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Swiss Franc Looks For Direction From Safety Flows, Data
Friday, 30 January 2009 22:06:12 GMT  |  John Rivera, Currency Analyst
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A bout of risk appetite to start the week saw the dollar weaken and sent the USD/CHF fall back below the 50 and 100-Day SMA’s. However, since then the pair has continued its upward trend as concerns over the global economy have reignited bullish dollar momentum sending back above the technical indicators.

Swiss Franc Looks For Direction From Safety Flows, Data

Fundamental Outlook for Swiss Franc: Bearish

- The UBS Consumption Indicator Rose for the first time in three months to 1.15 from 0.96 in November
- The KOF Swiss Leading Indicator Dropped to A Record Low of -0.87, Signaling Further Economic Contraction

A bout of risk appetite to start the week saw the dollar weaken and sent the USD/CHF fall back below the 50 and 100-Day SMA’s. However, since then the pair has continued its upward trend as concerns over the global economy have reignited bullish dollar momentum sending back above the technical indicators. The KOF Swiss leading indicator falling to an all-time low didn’t help Swiss France bulls as it increased the chances that the SNB may intervene in weakening the currency. The export driven nation has seen demand for its exports fall and a strong currency will only make its goods less attractive. SNB’s Vice chairman Phillip Hildebrand recent statements that the central bank may intervene in order to prevent deflation were supported by Swiss Finance Minister Hans-Rudlof Merz on Friday which added to the Francs weakness. However, the rhetoric may be an attempt at verbal intervention which the central bank is known to attempt. Additionally, SNB President Jean-Pierre Roth statements that he has yet to see an “overshooting “ of the Swiss Franc lessons the likelihood of action from the central bank, which it hasn’t done since 1995.

The economic calendar doesn’t typically impact price action as the pair has traded more on risk sentiment. However, that correlation has weakened which may increase the influence of fundamental indicators. The unemployment rate is expected to rise to 3.0% which would be the highest since March, 2007 as companies continue to layoff workers to cut costs. The demand for Swiss exports continues to fall and the upcoming trade balance report should reflect the impact of the global downturn. The SVME-PMI indicator is expected to fall to 36.0 signaling that manufacturing activity will contract for a fifth month. Evidence that further weakness in the economy is inevitable may fuel speculation of intervention from the SNB which will add to the Swiss Franc’s current weakness.- JR

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