EURCHF or EUR/CHF is the notation used to represent the currency pair made up of the euro and the Swiss franc.
This is the sister pair to the much more popular USDCHF, or “Swissy.” The value indicates how many Swiss francs (the quote currency) are needed to buy a euro (the base currency).
Characteristics of the Pair
Despite not being a major, this is a relatively popular pair, especially among swing traders. It is often described as a trending pair with long moves in one direction or another, and less volatility without compromising on liquidity. Because of the similar traits of the pairs, it is highly correlated in its moves with the more short-term volatile USDCHF.
Economically, the eurozone dwarfs Switzerland, with a $19.7T GDP recorded in 2017 compared to just $679B for the same period in the alpine country. However, the larger economy is often seen as fractured, and prone to risk, while Switzerland has a solid reputation for stability and fiscal responsibility. That is why Europeans often turn to Switzerland to store their wealth.
While the eurozone is a broad-based economy, Switzerland is heavily reliant on its financial industry and exports (with tourism coming in a close third). That is the similarity between the USDCHF and the EURCHF.
Where they differ substantially is that while the dollar is also seen as a safe-haven in times of economic uncertainty, the euro is not, with capital flowing to the security of the Alps.
The Big Players
The monetary policy of the eurozone is set by the European Central Bank (ECB), which is mandated to maintain the stability of the currency, and keep the annual inflation rate between 0 and 2%. Variations from that target can lead to intervention by the bank, which either strengthens or weakens the currency.
The monetary policy in Switzerland is determined by the Swiss National Bank (SNB), which has the job of maintaining currency stability. It does so by targeting interest rates.
Although not required to do so, the SNB will also intervene to maintain exchange rates within target levels, in order to support the export and financial sectors of their economy. These interventions can either strengthen or weaken the currency accordingly. However, for years now, the bank has seen the currency as too strong and has routinely intervened to weaken it.
What Makes the Pair Tic
The Swiss franc and the euro are highly correlated – inversely. Several studies have shown that over the last ten years the inverse correlation between the currencies is over -95%.
This means that when the euro gets stronger, the franc gets weaker and vice versa. Because this happens due to fundamental economic issues, these trends tend to present over relatively long periods, leading this pair to trend in a given direction. This is ideal for swing traders, but scalpers generally stay away.
The general dynamic is that when there is market uncertainty, the pair will trend downwards (fewer francs needed to buy a euro) as investors seek a safe-haven for their money. This trend then reverses when risk sentiment comes back to positive.
Another common application of the EURCHF is for hedging out USD risk, particularly with the divergent rate policies between the two largest economies.
Check out the economic calendar on the Orbex site for a list of all the major events that could affect this pair, and don’t miss the tips section which can help you get the most out of your trading.