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USD/CHF approaching 0.89, a strong resistance level

USD/CHF approaching 0.89, a strong resistance level

The USD/CHF is down around 10% since the peak of the Coronavirus in mid-March, as further dollar weakness continues to increase the value of the safe haven, the Swiss Franc.

This recent strength in the Swiss Franc has broken a strong range the USD/CHF has been trading in for the past couple of years, between 0.95 and 1.05. It has ranged between these points after the Swiss National Bank decided to stop pegging the Swiss Franc against the Euro unexpectedly in 2015. We saw the pair break a strong support level around 0.934, a 78.6% Fib retracement level.

USD/CHF over 6 years

Why are we seeing the Swiss Franc get stronger?

Historically post peg, the pair has been trading in relative parity to each other, highlighting the battle between the demand for the world's reserve currency alongside the demand for a safe haven such as the Swiss Franc. However, U.S. dollar weakness has strengthened many currencies opposite to it, including the Swiss Franc.

A couple of months ago, the Swiss National Bank intervened in the currency market to cap the Swiss Franc's appreciation, with Credit Suisse estimated that the Swiss National Bank had sold over $98 Billion in Swiss Franc's in the first half of this year alone. The Swiss National Bank believes that the Franc's appreciation would be detrimental to the economic recovery in Switzerland. The SNB's balance sheet is around $1 Trillion, with their foreign reserves at an all-time high. For reference, Switzerland's economic output is about 700 Billion.

Dollar weakness is the key to the strength of the Swiss Franc, and that dollar weakness is coming from the global economic recovery from the Coronavirus. If the vaccine rollout successful in the U.K. and then across the world, dollar weakness will continue to push the Swiss Franc stronger and further away from parity.USD/CHF approaching 0.89, a healthy resistance level