FxWirePro: Sell franc against USD targeting 1.17

The interest spread is set to take its toll on the Swiss franc, as the U.S. Federal Reserve is steadily raising rates to contain inflation. While the Federal Reserve has raised rates eight times since 2015 December to 2-2.25 percent, the Swiss National bank (SNB) has kept rates at -75 basis points, pushing the interest rate spread (2-yr) above 350 basis points.

Despite the widening rate spread, the Swiss franc has performed quite well. It is currently testing parity against the USD. According to a report from Organization of Economic Cooperation and Development (OECD), the Swiss franc remains the most overvalued currency among the developed market peers.

We suspect all that is about to change, as we expect the SNB to be one of the last central banks to adjust policy rates higher.

Trade idea:

Based on calculations, we would like to urge our readers to go long on USD/CHF at the current rate of 0.999 with a target of around 1.17 over medium to the longer horizon. Due to the possibility of increased volatility surrounding Brexit and year-end portfolio adjustments, we currently recommend a larger stop loss around 0.91 area, which would be revised higher at a later date.