fundamental alert

Switzerland's UBS Consumption Index Improves, But Will It Hold?

Tuesday, 28 October 2008 08:47:48 GMT  |  David Song, Currency Analyst

The UBS consumption indicator for Switzerland rose for the first time in three months as the index increased to 1.669 from a revised reading of 1.581 in August. The data suggests that consumer spending is holding up fairly well despite the slowdown in the global economy, but conditions may get worse over the coming months as economists expect the economy to contract in the third quarter. The downturn in the global financial markets paired with mounting fears of a recession has certainly raised growth fears all over the globe, which could push consumers to cutback on spending as economic activity slows throughout Europe.  As private-sector consumption accounts for near two-thirds of GDP, the Swiss National Bank could be forced to ease policy further as growth prospects deteriorate.

Meanwhile, CHF traded on a softer footing, with price action dominated by speculative flows following the rebound in the Nikkei. The CHF had already started the European session on an easier footing, with EUR-CHF opening above the 1.4500 handle and extended to 1.4565 highs in early trade before edging lower. European indices have also made broad based gains, which is encouraging for CHF shorts, but an air of caution remains. Fears of further hedge fund redemptions in to the month end and more potential weakness in economic data continued to limit speculative activity. Similar movement is noted in GBP-CHF, with the cross recovering from overnight lows of 1.7853 to trade up to 1.8106 highs, while USD-CHF is supported ahead of 1.1600. We expect the market to maintain a defensive tone, which should limit further CHF losses, although the potential for another Fed rate cut this week could see some base building the CHF crosses now.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars