Swiss Franc May Remain Under Pressure As Risk Sentiment Shifts

 On the domestic front producer & import prices were flat on an annualized basis which brought an end to its two year slide. Higher energy costs are offsetting the impact from a strong franc which should help the SNB’s concerns over deflation. Policy makers will still desire to limit the franc appreciation against the Euro and dollar but may be more inclined to let markets self correct with signs of rising prices combined with recent evidence of an improving economy. The upcoming economic docket doesn’t offer much event risk despite the fact that Swiss fundamentals typically have little impact on price action, as only the trade balance report is worth any attention. A look at last month’s watch export report we see that the main sources of growth in demand were found in China, United Arab Emirates and the U.S. If the upcoming report shows continue strength from those regions then the country may see its dependence on Europe fade which could generate divergence between the Franc and Euro. We don’t expect this to be something that happens immediately or to have a significant impact on direction but a dynamic to be aware of going forward.