chf fundamentals

Swiss Franc At Risk Of SNB Intervention As Deflation Concerns Mount

Saturday, 07 February 2009 02:47:45 GMT  |  John Rivera, Currency Analyst

The USD/CHF is clearly in an upward trading range with the upper Bollinger band and the 20-Day SMA serving as the upper and lower levels of the range. The pair continued to trade between both technical indicators sending it above 1.1700 before it found resistance.

Swiss Franc At Risk Of SNB Intervention As Deflation Concerns Mount

Fundamental Outlook for Swiss Franc: Bearish

- Swiss unemployment rose To 3.3% from 3.0% which was the highest since January, 2007.
- The SVME PMI index fell to a record low of 35 from 36.5 in December, due to  manufacturers cutting production
- Swiss Exports Dropped The Most In At Least 11 Years in December As the Trade Surplus Narrowed To 217 million.

The USD/CHF is clearly in an upward trading range with the upper Bollinger band and the 20-Day SMA serving as the upper and lower levels of the range. The pair continued to trade between both technical indicators sending it above 1.1700 before it found resistance. The current weakness in the Swiss economy was spelled out in the Trade Balance which saw its surplus narrow to 217 million from 2.25 billion Swiss francs. The contraction sis expected to continue as the SVME-PMI reading showed that companies plan to cut output and spending. This will weigh on the labor market which saw unemployment rise to 3.3%, which was the highest since .

The deteriorating labor market is expected to have sunk confidence to the lowest level since 2003, the country’s last technical recession. That year growth contracted 0.7% on an annualized basis for consecutive quarters. Considering the 3Q GDP annualized reading was 1.6% the economy may contract in 1Q 2009. Adding to the concerns is that deflation may be on the horizon as consume prices are expected to fall to 0.6%, while producer & import prices are expected at -0.1%. SNB Vice-Chairman Phillip Hildebrand hinted at intervention for a third week in a row. The verbal tactic has paid dividends as the franc weakened against the dollar, euro and pound. The central bank goal is to weaken the currency in order to make Swiss goods more attractive. Considering the export driven nation is on the verge of posting a trade balance deficit and prices continue to fall, the MPC may be forced to resort to unlimited intervention. Therefore, we could see the USD/CHF look to test 1.2000. However, a bout of risk appetite could lead to broad based dollar weakness and may put the central bank on hold, as any intervention would lose its impact.- JR

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