The Swiss Franc (CHF) has weakened against the US Dollar (USD) for three days in a row. This change is due to a rise in global risk sentiment and a stronger US Dollar. As optimism grows around international trade agreements, investors are shifting towards riskier assets, which makes safer currencies like the Swiss Franc less appealing. Right now, the USD/CHF pair is at approximately 0.7963, having recently hit a three-week low. It remains down 0.80% this week and is struggling to break the important barrier of 0.8000, well below its weekly high of 0.8226.

Global Trade Optimism Impact

Optimism in global trade has improved risk sentiment and helped the US Dollar gain strength. Recent trade agreements with Japan, Indonesia, and the Philippines suggest a move away from protectionism. Talks with the European Union and China may lead to new deals, although discussions with Canada are currently on hold. US economic data shows a mixed but stable picture that supports the US Dollar. Initial jobless claims came in lower than expected, indicating a tight job market. However, the Manufacturing PMI dropped, while the Services PMI stayed strong. Durable goods orders fell by 9.3% in June, but this was slightly better than predicted. With the positive shift in global risk sentiment, we think derivative traders should prepare for continued strength in this currency pair. The trend away from safe-haven assets is clear, and strategies should aim to capture more upside in the coming weeks.

Central Bank Policy Divergence

The difference in central bank policies supports this view. The Swiss National Bank recently lowered its key interest rate to 1.25% in June, which weakens its currency. In contrast, the US Federal Reserve is keeping rates steady between 5.25% and 5.50% to control inflation, which was at 3.3% annually in May. We consider the important psychological level of 0.8000 as a target, not just a barrier. A bull call spread could be a smart way to trade a potential breakthrough at this level while managing costs and risk. For example, one could buy a call option just below the current price and sell another call option above the barrier. Recent data on market positioning backs up our outlook for continued weakness in the franc. The Commodity Futures Trading Commission (CFTC) data from the week ending June 18th showed that large speculators increased their net short positions on the franc by over 6,000 contracts. This indicates that institutional investors are betting on further declines. Historically, when risk sentiment is strong, the franc tends to perform poorly. The pair’s rise from its multi-year low of about 0.8300 in late 2023 suggests that upward momentum is building. Moderate implied volatility means options-based strategies could be cost-effective for a potential breakout. Create your live VT Markets account and start trading now.

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