GBP/CHF Range Holding Despite Pressure

Trading Tip – The Swiss Franc has become the stand out amongst European currencies as the Euro is plagued by Greece’s troubles and its implication for the other European Union members, while sterling remains under assault with the prospect of additional QE. A dismal mortgage approval number-lowest in eight months-sent the pound reeling across the board, losing 350 pips against the Franc in early trading. The sharp bearish move brought the total losses for the past three days to nearly 700 pips before the current 200 pip retracement. Downside risks remain for the pair if U.K. policy makers add to their asset purchase program and maintain a dovish tone. However, non-action or additional measures followed by a target date to bring an end to liquidity providing efforts could lend cable support keeping the current range intact. The Swiss Franc’s current positive correlation with risk appetite makes it vulnerable to risk trends. Given the level of event risk on the week a theme of a slowing global economy and concerned policy makers could elevate concerns and fuel a flight to safety.

Event Risk for U.K. and Switzerland

U.K. – The BoE rate decision may end up being the biggest event risk on the week as the central bank is expected to add to their asset purchase program. Considering the sharp move today there will most likely be a reaction no matter the course from the MPC as non-action will most likely lead to a reversal. Construction and consumer confidence data will precede but will most likely get overshadowed by the policy meeting. Nevertheless, both should be examined for their implications for domestic growth. Sentiment is forecasted to remain flat with construction seeing a slight improvement. However, February added heavy rain and storms to the coldest winter in 30 years which could have weighed on both. The visible trade balance kicks off next week’s calendar which may have little impact on price action following this week’s event risk. Traders should look for evidence that export demand is sustaining as domestic growth isn’t ready to take the wheel of the economy.

Swiss – A strong relationship with risk may limit the impact of local fundamentals on Franc price action. The fourth quarter GDP release is expected show consecutive quarters of growth and a sign that the country has stepped away from its recession. However, the forecasted improvement of 0.4% isn’t a huge vote of confidence for the export driven economy, especially with global demand expected to stagnate. Employment and retail sales figures will provide color for the domestic growth picture, with the CPI release as potentially the most market moving. Signs that inflation is returning will ease deflation concerns which could limit future SNB intervention allowing for additional Franc strength.