Financial markets are in search of direction. So many conflicting signals exist that no one knows what to buy or sell.
On the one hand, high interest rates in the United States and the developed world should have triggered a bearish development in the stock market.
In fact, the S&P 500 index is up about 15% this year.
On the other hand, higher yields should have attracted investments in bonds. But bond prices collapsed, with long-term bonds being massacred.
However, in this confusing environment, one asset outperformed – and keeps doing so. This is an asset that is in strong demand in uncertain times. Basically, it strives in uncertainty – the Swiss franc.
Back in the day, there were two major safe-haven currencies. Besides the franc, the Japanese yen acted similarly.
However, things changed due to the Bank of Japan’s opposite policy compared to other major central banks worldwide. Instead of tightening the policy as inflation rose, the Bank of Japan kept easing. Selling the yen was a natural reaction; thus, it lost its safe-haven status.
I wrote a lot about the yen in several articles and the fact that it is extremely oversold at current levels. But unless something changes at the Bank of Japan, the flows are not coming in the JPY but in the one currency that does act like a safe haven – the Swiss franc.EUR/CHF chart by TradingViewEUR/CHF – the best bearish bet in the last five years
The EUR/CHF cross is one of the most famous currency pairs of the last decade. The Swiss National Bank has kept the cross above 1.20 for several years.
At one point, however, it admitted that it was too expensive to continue to do so, and lifted the 1.20 floor.
A collapse to below parity followed, bringing mayhem to the Forex market.
In the few years that followed, the cross climbed back to 1.20, erasing the drop. But that was the perfect timing to sell it (i.e., buy the Swiss franc).
From 1.20, it now trades at 0.95, declining in a bearish trend that doesn’t seem to end anytime soon.Why do investors sell EUR/CHF?
Several factors make the cross attractive.
First, when Russia invaded Ukraine, Europe, and the common currency took a big blow. The pandemic in the previous years did not help either.
Second, the geopolitical tensions around the world led investors to the safety of the Swiss franc.
Finally, the Swiss National Bank does not have so many restrictions to make the franc unattractive. Interest rates rose from their lows, and inflation is at low levels in Switzerland when compared to other parts of the world.
Summing up, the EUR/CHF cross is one to keep an eye on. The rejection from 1.20 led to a massive bearish trend, and the path of least resistance remains the downside.
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