The Swiss franc, for a few minutes last week, pushed to two-month highs against the benchmark US dollar. This move proved fleeting however rather quickly even though a broad view of Swiss inflation, trade and employment all gave the green light to bulls. For the coming week, another market-worthy round of data will test the salt of bulls and illuminate the path to either return to two-month highs in the Swiss unit or break a long-running trendline to institute another leg of franc selling.
First for the market to absorb is the UBS consumption indicator for July. Used to forecast how fast private consumption will grow on a yearly basis, the gauge will be eagerly analyzed by policy makers and traders for indications that the domestic consumer base will be able to support the economy should exports cool. Nearly all the components for the previous months rise to it five year high were present for July: unemployment pushed deeper into three-year lows, economic outlooks were still glowing and wage growth continued to flush the Swiss with cash. However for this month, higher energy costs were wearing on producers while gasoline prices were directly confronting the average citizen. Moving on to Wednesday, the KOF leading indicators composite for August will give the most up to date view of broad economic health the country has to offer. The gauge used to predict economic growth in the coming three to six months is expected to growth for the twelfth consecutive month to a 2.64 read. Perhaps the most prominent supporter of this read and its optimistic projections is the Swiss National Banks forecast of 2.5 percent growth for the year. On the other hand, with such a steady pace of growth and expectations heavily entrusting of the figures continuing prosperity, a surprise dip could be exaggerated as the momentous bulls could quickly evaporate. The final number to print for the week will be SVME purchasing managers index to round out the confidence from the standpoint of business leaders. For July, the actual number rose unexpectedly for the second month in a row. For the current month however, spending is expected to fall to a read from 64.5 from 65.1. While this would still be near its recent historical high, a dip would determinately ease some of the interest rate speculation projected well into 2007 and further shake the Swissie lower.
Last weeks price action was not matching what the fundamentals were suggesting. From the first indicator on the first day of the week, the economic data and spot action seemed well in tune. July producer and import prices for the month of July accelerated 0.2 percent over the month, as expected, while besting expectations on the annual time frame with a 2.9 percent growth pace. With the passing of the indicator, the record of positive growth in the annual gauge every month since April of 2004 has gone unbroken. While this was a strong indicator for investors, it will be particularly interesting for SNB board members who are actively trying to head off inflation before it can permeate into the consumer basket. Breaking down the figure, it was obvious that price pressures are present from foreign sources as well as those at home. Import prices grew 0.3 percent on the month and 3.5 percent on an annual basis, while local factories charged 0.1 percent more since June and 2.6 percent more from the same period a year ago. Despite the bullish cut of this indicator and its implications for positive policy reaction come the September rate meeting, the strength it lent the currency was short lived. A franc run lasted to 1.2180, to just breach the strong 1.2200 support level that has now taken a number of hits and keeps on standing. Moving forward, the Swissie sank from there even with data trying to rally bids. On Tuesday, the trade surplus ballooned in July to its largest level in over a year, and far outstripping expectations in the process. A SFr 1.42 billion was the unexpected result of a 2.6 percent increase in exports to a sizable Sfr14.6 billion. Pessimistic predictions were well padded for the month too as crude prices reached record highs while other raw materials joined the advance. Despite the data, the USDCHF rose 110 points. The final hope came from employment data for the second quarter. The brunt force of this indicator was limited in the onset as monthly jobless indicators had already been singing the praises of the labor market. With the release, the employment level unsurprisingly rose from 3.644 million to 3.651 million, but the rate of yearly growth had actually slowed. A 0.4 percent increase in the hires fell short of the first three months 0.7 percent clip. Though this is not a bad sign in any way, the unyielding trend of falling unemployment had prepared the market for better. With the data came another 50 points to carry the pair ominously through the 1.2400 level and breaking a major trendline in the process.
