The EURUSD currency pair is sometimes known as ‘The Frenchie’. The French Franc is currently the last surviving Franc in circulation in Europe. EURUSD stands for’Eurozone Dollar Currency Unit’. It represents the whole economic system of the neutral region of Europe. USD and EUR are commonly interchangeably used in Forex trading.
Correlations are the measure of two currencies that change together with time, and this can be in a sideways or direction. If one currency has a high correlation to another with a low correlation, then this signifies that there is a trend or a phase of strong growth. Correlation is usually measured in a positive direction, i.e., high up (corresponding to USD) or down (corresponding to EUR). A high up and a low down may also indicate a period of economic expansion (up) and contraction (down), respectively. It is important to note that these high and low correlations do not necessarily mean that the correlation will continue or expand, but it may indicate that one phase of economic expansion will contract while the other expands.
An example of a positive correlation between two currency exchanges is illustrated by the USD/CHF relationship. When viewing the CHF/USD, the current phase of its expansion corresponds to the current USD interest rate. The higher the exchange rates between the currencies, the higher the Federal funds rate. As such, the CHF/USD would have high up and down signals associated with the Federal funds rate. The current CHF exchange rate is obviously low compared to its historic highs, which suggest that there are expectations of a sharp tightening of the monetary policy in Switzerland in the upcoming months.
The EUR/CHF relationship shows a positive correlation and opposite correlation as well. The EUR/CHF is lower than the USD at this time. In addition, it exhibits the lowest upward movement of any currency pairs tracked on Comex. The EUR/CHF is expected to move higher over time, especially against the USD. Conversely, the EUR/USD is expected to move lower, indicating the end of an expansion phase for the EUR/USD and an impending decline, or possible breakout, of the top during the coming periods.
The CHF and the EUR/CHF are very similar to the USD/CAD and the GBP/CHF, but they are much more closely related to the EUR/CHF. In this case, the relationship between the currencies are notably ranging, indicating that buyers may be able to buy one US dollars in order to obtain the EUR and vice versa. In this scenario, the relationship between the chf and the francs look like a triangle, since the CHF represents the most widely traded currency in Swiss money and the CHF/USD a counter currency. This means that the CHF/CHF triangle can also be a trading “topsy-Turvy” and this may continue to be the pattern of the currency pair price.
Other than this, the relation between the CHF and the euro can be determined from the Swiss National Bank. The CHF/USD is very close to the EUR/CHF at this moment. On the other hand, the EUR/CHF has a bit higher correlation with the Swiss National Bank. This makes the EUR/CHF a possible topsy-turvy candlestick pattern. The combination of the two currencies is considered to be a strong support area, particularly during the global economic and financial reports. At this moment, it is difficult to draw any strong conclusions, since, the global economic and financial news is often contradictory.
The EUR/CHF and the Japanese yen are another close parallel. When the CHF was strong, the EUR/CHF was weak. The current trend is that the EUR/CHF is strengthening while the Japanese yen is weakening. During the past years, the Swiss National Bank tried to weaken the Swiss franc in order to increase the value of the EUR, which is similar with the strategy adopted by the Bank of Japan in 2021 to increase the Japanese yen and reduce the value of the US dollar.
Last but not least, let us consider the long term trends of the Swiss National Bank. During the past years, the Swiss National Bank has tried to intervene in the forex market in order to increase the Swiss franc (in EUR), to make it more internationalizable. However, this measure resulted in some significant losses for the banks in Switzerland itself and also beyond the euro area. The most probable explanation is that the long term trend of the Swiss national interest rate is based on the global interest rates. On the contrary, intervention in the forex market is still possible, but this time the goal is to make the EUR appreciate and become more internationalized.