The lack of support from the central bank, divergent monetary policies, and the Swiss franc’s growing use as a funding currency instead of the Japanese yen are pushing the EUR/CHF and USD/CHF higher. Let’s examine the factors driving these moves and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The franc is a preferred funding currency.
- Speculators are increasing their short positions in the Swiss franc.
- The SNB is unlikely to raise rates in the near term.
- Long positions on the EUR/CHF can be considered with targets of 0.945 and 0.955.
Weekly Fundamental Forecast for Franc
The Japanese government’s tough stance toward yen speculators is prompting investors to seek alternatives for carry trades, and they turn to the Swiss franc, whose strength is unwelcome at the Swiss National Bank. Selling the franc as a funding currency is pushing EUR/CHF quotes toward yearly highs, while USD/CHF bulls feel equally confident.
Global bond yields are rising, risk appetite remains strong, and volatility is low. What more could carry traders ask for? The view is gaining traction in the Forex market that conditions for carry trades are among the most favorable seen in two decades. Against this backdrop, buying the Mexican peso against the franc has reportedly generated a 4% return over the past month, compared with just 1.3% for a similar trade funded with the yen.
3-Month Forward Currency Yields
Source: Bloomberg.
Carry traders are increasingly turning to a European currency rather than an Asian one as their preferred funding currency. Shifts in government policy are also reshaping speculators’ positioning. Over the past two weeks, hedge funds have halved their net short positions in the yen, while their net short positions in the Swiss franc have climbed to a two-month high.
USD/CHF Rate and Speculative Positions on Swiss Franc
Source: Bloomberg.
Monetary policy divergence is also supporting EUR/CHF bulls. Swiss inflation slowed from 0.5% in June to 0.4% in July, prompting a shift in expectations for the Swiss National Bank’s policy rate. Bloomberg’s latest survey shows that economists who had expected a rate hike in 2026 now see no tightening before June 2027, while most expect the first increase only in early 2028. This outlook is broadly consistent with SNB forecasts, suggesting a prolonged pause and putting pressure on the franc.
Forecasts for SNB Policy Rate
Source: Bloomberg.
The divergence in monetary policy is also boosting the euro. Markets expect the ECB to raise its deposit rate to 2.5%, with a meaningful probability of a further hike to 2.75% later this year. This 275-basis-point rate differential also creates an attractive backdrop for carry trades.
However, Switzerland’s acceleration in GDP growth from 0.4% to 1.5% in the second quarter should not be taken at face value. The surge was driven largely by the chemicals and pharmaceuticals sectors, as exporters brought forward shipments ahead of higher US tariffs on pharmaceutical products.
Weekly Trading Plan for USDCHF and EURCHF
Diverging monetary policies, the SNB’s limited willingness to support the franc, and its growing use as a funding currency suggest that the EUR/CHF pair’s uptrend may persist. The preferred strategy is to buy on pullbacks, targeting 0.945 and 0.955. The outlook for USD/CHF will depend largely on the Fed’s policy direction. Traders may consider short positions from 0.809 and long positions from 0.8145.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDCHF in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
