4 Reasons to Buy the Swiss Franc

Major economies seem to have their own set of problems nowadays. Euro zone is still dealing with Greek debt, the U.S. economy is on shaky grounds, Japan is having political troubles, the U.K. is struggling with weak employment, Australia is at risk because of PBoC hikes, and New Zealand is worrying about the Christchurch quake, and the list goes on.

From what we learned in the School of Pipsology Fundamental Analysis lesson, the problems these countries are facing usually have negative effects to their respective currencies. But did you notice which major currency is not in the list? Why, the Swiss franc, of course!

1. Greece?! Oh, please!

It seems like the Boogeyman is no match to Greece when it comes to making investors shriek in fear like little girls.

Pip Diddy has told us time and again how the euro has tumbled down the charts whenever news of a Greek default hits the airwaves. Just yesterday, we saw EUR/USD crash below support at 1.4200 when markets got word that the Greeks are resisting proposals for more austerity measures.

To make matters even worse, European officials seem to spend more time bickering with each other than coming up with concrete ideas to save the debt-ridden country from defaulting from its debt and preventing a contagion.

With all this drama around Greece’s financial situation, it’s no wonder that investors see the franc as the more appealing European currency.

As I mentioned in my article earlier this week, talks of the seemingly-impossible euro zone break up have already gained steam. So why would investors want to park their assets in the euro when its survival is in question?

2. The safer ‘safe haven’ currency?

A few Swissy fanboys (and fangirls) claim that with the economic problems of the U.S. and Japan, the Swissy has become the safer “safe haven” currency in the FX hood.

Well, they do have a point. After all, wasn’t it just last week that we saw the U.S. labor market tank? Although a few economic hotshots say that the disappointment of the most recent NFP report is just a soft patch, there’s no denying that there’s also the possibility that U.S. economy could take a turn for the worse.

Meanwhile, across the Pacific, Japan also has its hands full. As if recovering from the earthquake and tsunami isn’t hard enough in itself, Japan is also dealing with political tensions as current Prime Minister Naoto Kan is pressured to step down.

3. The Swiss economy is looking mighty fine!

There ain’t no stopping Switzerland! According to the latest SECO economic forecasts, the Swiss government is confident that their economy would grow by 2.1% this year. And why wouldn’t it? Their recent economic figures are mostly on the up and up.

Consumer spending showed a strong rebound in April, as retail sales jumped by an annualized 7.5%. That was almost FOUR TIMES as much as the projected 1.9% year-over-year increase! This was more than enough to make up for the 0.2% downtick seen last March. To top that off, the seasonally adjusted jobless rate dropped to 3% last month, hinting that consumer spending could keep rising in the future.

The manufacturing sector also boasted of upbeat prospects as the SVME PMI reading climbed from 58.4 to 59.2 in May. This signals that the expansion in the manufacturing industry accelerated during the month. This was enough to bring Switzerland’s KOF leading indicator to its highest level in three years.

4. The falling channel on USD/CHF’s daily time frame is still holding.

If the first three reasons still weren’t enough to convince you that the Swiss franc could be worth buying, here’s a good-looking technical setup. As they say, a picture paints a thousand words.

I believe my buddy Big Pippin already pointed out this long-term USD/CHF short opportunity so I’ll give him credit if this one works out:

USD/CHF Daily Chart

USD/CHF has been creeping inside a falling channel since February this year. As I mentioned earlier, resurfacing debt problems in the euro zone combined with safe-haven flows have been pushing this pair lower and lower for four months and counting.

But franc bulls need to take a break too! Because of that, the pair began to pullback from its recent dive and crawled towards the top of the channel. As luck would have it, the top of the channel lines up with a couple of Fibonacci retracement levels, which could act as resistance for USD/CHF. On top of that, the support turned resistance at the .8550 minor psychological level is very close to those Fibs.

Of course, there are still some risks to buying the franc. For one thing, the Swiss central bank has been notorious for intervening in the foreign exchange market and it doesn’t help that USD/CHF is currently treading around record lows. A bunch of SNB policymakers already expressed their concerns about the rising franc and its negative impact on the Swiss economy, yet the Swissy seemed to ignore these remarks. How high can the franc go?

  • Jogold18

    i like the chart. good looking, clean, and clear :))))) 

  • Tentrade001

    there is a falling trend line on USDCHF going back to 1978. it comes it somewhere between 0.7250 and 0.7350. that is going to be a major level of support. it could provide the basis for a major correction. however, even if it does provide this tremendous support, it could easily breach the level first, probe underneath it, then rebound back onto the other side. it could spend up to 6 months below it before coming back to the top side and i will still consider it to have held and expect a large correction.

    • Cojan

      there is a falling trend line on USDCHF going back to 1978. it comes it somewhere between 0.7250 and 0.7350. that is going to be a major level of support. (Correct and proven )will USD/CHF reach 0.9500 again by this year?