The Profitability of Currency Trading

The relationship between currency pairs tends to follow a power law. Correlation may also be called the currency-counterfeit curve or the USD-Swiss franc currency correlation. The strength of the currency pairs typically increases as the other falls. The currency trend can take several forms such as the rise of one country, the fall of another or a buffer of varying sizes between them. For traders on the forex exchange, however, the relationship between the Swiss franc and the euro currency pairs is too high to ignore.

Currency

Correlation between two currency pairs may be the most important factor determining the direction of the market. When there are substantial divergent policy or political developments, the EUR/USD and USD-CHF pair tends to break away. Traders look to the Swiss franc to hedge their exposure to political risk in Europe and Japan and, as such, move the Swiss dollar either up or down to capture a small loss in the EUR/USD or USD-CHF during this time. As policy makers in Europe, Japan and the US become more hawkish and loose their policy stance, the EUR/USD may continue to weaken, which can effect the Swiss interest rate and, indirectly, the Swiss Franc.

In addition to the political events mentioned above, the relationship between currency pairs also follows economic indicators. A strong economy in a country increases the share value of its major currency, while at the same time reducing the Swiss Franc’s value. Economic growth boosts the gross domestic product (GDP) and employment rates in a country, encouraging the creation of monies that are internationally recognized. These newly generated monies flow through currency channels to influence exchange rates. To the observers this indicates that private funds are investing in Swiss Interest Rates and thus indirectly supporting Swiss monetary policies.

A negative divergence in the Swiss Forex rate against most of the major world currencies is called a negative correlation. When two variables are strongly correlated, a higher the value of one currency against the other, then the opposite happens. A high positive correlation means that the Swiss economy is on a boomerang swing while a lower positive correlation suggests that it is moving in an upward direction. As you can see from the chart of the Swiss Franc against the US Dollar, there is a marked upwards trend over the past three years.

There is a strong downtrend currently in the Swiss Franc against the Euro and US Dollar. The Swiss economy is expected to continue to grow moderately over the next few years. The Swiss government has kept a tight grip on fiscal policy to limit credit growth to prevent inflation. The Central Bank has also maintained a low level interest rate. While the Swiss economy is growing, the Euro and US Dollar are both weak Swiss Franc vs. the Euro and US Dollar.

Traders use the Foreign Exchange Rate Board’s PIP value, which is the market traded price of the Swiss Franc against the Euro. When the market begins to move out of a consolidating position, this indicates that the Swiss government will begin to increase the Swiss Franc peg. If a pair is moving against the Forex rate with respect to another pair, it is called a consolidation move. When there is a move in the market that is bullish in relation to another pair, it means that investors are expecting the exchange rate to go up.

A bullish currency pair will usually cause the Swiss Franc to increase in price. Conversely, a bearish currency pair will cause the Swiss Franc to drop in price. So, when trading the forex, you always want to know about the prevailing forex news or information for a particular currency pair. You can usually get a good amount of information on a currency pair by using a free forex demo account.

With the US dollar strengthening against most major world currencies, especially the Swiss Franc, investing in the Swiss Franc has become one of the more popular choices for many investors. The Swiss Franc pairs are also very attractive due to their strong growth versus the euro over the past year. Over time, the Swiss Franc has been increasing in price, but it has also been given a boost recently by the European Central Bank’s decision to buy up large amounts of Swiss Francs. This has helped the Swiss Franc to gain a strong foothold in the world forex trading market, making it one of the more lucrative worldwide investments.