Forex Marketing in Switzerland

Switzerland is a small mountainous country located in central Europe. This landlocked country is about the size of New Jersey and is between France and Italy. It is bordered by Austria, Germany, and Liechtenstein. While there were talks between the EU and Switzerland in the mid-1990s, the Swiss public rejected the proposal to be part of the EU.

Since then, Switzerland has maintained its economic independence.

Switzerland is a small country made up of 26 cantons, each of which enjoys a high % of autonomy, but let us tell you that it is PACKED! It has a population of about 7.78 million, with around 477 people per square mile. Switzerland is known for its neutrality since it has refrained from participating in either of the two World Wars.

Switzerland: Facts, Figures, and Features

• Neighbors: Germany, France, Italy, Austria

• Size: 15,940 square miles

• Population: 7,954,700

• Density: 477.4 people per square mile

• Capital City: Bern

• President of the Swiss Confederation: Guy Parmelin

• Currency: Swiss Franc (CHF)

• Main Imports: Machinery and other tools for transportation, pharmaceutical products, other chemicals, manufactured goods

• Main Exports: Chemicals, clocks and watches, food, instruments, jewelry, machinery, pharmaceuticals, precious metals, textiles, Rolex, Roger Federer

• Imports Partners: Germany 26.19%, Italy 10.46%, France 8.4%, United States 6.08%, China 5.75%, Austria 4.4%

• Exports Partners: Germany 18.5%, United States 11.61%, Italy 7.61%, France 6.96%, United Kingdom 5.67%

• Time Zones: GMT + 1

• Website: https://www.myswitzerland.com/en-us/

Economic Overview

The economy of Switzerland is one of the world's most progressive and highly-developed free-market economies. Switzerland has one of the highest levels of per capita GDP in the world. Its strong economic performance is largely driven by the services sector. The European Union Germany, the U.S., France, Italy, Austria, Russia, and the U.K. Like Japan, are Switzerland's main trading partner. Switzerlands GDP was $679 billion in 2017. As little it is, on a per-person basis, it boasts of a GDP of $68,060, which is the 8th highest in the world.

Additionally, Switzerland is relying just on its exports majorly, which make up about $308.3 billion or 58.2% of its GDP. Switzerland‘s main industries are machinery, chemicals, textiles, precision instruments, and watches. Don’t laugh at that last one – it really involves a nice chunk of Switzerland‘s output! Anyway, it’s time to move on!

Monetary & Fiscal Policy

The Swiss National Bank (SNB), which is now lead by Mr. Thomas Jordan, conducts the financial policy of New Zealand by affecting the country‘s financial and credit conditions. The Governing Board, which is responsible for determining the bank’s policies, consists of 3 members – the Chairman, Vice Chairman, and a third member. Thats right – only three people are part of the committee. Unlike most central banks, the SNB sets a target scale for its desired interest or profit ratio (or Libor) rather than a fixed diagram by three months.

On top of its purpose to control the country‘s money production and influence interest rates, the SNB has a more on-hand role in keeping the CHF’s valuation stable. A highly strong CHF could cause inflation to spike and could devalue the country‘s exports. With Switzerland’s strong reliance on their exports, the SNB favors a weaker CHF and does not hesitate to intervene in the forex markets to weaken it.

One of the major financial policies of the SNB is inflation targeting. The bank‘s inflation target, which is monitored in the CPI, is below 2% a year. The bank will then attempt to influence the country’s actual inflation ratio through open market operations and by changing what they named Libor ratio. Speaking of open market operations, the bank affects Libor price by short-term repurchase (repo) transactions.

A repo transaction involves selling a particular security for notes with agreement to repurchase the same security at a later date. If the profits ratio in the open market rises over the SNBs desired band, the central bank will provide the other banks with more liquidity through repo operations at lower repo rates.

On the other hand, the SNB can reduce liquidity by increasing the repo ratio, slowly increasing the Libor ratio in addition. On the fiscal side, one attractive fiscal policy that Switzerland has is that they have some of the lowest tax rates in between the promoted country. In details, it is often titled to a “tax haven” country. Corporate tax rates in Switzerland run from 8.5% to 10.0%. This, in addition to its bank secrecy laws, makes Switzerland one of the most business-friendly country in the world.

Getting to Know the CHF

Not too long ago, France, Belgium, and Luxembourg termed their currencies as francs… until they adopted the cooler euro, that is.

Now, Switzerland is the only one using the franc to be its currency, the Swiss Franc (CHF). Among financial geeks, the Swiss Franc is called the “Swissy”. Thanks to Switzerlands neutrality…

Switzerland is u. to be politically neutral due to its bank secrecy laws, giving the CHF a “safe haven” status too. Usually, during times of economic uncertainty, investors move their funds into Switzerland, causing the CHF to gain in value. Im still stuck in the bling-bling era!

Not only do the Swiss refuse to join the “cool kids” of the EU, but they are the only country that still adheres to a gold to be std. About 25% of the countrys money is backed by gold reserves, giving the CHF an 80% correlation with the price of gold. This means that whenever the price of gold rises, the CHF could stand to benefit too.

Important Economic Indicators for the CHF

GDP – The Gross Domestic Product (GDP) is the compute of the country‘s total value of all final goods and services. The report compute the change in the economy’s total output from the last period.

Retail sales – The headline retail sales report measures the monthly change in the total value of sales at a retail level.

Consumer Price Index (CPI) – The CPI measures the change in the prices of a basket of goods and services. The CPI is followed closely by the SNB, because it uses the report to help in its inflation analysis.

Balance of Trade – The balance of trade measures the total difference in value between exported and imported goods in the country. Switzerland has a very robust export industry so traders often use the countrys trade balance to compute how far does the economy is faring.

What Moves the CHF

Price of Gold

As mentioned earlier, the CHF has an 80% correlation with the price of gold, as 25% of the notes of Switzerlands is backed with gold reserves. When gold prices go up, the CHF usually goes up too. Conversely, when gold prices slide, the CHF too declines. Developments in the Euro Zone and the U.S. Since Switzerland is an export-dependent country, it is vastly affected by the economic development of its major trading mate in the eurozone and the U.S.

Switzerland‘s major export alliance in the eurozone are Germany (21.2%), France (8.2%), Italy (7.9%), and Austria (4.5%). The U.S., meanwhile, takes about 8.7% of Switzerland’s exports. Poor economic performance in each of these countries could mean less business for Switzerland.

Sortin Out the Rough Edges

Political tension in its neighbors in Europe, especially in the eurozone, could cause traders to seek the safety of the Swissy.

Remember that the eurozone is a brood of 16 states with the ECB directing and implementing a set of financial policies for the entire group. Given that the economies of the member countries grow at different paces, ECB policies sometimes go against what a single world expects at that specific time.

The X-factor

USD/CHF is affected by the cross-exchange rates like EUR/CHF. A jump in the EUR‘s valuation due to a hike in the ECB’s interest ratio, for example, could spill the Swissys weakness onto other currency pairs like USD/CHF.

Merger and Acquisition (M&A) Activities

Switzerlands main industry is banking and finance. Merger and acquisition (M&A) projects, or by just buying and selling of the business , and hence is easy to notice the two looking same

JHow can this affect the spot prices of the CHF？

For example, if a foreign firm wishes to get a business in Switzerland, it will have to pay for it using CHF. On the other hand, if a Swiss bank, for example, wishes to purchase a US firm, it will then have to dump its CHF for the USD.

Trading USD/CHF

USD/CHF is traded in the amounts denominated in USD. Standard lot sizes are $100,000 while mini lot sizes are $10,000. The pip value, which is denominated in CHF, is calculated by dividing 1 pip (0.0001) by USD/CHFs tax.⁶Profit and loss are denominated in Swiss francs.

For one std. lot position size, each pip fluctuation is valued at 10 CHF. For one mini lot position size, each pip fluctuation is worth 1 CHF.

To illustrate, if the winning market price of USD/CHF is 1.0600 and you want to trade one std. lot, then one pip would be the same to 9.4340 USD. Margin calculations are clearly in USD. At 100:1 leverage, you need $1,000 to control 100,000 units of USD/CHF.

USD/CHF Trading Tactics

The Swissy pairs (USD/CHF and EUR/CHF) are usually active during the European trading session only. Both currency pairs tend to be range-bound most of the time. Given this, they are most susceptible to sudden spikes and breakouts.

As we mentioned earlier, the SNB is very much concern on monitoring the valuation of the Swissy. It is notoriously known to intervene in the forex market to weaken the CHF especially when it reaches some historical key levels.

For example, if USD/CHF falls back to its annual low due to an increase in risk appetite, the SNB could just be lurking around to push the pair back higher. You could trade the Swissy by monitoring the economic fundamentals of its major trading partner, the eurozone. Any economic or political tension in the eurozone could lead investors back to the safety of the Swissy.

Given this, currency crosses like EUR/CHF could be used to trade, for example, the USD/CHF. A percentage for appreciation by the ECB which boosts EUR/CHF could spill over on USD/CHF.