chf fundamentals

Swiss Franc Heads Toward Support As Labor Market Weakens

Saturday, 10 January 2009 02:24:57 GMT  |  John Rivera, Currency Analyst

Swiss annual inflation dropped to 0.7% from 1.5% in December on the back of cheaper oil, while unemployment rose to its highest in almost 2 years as the drop in global demand for Swiss goods forced more firms to cut jobs. The labor market is expected to weaken further as slumping demand will lead to more cost cutting.

Swiss Franc Heads Toward Support As Labor Market Weakens

Fundamental Outlook for Swiss Franc: Bearish

- Swiss Jobless Rate Increases to 2.8%, the highest in 19 months
- Consumer Prices Fell To 0.7% From 1.5%, The Lowest Rate in 15 Months

Swiss annual inflation dropped to 0.7% from 1.5% in December on the back of cheaper oil, while unemployment rose to its highest in almost 2 years as the drop in global demand for Swiss goods forced more firms to cut jobs. The labor market is expected to weaken further as slumping demand will lead to more cost cutting. The dour economic data added to views that the Swiss National Bank will slash interest rates further and might even turn to unconventional measures to support the economy. Indeed, with the current benchmark rate at 0.50% there is little room for the MPC to operate. We may see the central bank employ a (ZIRP) zero interest rate policy or they could follow the BoJ’s lead and ease by a smaller amount.

The Swiss Franc may have lost its status as a safe haven currency which was evidenced as it fell against the dollar after the U.S. NFP report showed a loss of another 500,000 jobs. The USD/CHF bounced from support at the 200- Day SMA after two failed tests. The pair appears headed toward a test of the 100-day SMA at 1.1385. The economic calendar doesn’t present any significant event risk with only producer & import prices due to cross the wires. Prices are expected to slow to 0.6% from 1.1% adding to the concerns over deflation. Indeed, the fears are warranted with consumer prices slowing to 0.7% and domestic demand contracting as the labor market weakens - JR

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