special reports

A SNB Rate Hold Would Validate the Bullish Swiss Franc Technical Outlook

Thursday, 11 December 2008 04:13:26 GMT  |  John Rivera, Currency Analyst

The Swiss National Bank is expected to cut their target rate by another 50bps bringing it down to 0.50% which would be just above the 0.3% of Japan’s. The central bank has aggressively cut rates by 175 bps since September as the global slowdown has crippled the country’s export driven economy.

Fundamental Outlook

The Swiss National Bank is expected to cut their target rate by another 50bps bringing it down to 0.50% which would be just above the 0.3% of Japan’s. The central bank has aggressively cut rates by 175 bps since September as the global slowdown has crippled the country’s export driven economy. Demand for Swiss goods has been hurt as its main trading partners the U.S. and the Euro-Zone find themselves entrenched in a recession. The Swiss economy saw flat growth in the third quarter and expectations are tat I will slip into recession as well. However, the lack of wiggle room for the MPC may lead it to keep its powder dry and refrain from further easing. A rate hold would validate the technical outlook for bullish Swiss Franc momentum. Additionally, recent aggressive moves by the BoE and ECB resulted in support for their currencies as it encouraged traders that the downside risks may be reduced allowing for a sooner recovery and future tightening. However, the traditional; reaction is for the Swiss Franc to weaken on the news of a rate reduction and given the weakening labor market which saw unemployment tick up to 2.7%  the SNB may be forced to ease further.

 

Technical Outlook

Higher highs and higher lows since the March low favors bulls longer term.  Near term, the decline from the top side of the channel looks impulsive and the rally from 1.1828 looks corrective.  However, the EURUSD and GBPUSD bearish counts bring a USDCHF bearish bias into question.  A rally above 1.23 may lead to prolonged strength into 1.30. 

 

For More Technical Analysis Visit the Daily Technical Report

 

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

 

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