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Weekly Outlook: Swissie Looks For Fundamental Momentum

Saturday, 21 October 2006 00:30:34 GMT  |  Terri Belkas, Currency Analyst

After weeks of accumulating losses, Swissie finally made a turn despite dovish commentary by SNB member Phillip Hildebrand. Strong economic results out of Switzerland led USD/CHF to drop over 150 points throughout the week to trade below 1.2600. However, those short the pair could be out of luck next week, as the data set to be released is anticipated to post weaker.

The upcoming week isn’t anticipated to be as encouraging as the week prior, as the results of two of the most important indicators for Switzerland could be mixed. Traders will likely focus on the KOF Swiss Leading Indicator, which is projected to slip to 2.24 in the month of October, well above average and still very close to the 6 ½ year high of 2.48. The indicator should underpin the solid growth seen in Switzerland, which led the Swiss National Bank to raise GDP forecasts for 2006 to 3% from 2.5%. Meanwhile, the UBS Consumption Indicator in the month of September should hold near the 1.708 reading in August, as household spending has been encouraged by low unemployment numbers, optimistic consumer sentiment, and lower oil prices.

Over the past week, the Swiss economy showed resilience as the trade balance for the month of September hjt a record high of 1.80 billion francs, far better than expectations of a rise to 1.35 billion francs. The surplus was also a significant improvement from August’s tepid result of 0.54B, and marks the growth seen in the export sector to the Euro-zone, which has continued to see expansion throughout 2006. Meanwhile, Swiss retail sales jumped an annualized 4.5% in August from 2.1% in July. Clothing and footwear sales rebounded 7.8%, while food, drink, and tobacco sales weighed the figure lower. Though the retail sales indicator is notoriously volatile, the result bodes well for growth in Switzerland, as consumer spending and, as a result, domestic demand, remain robust. Producer and import prices wrapped up the week and posted unchanged in the month of September, causing the annual rate to ease to 2.5%, the lowest since April. The index had been anticipated to decline in line with weaker petroleum prices in September, and although they did keep the figure low, prices of vegetables, livestock, steel used in construction, non-ferrous metals and wire kept the report buoyant. With crude prices likely to rebound amidst an OPEC cut in production, inflation figures such as producer and import prices could accelerate in coming months, keeping the Swiss National Bank on track to hike rates 25 basis points in December to 2.00%. Comments by SNB member Phillip Hildebrand made during the week were somewhat dovish, as he said in an interview that he sees no risk of overheating in Switzerland despite strong economic growth. Additionally, he noted that trends in lending and real estate are not a concern, as monetary aggregates signal weakening. Swissie was unfazed by the commentary, and instead focused on the stellar data.

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