Although we saw a number of key Swiss fundamental releases cross the wires this week, it was increasing optimism generated by improving U.S. data that dictated USD/CHF price action.
Swiss Franc May Continue To Benefit From Increasing Optimism
Fundamental Outlook for Swiss Franc: Bearish
- Swiss Unemployment Rose to 3.5%, which was the highest level in almost three years
- Consumer prices fell by 0.3% which was less than the -0.6% that was forecasted.
- SVME-PMI rose to 34.7 from 32.6 as the contraction in manufacturing slowed.
Although we saw a number of key Swiss fundamental releases cross the wires this week, it was increasing optimism generated by improving U.S. data that dictated USD/CHF price action. Indeed, improving home and construction data fueled dollar weakness to start the week. Meanwhile, better than expected results from the bank stress tests and the U.S. labor report sunk the pair to end the week. The most critical Swiss fundamental release was the CPI figures which fell by 0.3% but beat estimates of a 0.6% decline. The slower than expected rate of disinflation may ease deflation concerns, but falling prices will remain a concern for the SNB. Chairman Jean-Pierre Roth speaking to future intervention stated "As long as the environment does not improve and as long as deflation risks are visible in our monetary policy concept, we will stick to this insurance strategy resolutely." Therefore, Swiss Franc bulls must be leery of the central bank looking to depreciate the currency giving it recent strength. An improvement in manufacturing could spur hope that the economy is starting to stabilize and could keep policy makers on hold, but rising unemployment will continue to weigh on domestic growth.
We will get more insight into the local economy when March retail sales are released on Friday. Following the 3.8% decline last month we could see a rebound in consumption, as there may be a build up demand considering personal goods sales have declined by double digits for the last five months. An improvement in domestic demand could add to current bullish sentiment as it could keep the SNB from considering intervention. The USD/CHF fell below major support levels at 3/18 low of 1.1157 and the 50.0% Fibo level of the 1.0370 – 1.1966 rally at 1.1163. The next significant support is at 1.0976-the 61.6% Fibo level. -JR
