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Concerns over Deutsche bank propel Swiss Franc

Swiss FrancLower than anticipated unemployment claims of 254,000 in the week ended September 24, and higher than expected GDP growth of 1.4% in the second-quarter triggered a US dollar rally against its rivals. The anticipation of a US Fed hike in December also weakened the demand for the safe haven currencies such as the Yen and the Swiss Franc.

Even, lower than forecasted ADP non-farm employment change was only able to temporarily halt the USD/CHF rally. The Swiss National Bank’s objective of keeping a weak Franc to boost exports indirectly supported the USD/CHF rally to continue. However, the recent developments in the Euro zone are turning the focus of investors once again on the Swiss Franc.

Renewed concerns over the financial health of the Deutsche bank have once again increased the demand for the Swiss Franc. The BoJ is also trying to keep the Yen weak. The Australian and New Zealand dollar is considered to be overbought. The Brexit outcome continues to rattle the Pound. So, as it can be understood, one of the best investment options left is the Swiss Franc. The benchmark interest rate in the SNB (Swiss National Bank) is a negative 0.75%. Thus, it will not be an easy decision for the SNB to take the interest rate further deeper into the negative territory. So, in this regard, we can anticipate the Franc to strengthen.

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Secondly, the US Congress passed a legislation that will allow the families of those killed in the September 11, 2011 attacks to claim damages from the government of Saudi Arabia. The economists believe that the financial institutions in the middle-east would start considering the dilution of their positions in the US and invest the proceeds in Switzerland. Such an expectation would support a strong Franc. So, considering the details above, we forecast a decline in the USD/CHF pair.

The market firmly believes that the Fed would tighten policy in December. Considering that, it is not a surprise to see the USD/CHF to move within an ascending channel. However, the Greenback is now facing resistance at the upper band of the channel. The stochastic oscillator is reflecting an extremely overbought condition. So, we can anticipate the currency pair to drift downwards and test the lower band of the channel.

USD/CHF Pair: October 28th 2016

USD/CHF Pair: October 28th 2016

A Forex trader can go short in the USD/CHF pair at about 0.9950. However, to limit losses, a stop loss order can be placed above 1.0040. If the forecast goes true, then the short position can be covered comfortably near 0.9730.

To establish a similar setup in binary market, a one touch put option with a target greater than 0.9800 can be purchased. Selecting an expiry date in the final week of November would increase the probability of success in the trade as it gives adequate time for the currency pair to reach the target level.


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