly in the countries of the euro zone. These policies will help you to better understand the context in which this currency pair is evolving and to anticipate changes in the EUR/CHF based on the fears this context generates.
Of course, and especially if you decide to adopt a long-term investment strategy on this currency pair, you should also pay close attention to the macroeconomic figures for the Eurozone and Switzerland. This will also help you in your medium-term strategies.
As previously announced, a technical analysis remains essential before taking any position on this stock given its extremely speculative aspect. These technical analyses will be particularly useful if you are considering a short or medium-term trading strategy.
Finally, you can also use the tools and decision-making aids offered by your online broker to further refine your analyses. In particular, you can consult the forecasts made by Forex specialists and analysts or the quarterly forecasts for each currency. The demo accounts, which are usually available free of charge on current trading platforms, can be used to test your various strategies before implementing them with real capital.
Thanks to the various tips we have just given you and the various information you have read about in this article, you should be able to set up effective analyses on the price of the EUR/CHF currency pair.
The EUR/CHF exchange rate is determined solely by supply and demand on the foreign exchange market. However, it is also interesting to know that several external factors will influence this supply and demand, such as central bank decisions and key interest rates or economic and financial exchanges between these two economic zones, i.e. between Switzerland and the euro zone.
It is important to understand that the EUR/CHF exchange rate is constantly changing in the market. When you look at the exchange rate charts for this exchange rate, you will see a price change per second during the opening hours of this market. This is of course also the case for all other Forex currencies and you should therefore take this rapid change into account in your investment strategies.
The exchange rate offered by financial intermediaries on the EUR/CHF currency pair varies greatly depending on the margin that will be applied by each of them. This margin will in fact serve as a remuneration for this intermediary and you must take this into account before choosing the broker you will use to speculate on this cross. In the case of online Forex trading, this margin is expressed by the spread.
