SNB’s aggressive monetary tightening and concerns about a soon global recession supported the USDCHF bears in 2022. Much has changed in 2023. Where will the USDCHF go? Let us discuss the Forex outlook and make up a trading plan.
Monthly Swiss franc fundamental forecast
The US dollar is far from the only G10 currency that has lost its popularity. At the end of 2022, many advances were given to the Swiss franc, but at the start of the year, it stalled. It is a recessionary currency, and the decline in the likelihood of a recession in the global economy due to the opening of China, a not-as-bad energy crisis in Europe as expected, and improving financial conditions set back the USDCHF bears.
The beginning of 2023 is marked by general excitement. Stock indices are rallying up, expecting the Fed to turn dovish. The IMF predicts that the global economy will hit bottom this year and accelerate thereafter. At the same time, the bottom does not look like something very far away. GDP growth of 2.9% is not much different from the 3.4% that took place in 2022. Although the estimates of German growth at +0.1%, Italian at +0.6%, or French at +0.7% look more than modestly compared to +1.4% for the US GDP, the euro area has the opportunity to give a pleasant surprise, which it regularly does in recent times.
IMF projections for advanced economies
Source: Bloomberg.
If the IMF claims that there are no signs of a recession anymore, there won’t be any problems in the euro-area bond market. Furthermore, the economy of the currency bloc is recovering. Thus, the demand for European safe havens should be lowering. The EURCHF has grown since the beginning of the year by 1.3% and could continue rising.
Does the franc have any advantages? For example, Thomas Jordan has said that inflationary pressures are still higher than the SNB would like, so further tightening of monetary policy cannot be ruled out. Credit Suisse forecasts that the main interest rate, after rising by 175 basis points since the beginning of the cycle to 1%, will rise to 1.5% in March and to 1.75% in June. There were also active foreign exchange sales worth 24 billion francs by the Swiss National Bank in October and November. All this is either a matter of the past days or an attempt to wishful thinking.
Despite consumer price growth by 2.8% in 2022, which is above the SNB target of 2%, the central bank expects inflation to slow down to 2.4% in 2023 and to 1.8% in 2024. Its current values are significantly lower than in most other advanced economies.
Dynamics of Swiss inflation
Source: Bloomberg.
Thus, just like the US dollar, the Swiss franc has lost its major advantages, including the concerns about an impending recession and SNB’s aggressive monetary tightening.
Monthly trading plan for USDCHF, EURCHF, and CHFJPY
Of course, the risks can well return. Excessive growth in commodity prices driven by Chinese demand will remind Europe of the energy crisis. The impact of the fastest Fed rate hike in a decade on the US economy will turn into a recession. However, I personally want to believe in the further advance of the euro-area economy and in a soft landing in the United States. In this scenario, the USDCHF pair will stabilize in the range of 0.91-0.95, while EURCHF will continue to rally towards 1.02. It also makes sense to sell the CHFJPY with targets at 137 and 135.
Price chart of USDCHF in real time mode
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