The Swiss Franc At Major Support Levels, Is A Retrace In Store?

The Swiss Franc At Major Support Levels, Is A Retrace In Store?

Fundamental Outlook for Swiss Franc: Bearish

- Consumer confidence in Switzerland fell to its lowest level since 2003 at -27 from -17 in July, According to the SECO
- ZEW survey rose to -88.5 from -91.1 as investor confidence rose as central banks stepped in to help the economy.

The Swiss Franc resembled its traditional form to end the week as a bullish spike in equity markets sent the typically safe haven currency lower against the dollar. The move would sent the USD/CHF above the 1.2000 price level for the first time since September, 2007, its high of 1.2002 would have it break the 200-Day SMA. This would be the first time it breached this significant technical level since October 20,2006 and may prove to be a formidable obstacle. Swiss fundamental data typically doesn’t impact price action, yet the slight improvement in investor confidence could be a sign of improving global confidence, which could add to Franc weakness, and the historic drop I consume confidence will lower the outlook fro domestic growth.

Swiss retail sales and the trade balance will dot the economic calendar during the week and may provide some event risk as they may give traders a clue to the possible interest rate direction for the SNB. Given that the BoE has begun aggressively cutting interest rates and the ECB is expected to continue easing, we may see the Swiss central bank follow their lead as they did when they surprised markets with their coordinated effort. A decline in consumer consumption and exports would leave the country without any avenues of growth. The export driven nation has seen the impact of the credit crisis weigh on demand for its products which has sent it into a recession along with its European counterparts. Therefore, another rate cut is very likely at their December policy meeting which could extend the Franc’s losses against the dollar. If we see a clean break above the technical levels of the 200-Day SMA at 1.1964 and 1.200, that would leave the June 22, 2007 high of 1.2430 as the next level of resistance. -JR

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