chf fundamentals

Swiss Franc Outlook Bearish With Weak Data And Rising Risk Trends

Saturday, 17 January 2009 00:27:07 GMT  |  David Song, Currency Analyst

The Swiss franc is likely to strengthen against its European counterparts over the following week as risk aversion remains a dominant theme across the financial markets, but may weaken further against the U.S. dollar as the reserve currency continues to benefit from its safe haven status.

Swiss Franc Outlook Bearish With Weak Data And Rising Risk Trends

Fundamental Outlook for Swiss Franc: Bearish

- Swiss Producer and Import Prices Tumble for Fifth Month
- Risk Trends Carry Over Into 2009, Weighing on Carry Trades

The Swiss franc is likely to strengthen against its European counterparts over the following week as risk aversion remains a dominant theme across the financial markets, but may weaken further against the U.S. dollar as the reserve currency continues to benefit from its safe haven status. Nevertheless, as the Swiss National Bank forecasts GDP to contract between -0.5% and -1.0% in 2009, the central bank may adopt a zero-interest rate policy over the near-term in order to keep the economy afloat. Moreover, as policy makers project the annual rate of inflation to fall to 0.9% during the new year, the SNB is likely to step up their efforts in order to maintain their dual mandate to ensure price stability while fostering economic growth.

The economic downturn across Europe has certainly increased the appeal of the Swiss franc, and the low-yielding currency is likely to hold its bullish trend against the euro and the British pound over the near-term as the ECB and BoE are expected to continue their easing cycle. Meanwhile, risk trends could also weigh on the franc as the Fed and BoJ holds rates at 0.00%-0.25% and 0.10.% respectively, the Swissie may face increased selling pressures against the greenback and the Japanese yen over the following week as investors continue to curb their appetite for risky assets. As a result, the technical forecasts suggests that the USD/CHF will make a push towards 1.1400 to close the gap from the 100-Day SMA, while the EUR/CHF and the GBP/CHF is expected to trail lower in the weeks ahead to retest the January lows for support.

Looking ahead, the economic calendar for the following week could instill a weakening outlook for Switzerland as retail spending falters. A resilient labor market has helped to keep the economy afloat throughout the second half of 2008, but as the jobless rate pushes higher, consumers are likely to cutback on spending as economic activity is expected to contract this year. Seeing that private-sector consumption accounts for more than half of the economy, a downturn in domestic demands could stoke a bearish outlook for the currency. However, an improvement in the ZEW confidence survey could help to mitigate selling pressures for the Swiss franc as investors raise their outlook for 2009. - DS

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