The EUR/USD (Euro/dollar) exchange rate is determined by the various currency pairs EURUSD and USD. For such a two different financial instruments, there is a high correlation. But, arbitrage, in an attempt to capture the difference in interest rate, doesn’t work. This makes arbitrage a difficult proposition. So, the next logical step is to use forex analytics for trading in EURUSD and USD.
The price index accounts for collecting data on the movement of the prices of publicly available securities within the financial market. It provides valuable information on the movements in the markets. Price movements are large impact on the value of currency with short term changes and large impact over a long period of time. In the past, when the price was not available to all investors, the G DP index or the Gross Domestic Product (GDP) was used as a measure of currency valuation.
The EURUSD and CHF currency are affected by changes in the exchange rate between them. The EURUSD and CHF are sensitive instruments as they have high correlation with other foreign currencies. When the exchange rate is negative, the effect on the chf currency is negative as well. This may result in loss of earnings.
Economic, political and social factors have a great impact on currency valuation. Economic volatility is expressed as the change in nominal interest rates over a period of time. Political volatility refers to the fluctuating domestic economic policies. On the other hand, social volatility is associated with the fluctuating domestic social policies.
The relationship between the exchange rate and the strength of the domestic financial system is called a traded interest rate relation. This relation exists between two terms: the interest rates and the base currency. Economic fluctuations cause a reduction in the strength of the domestic financial system. This leads to a reduction in the exchange rate. In order to curb this loss, central banks have to intervene in the market and reverse the policy of market interest rates. However, if they do so, it will result in a depreciating currency which is unfavorable for exporters of goods in the EURUSD and CHF.
Correlation is another factor that is used in determining the currency valuation of different pairs of currencies. Correlation is defined as the average correlation between two points on a closed range. For example, the correlation between the U.S. dollar and the Japanese yen is 0.7. A higher value means that there is a high chance of the exchange rates to change. There are several examples of high correlation values such as the United States dollar and the British pound.
Another useful tool that can be used in determining the exchange rates is the cross-correlation diagram, or CCD. The CCD is created by plotting the correlation between the two currencies on a horizontal bar. The top axis represents the U.S. dollar and the bottom axis represent the Japanese yen. On the top left, there are two boxes, while on the right side there are two lines. These indicate the difference between the interest rates of the two currencies.
The Swiss franc and the Canadian dollar are considering to be a strong parallel pair. The Swiss franc appreciated strongly against the US dollar in the past few years. At the moment, the EURUSD is more favorable than the CHF due to its stronger purchasing power. The Swiss franc is also weaker against the Swiss franc than against the Canadian dollar, which makes the EURUSD a more attractive option for investors.
A negative correlation can also be created between the euro and the Swiss franc due to the negative economic trends in both countries over the last few years. However, the recent economic slowdown in Europe has had a much smaller impact on the Swiss franc compared to the US economy. In fact, this trend is starting to reverse, and investors are now starting to back away from the EURUSD. This might change, but for the time being, the Swiss government has managed to keep its currency intact.
The strength of the Swiss national currency is supported by export volumes. The Swiss economy depends mainly on foreign trade and remittances. The currency has strengthened against most major currencies due to the Swiss banks’ prudent decision to hold the EURUSD as their main currency instead of the euro. Despite this, the Swiss government has kept its stance on the possibility of changing the euro as the main currency, which might weaken the Swiss franc and create more opportunities for investors. Due to its safe-haven status, the Swiss franc has been able to withstand the global financial crisis much better than other European countries.
Despite the fact that the EURUSD has maintained its strong value versus most major currencies over recent weeks, there are still traders who believe that the EURUSD will lose ground against most of its major counterparts over the next few months. These traders are of the opinion that the EURUSD will continue to encounter stronger resistance levels against the euro after the upcoming economic report is released. The Swiss government has managed to maintain its currency strength despite the recent global financial crisis, and this has been helping it keep its economy growing at a steady pace. With the global credit crunch slowly fading away, the Swiss government has been able to use its strong forex market position to strengthen the sigmundium spot price, and this is being seen as a major factor that will help the Swiss economy overcome the current global economic problems.