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Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

2011-09-02 13:47:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Fundamental Headlines

SNB May Buy Euros to Stem Franc’s Gains – Bloomberg

Global Stock Rally Runs Out of Steam – Financial Times

Regulators Seek Trading Secrets – Reuters

Greece Denies Troika Talks Break Down – WSJ

Stock Futures Keep Falling – WSJ

European Session Summary

The Asian and European sessions were mostly quiet, at least from the foreign exchange perspective, as market participants braced for the nonfarm payrolls report out of the United States at 12:30 GMT. Even so, risk-appetite tapered off consistently throughout the overnight sessions, with the safe haven currencies gaining some traction.

Following a report earlier this week that the Swiss Economic Minister said that the Swiss National Bank was nearly powerless to stop the appreciation of the Franc, the perceived safe haven has rallied sharply across the board. The Franc, at the time this report was written, was up over 4.7 percent against each of the major currencies, while climbing over 6.0 percent against the Euro.

EUR/CHF 10-minute Chart: August 31 to September 1, 2011

Swiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_x0000_i1030.png, Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Adding on to pressure against the Euro, which was already one of the weakest currencies this past week, was disparaging news out of Greece. According to reports across multiple news outlets, the Greek government cut off talks with the European Troika – the European Commission, the European Central Bank and the International Monetary Fund – after the group asked the embattled Southern European nation to enact further austerity measures. Soon after, a Greek finance ministry official denied these allegations, though with a Danish-Finnish-German meeting on Tuesday, this storyline will be watched closely as it develops.

Pre-North American Session Summary

In terms of data ahead of the North American trading session, the key nonfarm payrolls report was released, shocking markets with the lackluster result. Although the unemployment rate remained unchanged at 9.1 percent in August, payrolls were unchanged on the month. The nonfarm payrolls report showed that the economy added zero jobs, well-below the median forecast of 68K, according to a Bloomberg News survey.

USD Nonfarm Payrolls (000s): August 2008 to Present

Swiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_Picture_4.png, Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

Prepared by Christopher Vecchio

As market participants look for reasons why there was such a dismal print, some interesting explanations have emerged, from bad weather in August to deteriorating confidence in the economy. The answer, however, is much simpler: the U.S. economy is not healthy. As I noted last week, “A slew of disappointing data releases over the past month coupled with economists largely missing the target on this indicator recently suggests that another miss on the data is possible.”

USD/CAD 1-minute Chart: September 2, 2011

Swiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_Picture_1.png, Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Following the data release, the Canadian Dollar was under increasing pressure, as oil fell sharply on the poor jobs report. The disappointing labor market reading puts another tally in the bear’s camp that the U.S. economy is grinding to a halt, leading speculators to bet against the Loonie; the Canadian Dollar often falls on poor U.S. data, as Canada is the number one exporter of oil in the world to the United States.

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is higher, trading at 9491.82, at the time this report was written, after opening at 9469.56. The index has traded mostly to the upside, trading as high as 9503.16 and as low as 9449.33.

24-Hour Price Action

Swiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_Picture_6.png, Swiss Franc Extends Rally as Nonfarm Payrolls Shock MarketsSwiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_Picture_7.png, Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

Key Levels: 13:00 GMT

Swiss_Franc_Extends_Rally_as_Nonfarm_Payrolls_Shock_Markets_body_fxh3.jpg, Swiss Franc Extends Rally as Nonfarm Payrolls Shock Markets

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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