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Swiss Franc Bid Higher as Economic Minister Discredits SNB

Swiss Franc Bid Higher as Economic Minister Discredits SNB

2011-08-31 13:54:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

Merkel’s Cabinet Approves Larger Euro-Rescue Fund as Dissent Ebbs – Bloomberg

S&P Rates Subprime Mortgages Higher than U.S. – Bloomberg

Fed Official Makes Plea for More Stimulus – Financial Times

Hopes for QE3 Boost Risky Assets – Financial Times

Private Sector Adds 91,000 Jobs in August – Reuters

European Session Summary

The Swiss Franc was the strongest gainer in the Asian and European sessions as the Swiss National Bank decided to refrain from intervening on the safe haven currency for the first time in the month of August. The past few weeks have marked a noticeable trend: each past Wednesday, the Swiss National Bank has either injected liquidity or verbally intervened, or a combination of both, in order to weaken the Franc against the Euro. In fact, various Swiss policymakers even floated the idea of a peg against the Euro, first in the 1.1000 area and more recently in the 1.2000 area, pushing the Franc to its highest level since the beginning of July.

EUR/CHF 5-minute Chart: August 31, 2011

Swiss_Franc_Bid_Higher_as_Economic_Minister_Discredits_SNB_body_x0000_i1029.png, Swiss Franc Bid Higher as Economic Minister Discredits SNB

Charts created using Strategy Trader– Prepared by Christopher Vecchio

However, as Swiss Economic Minister Johann Schneider-Amman said today that the government has no specific target for the Franc, and that market participants were likely overestimating the ability of the Swiss government to hold down the currency, the safe haven currency soared over the past few hours. Indeed, if the markets are likely to see a strong Franc for some time, as Minister Schneider-Amman noted, then the Franc is likely to gain sharply in the coming days.

Pre-North American Session Summary

In terms of data ahead of the North American trading session, the ADP Employer Services report for payrolls showed that American companies added 91K workers in August. The median forecast for the private survey was a 109K gain, according to a Bloomberg News survey. While the figure disappoints market expectations, participants’ sentiment was seemingly boosted thereafter, with U.S. equity market futures remaining positive following the report.

The report, however, is not a harbinger of the more important nonfarm payrolls report, due on Friday, having missed by both direction and magnitude over the past few years. In fact, on a monthly basis, since January 2010, the ADP report has a -0.64 correlation with the nonfarm payrolls report. Accordingly, optimism is tempered for a strong nonfarm payrolls report on Friday.

USD/CAD 1-minute Chart: August 31, 2011

Swiss_Franc_Bid_Higher_as_Economic_Minister_Discredits_SNB_body_Picture_1.png, Swiss Franc Bid Higher as Economic Minister Discredits SNB

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The USD/CAD had a limited reaction to the ADP report first; the pair initially traded higher, though quickly fell towards session lows ahead of the Canadian gross domestic product release for the second quarter.

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is slightly lower, trading at 9417.59, at the time this report was written, after opening at 9421.52. The index has had a relatively tighter range, trading as high as 9435.60 and as low as 9412.41.

24-Hour Price Action

Swiss_Franc_Bid_Higher_as_Economic_Minister_Discredits_SNB_body_Picture_5.png, Swiss Franc Bid Higher as Economic Minister Discredits SNBSwiss_Franc_Bid_Higher_as_Economic_Minister_Discredits_SNB_body_Picture_6.png, Swiss Franc Bid Higher as Economic Minister Discredits SNB

Key Levels: 13:15 GMT

Swiss_Franc_Bid_Higher_as_Economic_Minister_Discredits_SNB_body_Picture_7.png, Swiss Franc Bid Higher as Economic Minister Discredits SNB

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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