Weekly Outlook: Another Thin Week For The Swissie

 Thursday will be the release of unemployment data for <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Switzerland.  The employment market in the country continues to strengthen, with the unemployment rate falling during April to 3.5 percent, as strong economic growth is spurring hiring especially in factories.  Recent releases, such as last weeks strong GDP and leading indicator results, point toward a continuation of this growth and therefore of a tighter labor market.  Businesses, however, have had to overcome sustained high oil prices and did hire a large number of employees in April so Switzerland may not see the same high level of improvement as last month.  Regardless, the news should be positive for the Swissie as a strong labor market will generally also strengthen the rest of the economy and traders continue to look for reasons for the Swiss National Bank to raise rates.  The current sentiment runs in line with speculation of a rate hike at the mid June meeting.  What remains the question now is whether or not a 50 basis point rate hike may be considered before a period of stalled rates begins.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

With US markets closed on Monday of last week, the Swissie stayed calm and relatively low.  The Swissie rallied however in overnight trading, picking up about 170 pips by early Tuesday morning.  The first release for the week came on Wednesday with the KOF Swiss leading indicator report for May.  The indicator rose from April to 2.30 and came in 0.20 higher than expected, reaffirming the strong growth being seen in the Swiss economy.  The underlying currency, however, was not able to find a foothold and gave back all of the overnight gain during the rest of the day as this release was overshadowed by other news.  Thursday morning held a heavy bunch of releases.  The consumer price index during May rose more than expected at 0.2 percent from April and 1.4 percent from May 2005.  Although the slightly higher than expected inflationary gain should be positive as traders look for another rate hike from the Swiss National Bank, prices rose far less in May than the 0.8 percent rise seen in April and were driven mostly by high oil prices.  This somewhat subdued the reaction.  At the same time, first quarter GDP growth was announced, also exceeding expectations.  During the first quarter, the economy grew at 0.9 percent posting a year-on-year gain of 3.5 percent.  The strong economic growth data did give the Swissie a bit of a boost but again it could not hold its own.  The final hope for the Swissie came a little later that day with the SVME purchasing managers index, which just like the CPI data, produced something of a mixed sentiment.  The reading was 63.5, 0.3 higher than expected but 0.3 lower than in April.  The PMI does show a positive reading for the Swiss economy as it continues to expand at a fast and stable pace, but the market did not have time to react before the dollar rallied and sold off to come back to the same level by the mid-afternoon.