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CHF Pairs: The Desire for Safe Havens Brought on by Geopolitical Tensions Drives CHF Higher

Leon Kramer

ByLeon Kramer

Dec 21, 2023

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  • The Swiss Franc is experiencing increased demand as investors seek safe-haven assets due to recent Houthi attacks, which have restricted the Red Sea. 
  • Prominent shipping companies have implemented a strategic measure to redirect their vessels away from the Cape of Good Hope to mitigate the risk of attacks. 
  • The Swiss Franc pairs have again shown a tendency towards a bearish bias, as there is an increased demand for safe-haven currencies, strengthening the CHF. 

The Swiss Franc (CHF) experienced a general increase in trading value on Monday. A higher demand for safe-haven currencies primarily drove this, as investor sentiment was negatively affected by concerns over global trade tensions arising from geopolitical tensions in the Middle East. 

Concerns surrounding global trade escalated following the recent drone assault on a Maersk transporting the ship in the Red Sea, which was carried out by the Iran-backed Houthi militia. Consequently, the organization redirected its entire fleet of shipping vessels through the Cape of Good Hope. Subsequently, additional companies, such as British Petroleum, adopted a similar course of action. 

Despite an Increase in Risk Aversion, the Swiss Franc Has Gained Value

  • On Monday, the Swiss Franc experienced a slight increase in value compared to the US Dollar (USD). This can be attributed to geopolitical factors that have led investors to seek the safety of the Swiss Franc as a reliable currency. 
  • During current bank conferences, Federal Reserve (Fed) Chairman Jerome Powell referred to the consideration of interest rate cuts, which impacted the value of the US dollar. 
  • This is in contrast to the more assertive stance of Thomas Jordan, the Chairman of the Swiss National Bank (SNB), who suggested that policy would continue to be restrictive in the foreseeable future. 

USD/CHF Falls Again Into a Wider Downward Trend

The exchange rate between the US Dollar and the Swiss Franc, known as USD/CHF, is currently hovering near the lows seen in December. 

The current analysis indicates that the pair is experiencing a downtrend across significant time frames. This suggests that the market is predominantly controlled by bearish sentiment, and further price decline is likely. 

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If the pair’s value drops below the lows observed in December, it may continue to decline towards the next target, the lowest point recorded in July 2023 at 0.8552. In addition, additional vulnerability may exert downward pressure on the currency pair, potentially leading it to decline below the 0.8500 level and potentially even lower.

The Relative Strength Index (RSI) indicates a bullish convergence at the current lows compared to the lows observed on December 4. The Relative Strength Index (RSI) currently shows a higher value than its previous level earlier this month, even though the price experienced a decline on December 14. 

As a result of Lagarde’s Hawkish Statements, the Swiss Franc Is Falling Against the Euro

  • On Monday, the Swiss Franc experienced a decline in value against the Euro despite the Eurozone presenting less impressive data. 
  • The data released on Monday indicates that German business confidence experienced a decline in December after showing signs of improvement in the previous two periods. The IFO Business Climate The index experienced an unforeseen drop in December, as the perception of the present economy and the expectations for the near future displayed lower levels than the previous month.
  • The figures above follow the discouraging PMI figures observed towards the end of last week and the shrinking Gross Domestic Product (GDP) observed earlier this month, which supports the belief that an economic slowdown is imminent.
  • The Single Currency could be experiencing some stability following the remarks made by European Central Bank (ECB) President Christine Lagarde last week. Lagarde stated that the possibility of reducing interest rates should have been discussed during the meeting.

The EUR/CHF Pair Is Headed in a Bullish Direction in the Near Term, but the Longer-Term Outlook Remains Gloomy

The exchange rate of EUR/CHF, which represents the amount of Swiss Francs that can be purchased with one Euro, is experiencing a slight increase on Monday. 

Based on current observations, the medium-term trend either moves sideways or shows a bearish inclination. However, based on the positive closing on Monday, it is likely that the MACD momentum indicator will experience a bullish crossover, suggesting potential future strength. 

A significant increase above the level of 0.9600 suggests a breakthrough above the resistance barrier created by the 50-day and 100-day Simple Moving Averages (SMA). This could pave the way for additional upward movement towards the upper limit of the range, approximately at 0.9685.

A significant breach below the long-standing low of 0.9403 every week would reaffirm the prevailing bearish sentiment and result in a decline to unprecedented levels. In this scenario, critical psychological levels such as 0.9300 and 0.200 are anticipated to support the price.

As Risk Appetite Decreases, the Value of the Pound Sterling Falls Versus the Swiss Franc

  • On Monday, the Swiss Franc experienced an increase in value compared to the Pound Sterling (GBP) due to escalating tensions in the Middle East. This geopolitical uncertainty prompted investors to seek safer assets, resulting in a preference for the Swiss Franc over the Pound.
  • During its most recent meeting, the Bank of England (BoE) observed that inflation continues to be consistently elevated. This indicates that interest rates will likely need to be maintained at higher levels for an extended period, which could positively impact the value of the Sterling currency. 
  • The Swiss National Bank maintains a cautious stance, as indicated by Chairman Thomas Jordan’s dismissal of the likelihood of further interest rate cuts. He also said that the rates are expected to remain unchanged shortly.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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