By Nicholas Dockerty
To start trading forex you’ll need comprehensive knowledge of one currency and at least one other currency too.
The reason for this is because the value of one currency cannot be gauged unless it is compared with that of another currency. All forex trading is done on pairs, after all.
For instance if you know something about European politics and economics then the euro is a good place to start and then it really will be key that you also look at its relationship with another major currency too.
In this article, we’re going to look at the Swiss franc and euro together, also known as CHF/EUR.
Switzerland’s franc is one of the top ten currencies in the world with Switzerland being traditionally seen as rich in gold reserves and hence a safe haven. The euro is the world’s youngest currency and yet is already a safe haven and the second most traded currency in the world.
Switzerland’s economy and currency is overseen by the Swiss National Bank, with one of its primary goals being the protection of the reputation of the Swiss franc.
The euro has the European Central Bank, which sits independently of the constituent countries of the eurozone, yet, has strong historical ties with Germany’s Bundesbank.
Before an investor looks to put money into an economy or currency pair they will need to assess the relative strength of one economy against another. They will do this by looking at the performance of each economy. Economic performance is measured by a series of economic indicators which are released by the government or quasi-independent bodies within a single country.
One of key measures of how an economy is doing is how fast prices are rising, also known as inflation. It’s not just consumer prices (CPI), but producer prices too (PPI).
Another key indicator is unemployment. Less people with jobs generally means less revenue for the country through taxation and greater burden in government expenditure due to unemployment benefit claims. More unemployment also means that consumer spending will be affected.
Consumer sentiment reports are another indicator to take into account. They measure how confident the general consumer is with their current economic prospects.
Having no natural mineral resources Switzerland relies heavily on foreign trade and its main trading partner is Germany. The eurozone is made up of 17 different countries and, so, contains 17 different economies. Therefore, one of the major influences on the strength of the euro against the Swiss franc is the political relationship between these countries.
About the Author
One way of keeping right up-to-date with what is happening in forex and the financial markets is via the YouTube channel of financial spread betting company IG Index.
