European Central Bank also referred to as ECB globally is the central bank for official currency of Europe, the EURO. As of current year i.e. 2011; total 17 European Union member states have adopted the currency – Euro. The ECB’s most important function is to uphold the euro’s purchasing supremacy which in turn will help retention of steady price in the areas where euro is an officially circulating mode of exchange or tender.
The process of countries adopting the currency and more countries following the suit, started precisely on 1st January, 1999, when eleven locations in the European Economic and Monetary Union resolved to do away with their own currencies and accepted the Euro (EUR) as their home currency.
In second phase the Vatican City converted to Euro, then next to follow were Greece, Slovenia, Malta and Cyprus, and finally and the most recent one Slovakia which adopted Euro as their currency on January 1, 2009.
EUR CHF is one of the important currency pairs for the forex traders. EUR is the second-highest traded currency on the Forex market. The Euro started trading at around $1.18 and look at how it has managed to grow over past some decades. It’s a stable and robust currency besides being considered as one of the Reserve Currencies of the world.
What are the factors that affect EUR exchange rate?
The first factor that affects the price or exchange rate of EUR is the Eurozone. Eurozone comprises countries that have agreed to accept and approve of the euro as their official currency which according to their GDP standing.
The second factor that can favourably or unfavourably affect EUR exchange rate happens to be the European Central Bank. This institution controls Euro zone’s fiscal policy. The decision making body is made of the Governing Council, which is made of the Executive Board and the National Central Bank’s governors. The Executive Board likewise is made of prominent authorities like the ECB President, Vice-President, with total of four other board members along with governors of Selected National Central Bank.
ECB Policy Targets is the third factor that makes the exchange rates go through changes and movements. It is primary responsibility of the ECB to keep the prices firm and stable. It achieves this with the help of two main principals of monetary policy.
The first principal of monetary policy includes the stance or point of view related to development vis-à-vis the price and dealing with risks against price stability. While the Harmonized Index of Consumer Prices is extremely crucial, a range of indicator and forecasting tools are used to identify the medium term threat to price strength. The next foundation on which the whole thing rests is fiscal growth as calculated by M3. The European Central Bank has been assigned a reference assessment that is four and a half percent annual growth for M3. The European Central Bank convenes a Council meeting every alternate Thursday to release news and make announcements regarding interest rates. In the first Thursday meeting of the month, the Central Bank organises a press meet where gives its viewpoint on fiscal strategy and also for the entire economy.
Rates of Interest
The refinancing rate of ECB is Bank`s chief interest rate for short-duration which is used for supervising liquidity. The variation that exists amid the US Rate of Federal Funds and the refinancing rate is indicative of a favourable leaning for the Euro US Dollar pair.
Ten Year Government Bonds
Another important trigger influencing the movement for the EUR/$ or EUR CHF pair’s rate of exchange is the interest rate difference that exists between the two counties. For evaluating this, under most circumstances the tool used as a yardstick is the ten-year. Under a situation when 10-year Bund rate shows below the US 10-year note, we can expect narrowing of the spread notionally to be happening in favour of the EUR/$ rate. Narrowing of spread in other words means Germany yields going up or US yields taking a hit or both.
Spread expansion, it is said acts against the rate of exchange. Traders also should take note that the trend in the number is more crucial when compared to the absolute value. The interest rate disparity, as we all know generally has more to do with growth stance of the US and eurozone, which is another primary trigger affecting the exchange rate.
Economic Data is another factor that can affect rate of EUR. The key economic data is generating from the largest economy, which is Germany, and from the still at a growing state – the euro-wide statistics. The primary data comprises unemployment, GDP, inflation, Industrial Production, etc. Especially when it comes to Germany, an important data comprises the IFO survey. It is considered to be a highly watched indicator of business confidence. Other important indicators or triggers include specific country’s budget shortfall, which going by the Stability and Growth Pact, should show below three percent of Gross Domestic Product. Countries are asked to reduce their shortfalls in budget and to achieve this they are given targets. If the counties are not able to meet these targets it could be damaging for the euro.
Cross Rate Effect
The exchange rate is also sometimes seen to be influenced by volatility in cross exchange rates i.e. the non-dollar exchange rates like EUR/JPY etc. And lastly there are political factors that impact exchange rates. EUR like any other currency is susceptible to financial or political instability.
Info about Switzerland’s Economy & its Currency – CHF:
CHF is an abbreviation for the Swiss franc which is the official tender in circulation in Liechtenstein and Switzerland. CHF is the short form of Confoederatio Helvetica franc. Swiss Franc is used by Switzerland’s Central Bank.
In present times Swiss franc remains to be the only currency in Europe still referred to as franc. One Swiss franc is subdivided into hundred parts, which are referred to be different names in different languages which are used in Europe. The subdivision is a rap in Rhaeto-Romanic, centime in French, Rappen in German, & centesimo in Italy.
Another important thing to note with CHF is that the autonomous and self-governed credit ratings have an important role when it comes to assessing country’s acceptance and admission in international capital markets, and the terms of such admission help in a big way to get closer to growth, achieve firmness, and efficiency in foreign & domestic markets.
The Swiss Govt is known as a federal or centralized republic along with being the closest country at global level to a direct democratic system. Their Central Govt comprises three major branches, executive, legislative, and judicial branch.
The CHF as it has been observed has remained a relatively stable as a currency vis-à-vis the Euro since 2003 mid, slightly above one and a half CHF for every Euro. 1.55 Swiss Franc to be precise. It should be remembered that the CHF moves up or down against the United States dollar keeping in line with the Euro.
Though the trading of CHF revolves within the 80-90 cents range, the currency does seem to be overvalued, especially when considered vis-à-vis its purchasing power uniformity.
Goods in Switzerland cost twice of what they would cost in the US. This makes CHF an expensive proposition and adversely affects people’s strength to buy the currency. And as a result CHF is used as a reserve currency by institutions globally.
Switzerland is known for its stable market economy along with low unemployment, availability of skilled labor and most importantly a healthy GDP per capita compared to any other economies in Western European side.
Another thing is the economic practices of Switzerland’s government which abide by the rules and conditions set by EU’s which help them to improve their competitiveness worldwide. Switzerland is a proven safe haven for international investors for it practices bank secrecy and has been successful in keeping up the franc’s external value on a long term. Also their unemployment level has remained low, less than half of the EU average.
Factors Affecting CHF
The first factor affecting the exchange rate is the SNB, which is the Swiss National Bank.
The Swiss Central Bank enjoys complete freedom and faces minimal hurdles when it comes to devising fiscal policy and policies related to exchange rate. Like majority of Central banks do – the SNB does not follow a specific money market rate to direct fiscal situations.
Liquidity management has prominently influenced the Swiss franc because it uses Foreign Exchange Swaps. If the Bank wants to bring in liquidity, it buys dollars against Swiss francs, which pressurises the currency.
After 1999, the Bank altered its approach from monetarist to inflation-based; a 2.00% annual inflation rate. And to be able to get closer to the goal of achieving 2.00% inflation the Bank uses a three-month range in London Interbank Offer Rate to influence fiscal policy.
SNB personnel can also influence the rate of Swiss Franc by making announcements concerning money supply or the CHF in general.
The SNB is seen to use the discount rate as a tool to announce alternations in the fiscal policy. These amendments or alterations have a significant effect on CHF. However it should be noted that the discount rate is not used at the Bank’s discount facility frequently.
Three-monthly Deposit Euro Swiss franc
The deposits comprising Euro-dollar are deposited in a foreign country. This country is not the country from where the currency originates. The rate of interest on a three-month deposits which have denomination of Swiss Franc and that are being deposited in banks outside of Switzerland serves as a valuable yardstick or standard in order to determine rate of interest disparities to help one assess the exact rates of exchange.
Let us try to understand this with the help of a currency pair USD/CHF – the broader is the interest rate differential leaning in favour of the eurodollar deposit as compared to the euroswiss deposit, the chances of USD/CHF to increase go up by several times. Sometimes, this relation does not hold ground because of the coming together of other factors.
Changing Role of Swiss franc – Moving towards Becoming a Safe-Haven Currency
The Swiss franc has traditionally enjoyed an important status, that of a “sturdy and safe” asset. This is because of the independence of SNB and liberties it has enjoyed when it comes to maintaining fiscal stability; the second factor is the secrecy that Switzerland’s banking system maintains; and third one is the neutral stance of Switzerland when it comes to political status of the nation.
Over and above these, the Swiss national Bank`s comparatively robust gold reserves have contributed to the franc’s strength substantially in the past. Even as the currency’s international role started to diminish in the nineties which was also because dollar was emerging and gold prices were falling, that the Swiss franc continued to remain and be known as a steady, solid, substitute in Forex markets.
Economic Data is also an aspect that deserves special mention which impacts Franc’s exchange rate. The most crucial economic and monetary statistics and information released in Switzerland comprise M3- which is the broadest calculator of supply of money, unemployment, balance of payments, CPI, GDP and industrial output.
Cross Rate Effect
Exchange rate of CHF vis-à-vis other currencies sometimes id influenced by volatility in currency cross rates of exchange which is non-dollar currencies’ rate of exchange, like Euro and Franc or or Pound and Franc. May be an example will help us understand this situation better, an upswing in the value of GBP/CHF which is influenced by increase in UK’s interest rate, could broaden franc’s failing or decreasing value as compared to other currencies, like the dollar.
Three-month Futures Contract Euroswiss
The Futures Contract Euroswiss is indicative of the expectations of forex market pertaining to the 3-month future contracts of euro Swiss deposits. The futures contracts on the 3-month eurodollar and euroswiss deposits differential is a vital variable that helps to identify dollar franc expectations.
Due to the closeness of the Swiss economy to that of Eurozone, Germany especially, the Swiss franc has shown a positive leaning and favourable correlation with the euro. This equation is most visible in the acutely negative correlation that exists amid US Dollar Swiss Franc pair and Euro and Dollar pair.
Let us understand the situation with the help of an example – an unexpected movement in the EUR/USD which has been influenced by a fundamental cause is most likely to result in a sharp change in Dollar-Franc in a reverse direction. The equation between the above mentioned 2 Forex pairs is amongst strongest in Forex markets.
Factors Influencing the Rate of Exchange Between Countries
The rate of exchange between any two currencies of any two countries helps to measure or asses the amount of money people are willing to shell out in order to buy goods and services manufactured or belonging to other countries and also the kind of amount they earn in terms of revenue or are likely to earn for their export.
Any country’s rate of exchange is influenced by the supply & demand for that country’s currency in international exchange platforms or markets. This trend is called the floating or buoyant rate of exchange because as the name suggests, it fluctuates or floats based on whether the currency is more in demand or supply. If the demand for specific goods and services in more than the supply of these goods and services, then in this situation worth of the currency will become better. And on the other hand if supply of this currency supersedes its demand, then currency value is likely to hit the bottom.
The impetus and instability in the foreign exchange rates is based on several factors which macro economic in nature that may have varied degrees of significance to different economies across the globe.
There are some outstanding and peculiar aspects may also subsist concerning specific counties which are likely to influence its exchange rates. Now we shall list down some of the features which decide the foreign exchange rate for any country.
The price movements in the Forex rates is based on many big and small sized economic factors which hold importance at various levels for all the different countries and their financial format of the world. Some extraordinary aspects influencing the rates may be present for specific and countries which may have peculiar and unique environment.
Given below is the list of factors that influence exchange rates of economies:
- Imports and exports flow between the countries
- Course of capital Flow between the countries
- Rate of inflation is another factor influencing exchange rates between two counties
- Fluctuation limits on exchange rate made compulsory by the governments controlling monetary issues of the countries
- Goods trade balance
- Inflation Rate existing within the country
- Funds Flow between the countries for the payment of stock & buying of bond
- Comparative growth
- Interest Rate Disparity – both short & long term
Below listed are some more factors that affect exchange rate of any country. Like, fixed & floating exchange rates. Even technical factors that influence exchange rates should be borne in mind before a trader takes any decision that are likely to have an impact on his present set up or business in whatever proportion.
EUR CHF – Arriving at the Winning Formula
If we can steer clear of the Formulas that people claim to have found in the course of trading and understand once and for all that trading Forex and winning has more to do with evaluating market facts and taking calculated risk than sneaking for a winning formula that guarantees to work irrespective of currency pair or market conditions. This by far is the only formula, mantra, or way to make a success of ourselves as traders.
What traders are advised to do is keep a close watch and study their options and currency pairs from fundamental as well as technical angle, and of course keeping a watch on forex market and charts based on real time.
Suppose dollar gains strength and starts looking in better position than EURO and EURO in turn starts looking in better position than CHF. And the third situation is that CHF starts looking bigger and better placed than JPY. Under this situation, as a trader what do you think will happen of a trader decide to go ahead with USDJPY? Don’t you agree that this should apply when the market movement is strong enough for profits to maximize and trader should make sure that he is dealing in the most lucrative pair.
We can take this a little ahead and actually check out what will we do in real time. The first thing advised under this situation is to set-up four charts in daily timeframe on one’s screen with this pair on the first two charts i.e. the EURO/Franc & Dollar/Japanese Yen; Now the next thing to do is pair the currency that is strong at the EURO/CHF with the Currency that looks stronger at the USD/JPY and similarly the currency that looks weaker to the other extra 2 charts.
If as a trader in this situation we assume that EURO looks stronger than CHF and USD looks stronger than Japanese yen looking at the two charts EURO/USD that are remaining, what we will get is, the most stable currency of the moment which will be indicative of the fact that demand worldwide is on an upswing and as we consider the other chart pair SwissFranc and Yen. And therefore what we will get is the least strong currency whose demand is not high to disembark at the currency that is weakest of all.
If after analyzing and reading the real time chart we can find the real picture and also that that the strongest currency is US Dollar and the weakest is Japanese Yen then what a sensible trader is expected to do is that goes Long and Buys USD/JPY.
See, that is how simple it can get if we think and look straight without filling our mind with information that is not necessary. If you have understood this as a trader you can use the same formula or sequence of logical thinking with more currency pairs that you may be wanting to trade. All you have to do is scheme four charts on your monitor, by subdividing the screen in four equal parts.
As we care coming to close this post some of you may have doubts and want to know the exact situation or point of time when can we identify the strongest currency in pair, or how do can we be so sure that it is really the strongest… is it that it has to be strong compared to last week or last year? You might want to know that after all what does a trader compare it to? The answer is rather simple, try and watch them and notice who is pulling or dragging whom. Obviously the currency that drags the other currency is the stronger one.
Is Volatility a Blessing or a Curse For EUR CHF Traders?
Whichever market across the globe traders might decide to trade in – irrespective of the currency pair – volatility is the only certain feature of the Forex market which runs non stop barring the weekends.
Forex is by far the biggest market where proceeds of the market as observed on a daily basis stands at a figure surpassing some trillions of dollars so you can imagine the trading volume size. If some of you can’t, it is understandable.
This highly unpredictable market is a feature or characteristic where number of investors put their money at stake because they are hoping to profit from the game of speculation. Though volatility may sound unsafe and risky, traders should however remind themselves that without volatility there would be no trading.
When we look at Volatility from the above angle then it looks like a blessing that traders with their sensibilities and experience can capitalize on. Volatility is the result of trades happening randomly and unsteadily by jumping from highs points to/and low points. If there is no market movement in currency prices then in such a situation traders are not likely to see volatility and the final outcome of this flat situation is that no trading can happen in such a flat, no-activity market environment.
Traders should take note that the volatility in currency pair trading is indicated in pips and when traders focus they will know that this volatility is rather mild. This is the reason they give so much importance to leverage and how it is considered so crucial by currency traders, and also signals.
In a market that is showing sharp movements in a big way, there is an opportunity for market losses to be improved with the help of leverage and at such times it is best to get into trading with smaller amounts so that losses can also be minimized at such times.
Though volatile market can be a blessing for traders trading pairs such as EUR CHF or EURUSD, they should however be able to manage trading in this kind of a market. This can be achieved if traders freeze on using tighter stops which will help them by minimizing losses right at the start.
The exact point where stop loss will be placed is based on the currency pair that one is trading. Volatile market conditions often provoke or trigger traders to invest more than what they normally would because they are hoping to book profits in such situations. This can end up becoming a dangerous situation as the risk associated with volatile market is higher than risks one is facing under normal market environment. A trader should ensure that he is not wavering from his initial trading plan and when the market is running mad and is extremely volatile this caution is all the more essential.
Keeping abreast of fundamental indicators and news breakouts ensure that traders are familiar with the reason for extremely sharp movements. This awareness and knowledge helps the traders to make better trade decisions in the long run especially when they are face to with volatility in the market. As a trader when you learn to trade with utmost care, managing leverage to minimize losses that are likely to occur, then they stand a fair chance to make good even in volatile market.
Is there A BEST Format to Trade EUR/CHF
So many traders are eager to know about the best formula by which they can trade EUR CHF and profit from it time after time. Without meaning to sound rude, I want to tell all fellow traders that if there was any such formula or format – wouldn’t everyone be trading and profiting from EUR CHF?
When you go in the real market, face real market situations, and take a reality check you’d not need anybody to tell you that trading EUR CHF and striking winning deals is about reading and analyzing the market right which may include understanding and applying different strategies, technical, fundamental etc that one learns to apply over a period of time to the pair. The EUR CHF is undoubtedly one of the popular pairs, especially for traders who use scalping because of the liquidity that this pair offers along with the tight spread that it comes with.
For striking winning deals traders should follow technical indicators, better still if they follow more than just one. Some regular traders are known to have 5 and they are not seen to trade even small amounts until all the indicators they have employed start showing a favorable indication.
EUR CHF Scalping Strategy
In this article we will discuss Scalping Strategy with regard to EURCF pair. Trader should understand that some of best of scalping strategies are tuned to work only with a limited number of pairs. There are many pairs that people trade in Forex market to which scalping will never suit.
Some pairs are just not designed to fit well with Scalping. Irrespective of experience and expertise of trader, or peculiarity of market conditions, scalping will not work with some pairs do what you can. And as I say this, I would also like to state that with some Forex pairs the strategy works beautifully, way beyond imagination.
Let us know what scalping really is. It is strategy – a type of trading where traders try to book profits based on small price fluctuations. The main intention of a trader is to be able buy/sell a pair at the bid/ask rate and then immediately contemplate selling it a few pips higher/lower booking a small profit. If this scalping strategy is executed smartly, the small profits earned through it can add up to make large gains. This is possible only if trader sticks to a clearly defined exit policy.
Scalping proves to be an easier and safer option with range bound currency pairs. Volatile Forex pair showing a sharp spikes and movement, resulting in erratic fluctuations which can result in multiple stop losses, things are likely to get out of hand. When it comes to Scalping strategy, EUR/CHF is one the best pairs for a simple reason that EUR CHF is a range bound forex pair; it is a currency cross – because it does not have the USD as one of its currency; scalping is suitable also because both currencies in the pair come from the economic region; they are strongly related & uphold a firm balance.
Then coming to Interest Rates – they aren’t very different from each other in Switzerland and the Euro zone, indirectly working towards facilitating a tight range round the year.
The one thing bound to bring fluctuation in the Swiss Franc is any kind of even slightest geographical or political chaos. Swiss Franc is considered a safe haven same as gold. The EUR/CHF has proved to be a reliable pair helping traders to book profit with the help of steady and proven scalping programs. The losses are of course there but rare.
EUR CHF – Spread Betting & Other Techniques
In this post we shall discuss Spread Betting Vis-à-vis EUR CHF at length. We shall also discuss realistic strategies for the pair which will hopefully help us striking more winning deals.
The Euro is comparatively a stronger and a more stable currency which is used as an official tender by more than 300 million people and when compared to United States Dollar it boasts of higher circulated cash value.
Swiss is amongst extremely stable economies for over last fifty years and this has earned Switzerland the title of Global financial capital. The relation between & movement of Euro & Franc is influenced by the interest rates between the European Central Bank and the SNB with the adjustments, reallocation and fluctuations happening in other currencies.
Now let us come back to Spread Betting strategy which has been gaining more and more attention of traders striking deals online. Irrespective of whether trader is trading Forex pair EURJPY, USD or EUR CHF – Spread Betting facilitates a lot of flexibility making it a chosen strategy for several speculators across the globe.
When it comes to Spread Betting – what traders do is that in the place of opening a position for a specific business deal value, he chooses a risk which reflects the value for each and every pip by which the price undergoes a change. Trader also sometimes opts for stop-loss, by which he puts an outer limit on on how much one is willing to lose.
This is trader’s margin deposit. Just like in the Futures along with Spot trading market, investors here also can capitalize from markets going downhill if they make a decision to go short/long depending on their study of market. The outcome which could be in plus or minus meaning earning profit or incurring loss will be equal to their stake which will be multiplied by the total points by which the value has shifted.
For traders who wish to trade using spread betting are advised to understand price fluctuations and the reasons especially for three pairs, namely – Euro Franc, Dolar Franc, and Euro Dollar
It will help traders to understand the basic pair movement along with its correlation with other pairs and currencies to devise an accurate and concrete winning plan. Some traders may be of the view point that if a trader decides to buy EUR-USD & USD-CHF at one go, it is the same as buying EUR CHF, but in reality that is not the correct way to read the situation. To understand what I am trying to say, the traders should monitor movements and fluctuations of three pairs’ movement format simultaneously to arrive at the correct answer.
What to Do if Market Goes Against You While Trading EUR CHF?
Trader who has traded any currency pair including EuroFranc knows the feeling of alarm and insecurity at the time when the market goes in the opposite direction of the trade he has entered and the trader is going to lose the deal. Traders should keep one thing uppermost in their mind that it is simply not possible to win each time and predict the market accurately even if one is the most advanced, experienced and professional trader .
Though losses can’t be avoided completely, they can definitely be minimized.
The first method is placing of stop-loss order which is recognized at the time of beginning of a trading situation with an objective of controlling losses. The entry’s Stop Order it is advised should be positioned at support level provided the trader begins with a buy option, or at resistance level for a situation that can be explained a sale trading.
This kind of strategy where stop loss order is being used will help a trader dealing in EUR CHF to be able to control or minimize his/her losses in a situation where the market alters its course and decides to move in the course opposite to the trade.
The second type of trading comprises a situation where there is absence of stop-loss orders. When it comes to this style of trading a trader keeps your position open without placing a stop-loss order. When this strategy is put to use it is expected of a trader that he will be patient and deal with the situation without losing his mind even if he ends up finally on the loss side of the game.
That is the reason the trader at times like these is expected to go for a long time scale movements of the currency pairs in the direction of the trend movement. He should be alert while suing this method, as it is unsafe and trader will be required to keep a constant watch on the trades he has entered if they are going with the flow without stop-loss order being placed. This strategy is used by the traders who are experienced in majority of instances. Beginners generally prefer to trade by placing a stop-loss order with each and every trading deal.
Now coming to Hedging positions, its the third choice for traders. This is also called the risk management strategy which provides the start-up or provocation to buy and sell. Majority of traders and brokers provide an occasion when two trading positions can be opened in different directions for one Forex pair.
Going by the hedging Position strategy, once the market starts to move in one direction traders are seen to close the position at the opposite direction and go on trading with the leaning.
This method is suitable for uncertain market conditions and markets are likely to fluctuate in an unpredictable range.