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Trade of the Week: USDCHF to see 55% more volatility?

Trade of the Week: USDCHF to see 55% more volatility?

Here are some Swiss Franc facts that may surprise you:

  1. CHF is best-performing G10 currency vs. USD so far this year
  2. SNB uses Swiss Franc to help achieve inflation target
  3. Swiss Franc is a safe haven currency
  4. USDCHF sees 55% larger-than-average moves on US CPI days so far in 2023
  5. Bloomberg FX model: USDCHF to trade within 0.8645 – 0.8865 this week



1) CHF is the best-performing G10 currency so far in 2023

USDCHF has a year-to-date decline of more than 5% at the time of writing (stronger CHF + weaker USD = lower USDCHF).

The Swiss Franc (CHF) has overtaken the British Pound for the current title, after battling it out for most of July, with the former also boasting of an advance against all of its G10 peers for the year-to-date period:



2) The Swiss National Bank (SNB) has been allowing CHF to strengthen

This central bank uses the CHF exchange rate as a major tool for controlling inflation.

A stronger CHF means less imported inflation, i.e. the prices of imported goods and services do not rise as fast.

A stronger CHF also means more receipts from its exports, hence Switzerland’s consistent trade surplus, which in turn fundamentally supports a stronger currency.

Fun fact: Switzerland’s watch exports have grown by double-digits year-on-year (>10%) in 4 out of the first six months of 2023.

After over a decade of limiting the Swiss Franc’s strength, the SNB finally signalled in November 2022 that it’s ready to sell foreign currencies and let the CHF strengthen.

NOTE: The SNB exchanges foreign currencies back into Swiss Francs, which in turn drives up the value of the latter.

Furthermore, the SNB has maintained its willingness to keep hiking rates.

Such hawkish rhetoric comes despite inflation already falling within the central bank’s 0% - 2% CPI target range (Switzerland’s July CPI = 1.6%).

However, the SNB appears concerned that inflation may make a comeback later this year, hence expectations for another rate hike.

At the time of writing, overnight index swaps are pointing to a 60% chance that the SNB could hike by a further 25-basis points before 2023 ends.

NOTE: SNB only makes a rate decision once every quarter. Its next rate decision is due on September 21st.

Recall that, a currency tends to strengthen as markets continue to expect interest rates in that country to climb higher.

Hence, such expectations have aided the Swiss Franc to reach its strongest level against the US dollar in about 8 years.

Back in mid-July 2023, USDCHF dipped below 0.8600 for the first time since 2015 - when the SNB lifted the Swiss Franc’s cap against the euro, which resulted in a skyrocketing CHF (and a plummeting USDCHF).



3) Swiss Franc is a safe haven currency

A safe haven is an asset that investors buy up with hopes of preserving their wealth in times of heightened fear and great uncertainty.

Consider how the Swiss Franc gained by 2.86% versus the US dollar for the month of March 2023, amid the banking turmoil in the United States as well as Switzerland.

Currently, with markets fearing a recession, that has also helped drive up the value of the safe haven Swiss Franc.



4) USDCHF sees 55% bigger one-day move on day of US inflation data release

So far in 2023, USDCHF tends to move by about 56 pips (between its highest to its lowest intraday price) on average within a single trading day.

However, that average intraday move climbs up to 87 pips on the days that the US consumer price index (CPI) is released.

That’s a 55% increase in volatility!

Hence, brace for heightened volatility when the US CPI due is released this Thursday, August 10th! ​​


Currently, economists are forecasting the following numbers for the upcoming US CPI report:

  • CPI month-on-month (July 2023 vs. June 2023) = 0.2%
  • Core CPI (excluding more volatile food and energy prices) month-on-month = 0.2%
  • CPI year-on-year (July 2023 vs. July 2022) = 3.3% (a slight uptick from June’s 3% year-on-year increase)
  • Core CPI year-on-year = 4.8% (matching June’s core CPI y/y number of 4.8%)


Potential scenarios:

  • A set of CPI numbers that show US inflation is moderating further, which in turn allows the Fed to back away from a September rate hike, may drag USDCHF lower on the weaker US dollar.
  • Higher-than-expected CPI readings, which stoke fears of a resurgence in inflation that forces the Fed into yet another rate hike next month, may translate into a stronger US dollar and a higher USDCHF.



  • At the lower-than-expected US CPI release on July 12th, USDCHF registered an intraday move of 139 pips!
  • That was its biggest one-day DROP in % terms so far in 2023, and also its 3rd largest single-day move (both up and down) in percentage terms of the year so far.

In other words, if recent history is to be a guide, brace for a volatile USDCHF on US CPI release day.



5) USDCHF likeliest to trade within 0.8645 – 0.8865 this week.

According to Bloomberg’s FX model, there’s a 72% chance that USDCHF trades within the above-mentioned range over the next one-week period.

Here are some further key levels of interest for the immediate term:



  • 21-day simple moving average
  • 0.864 – 0.866 region = lower bound of Bloomberg FX model forecast / area for choppy July price action
  • 0.8600 = psychologically-important level



  • 0.8800 = psychologically-important number
  • 0.8820 = early-May low
  • 0.886 region = upper limit of Bloomberg FX model forecast / 50-day simple moving average / upper bound of USDCHF downtrend since November 2022
  • 0.89014 = June 2023 low




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