Swiss Shield: Buy the DipThe tariff agreement that seemingly fell from the Geneva sky earlier this month convinced investors to pivot toward risk-linked assets, allowing the Swiss currency to retreat temporarily. However, the Franc’s safe-haven status, combined with the fragile balance currently settling over the markets, leads us to view this pullback as a tactical opportunity to buy at attractive levels.
Fundamental Analysis
While there are indeed factors that could support a continued weakening of the Franc, such as the interest rate differential between the U.S. and Switzerland, which might spark carry trade flows in favor of the dollar, experienced investors know better than to rely solely on interest rates to navigate the complexities of currency markets. Beneath the surface lies a dense web of competing incentives and mechanisms.
True, the Swiss National Bank (SNB) has repeatedly warned of a possible return to negative rates since the beginning of the year, and is due to announce its next policy decision on June 19. The market currently expects a 25-basis-point rate cut, from 0.25% to 0%, prompted by persistently weak inflation data.
And yet, the Swiss Franc has gained nearly 8% in 2025, proof that the erratic trade stance of the White House and the unpredictable temperament of its new occupant are outweighing rate differentials and continuing to boost safe-haven demand, with the Franc at the top of the list.
Despite this week’s much-publicized announcements, which so far apply only for 90 days, the medium-term outlook remains highly unstable. Trying to guess the next provocation from the U.S. president is anyone’s game. Of course, interpreting market price action is never straightforward, but that task becomes even murkier when populism takes root at the highest levels of decision-making.
It’s also worth remembering that U.S. tariffs remain historically high despite the recent agreement with China. According to Yale’s research lab, and based on some fairly sophisticated modeling, the effective U.S. tariff rate is still at its highest level since 1934.
In this environment, the Swiss Franc seems well-positioned to retain favor among currency traders as part of a classic fly-to-quality move in times of uncertainty.
The main risk here lies in the SNB's willingness, or lack thereof, to actively weigh on the Franc in an attempt to revive sluggish inflation. But for now, it's far from clear that the central bank is prepared to return to such controversial tactics, especially given its past accusations of exchange rate manipulation.
Technical Analysis
From a technical standpoint, the Franc’s recent retreat has opened up a compelling buying opportunity. Earlier this week, prices dropped to around 1.1850, precisely filling a low-volume area that hadn’t been revisited since April 10.
Upon hitting this support, algorithmic strategies that specialize in gap-filling stepped in aggressively, with rising volume confirming the reaction. The rebound could continue, especially with reported corporate interest accumulating in the 1.1950–1.1980 zone, according to various trading chat channels.
The next significant resistance stands around 1.2250, a level that has repeatedly capped upward moves since April 23.
Sentiment Analysis
Starting with the CFTC Commitment of Traders (COT) report, asset managers have remained net short on the Franc for several years. However, this positioning is typically driven by hedging needs, such as covering equity portfolios, rather than directional conviction. As historical data shows, these short exposures rarely prevent the Swiss currency from rallying.
On the retail side, aggregated data from various FX/CFD brokers shows that individual traders, whose positioning is often used as a contrarian indicator, remain heavily long USD/CHF, and therefore short the Franc. In some cases, this proportion exceeds 90%. Such crowding could provide fuel for a short squeeze if the market turns.
Finally, the VIX has drifted back below the psychological 20 mark following recent developments, after previously surging above 50 last month, levels not seen since the pandemic. This presents a paradox: on one hand, volatility appears to be easing, but on the other, the broader situation remains unstable, with markets hanging on every word from Donald Trump.
Trade Idea
In summary, the fundamental, technical, and sentiment-based analyses all suggest that the recent dip to 1.1850 was more likely an emotional overreaction to headlines than the beginning of a structural downtrend. Despite some headwinds, notably the SNB’s close attention to the exchange rate, the Franc’s safe-haven appeal continues to outweigh other catalysts in a market where volatility remains fragile and unstable.
Entry: Long Swiss Franc futures (6SM5) at current levels
Stop: Daily close below 1.1850, which would invalidate the key support based on volume profile structure
Target: 1.2250, a resistance level that has already been tested multiple times since late April, offering a solid risk/reward setup.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: tradingview.com/cme/.
This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
