USD/CHF edged higher after two sessions of declines, trading near 0.7830 in Asian hours on Monday as the Swiss Franc softened ahead of Switzerland’s April Real Retail Sales, Q1 Gross Domestic Product and May SVME Purchasing Managers’ Index (PMI). Attention is also turning to the Institute for Supply Management (ISM) Manufacturing PMI for a read on US factory conditions. The pair’s advance has been supported by a firmer US Dollar on safe-haven demand as markets track developments in US-Iran peace negotiations.
Reporting said US President Donald Trump wants changes to the proposal to end the US-Israel war on Iran, with revisions focused on rules tied to the Strait of Hormuz and the removal of highly enriched uranium. Axios said Trump is seeking tighter terms on the handling and disposal of Iran’s nuclear material, while a senior US official said an Iranian response could take up to three days. Separately, Israel has ordered troops to push further into Lebanon despite a ceasefire announced more than six weeks ago, escalating tensions with the Iran-backed group Hezbollah.
Safe-Haven Dollar Demand and Market Positioning
We are seeing significant safe-haven flows into the US Dollar due to the uncertainty surrounding the US-Iran negotiations and the escalation in Lebanon. This suggests positioning for continued USD strength against currencies like the Swiss Franc. We are considering buying call options on the USD index (DXY) to capitalize on this trend.
The expected three-day wait for Iran’s response creates a pocket of high uncertainty, which is a perfect environment for increased market volatility. We are buying call options on the VIX, as it has already jumped over 20% in the last week to close at 24.5. This strategy will protect our portfolio and profit from any sharp market swings in either direction.
Geopolitical Risks, Energy Markets, and Swiss Franc Outlook
The focus on the Strait of Hormuz in the negotiations is a major red flag for energy markets. Historically, any disruption in this critical waterway, which handles about 20% of global petroleum liquids consumption, has caused sharp oil price spikes. Brent crude has already pushed past $95 a barrel, and we are adding to our long positions in WTI and Brent call options with July and August expiration dates.
While the Swiss Franc is typically a safe haven, it is being overshadowed by the global demand for the US Dollar in the current crisis. Upcoming Swiss economic data, like the GDP and PMI figures, are likely to be ignored by the market if geopolitical headlines worsen. We anticipate the USD/CHF pair to test the 0.8000 level in the coming weeks and are maintaining our short CHF positions.
