Experts' Corner

guru forex ask

Character and personal finance are the only investments that are worth anything.

  • Apinya Kamon
  • Posted Articles: 13
  • Last Posted: 2017-07-03 09:51:41
    • Guru StarsGuru StarsGuru StarsGuru StarsGuru Stars

Powerful Ties between Euro and Franc

2017-07-03 09:51:41

The euro and the Swiss franc are two of the most well-known currencies worldwide. Therefore, the correlation between these two currencies is too formidable. Even foreign exchange traders know that fact too well.

Both currencies share inverse ties, which means the USD/CHF mostly sells off and vice versa when the EUR/USD surges. Take note that the correlation between them is perhaps upwards of -95%. Most traders want a correlation of 95% between two financial instruments since this is nearly perfect.

The majority of currencies trading versus the US dollar possess correlation which is higher than 50%. The greenback is entailed in 90% of all currency-related deals. Also, the American economy is the biggest economy worldwide, meaning any economic activity in the US can affect the overall condition of other nations.

Now, let’s go back to the EUR/CHF. Believe it or not there is a strong relation between Switzerland and the eurozone. Home to lakes, mountains, and villages, Switzerland is surrounded by other European nations. The close tie between them started with the free trade deal inked more than four decades ago and resulted in over 100 bilateral accords. With these agreements, Swiss people can move freely into the EU workforce and the eventual opening of Switzerland’s labor market to eurozone citizens.

There are certain cases that both currencies experience the tumultuous phase of their relationship, especially in times of diverging monetary policies and politics. For instance, if elections rattle the entire Europe while Switzerland chugs happily along, the worth of the euro-dollar pair might plunge than the dollar-franc pair climbs. Here’s another instance: if Switzerland’s monetary authority retains its rates and the eurozone escalates its rates, the euro-greenback pair USD might slump more than the USD/CHF drops.

If the forex trader intends to employ arbitrage with the tandem of the euro and the franc, it won’t work. Why? The ranges of both currencies can swing by a minimal point difference.