Daily Economic Commentary: Switzerland

[PipDiddy]

The USDCHF looks like it has broken its long term downtrend line given the dollar’s strong rallies in the past couple of days. Though, yesterday it hit some resistance as it approached the 1.0300 mark.

Switzerland’s seasonally adjusted unemployment rate stood steady at 4.1% in November. While the unemployment rate may be a lagging indicator, it remains to be a key statistic of Switzerland’s economy. Consumer spending depends very much on people who work. Hence, a steady low rate somewhat reflects positively on Switzerland.

The Swissy gained following the report.

Much attention will be turned to Switzerland today with SNB’s interest rate decision at 8:30 am GMT. The SNB is seen to leave its interest rate unchanged at a record low of 0.25%. Some believe, however, that the bank may continue to make threats to intervene in the currency markets to fight the Swissy’s rise. But with Switzerland’s positive 3Q GDP and strong trade numbers plus the dollar’s recent appreciation, the possibility of such has lessened.

Will SNB Chairman Jean-Pierre Roth add fuel to the dollar’s rise? We’ll find out in a couple of hours.

[PipDiddy]

The SNB’s interest rate decision proved to be uneventful for traders as the USDCHF traded in a tight 60 pip range yesterday. It open the Asian session at 1.0264 and ended the US trading session almost unchanged at 1.0261.

The SNB announced yesterday that they decided to keep rates steady at 0.25% for now. They said that inflation in the country have improved and would likely remain positive during 2010. The bank also reiterated their promise to make sure that the CHF’s value remains stable against the EUR... Which is just another way of saying “Ya’ll better not let the franc appreciate against the euro, else we gonna make ya regret it!”

No economic data coming out of Switzerland today so the USDCHF would probably be moved by news from other major economies, especially the euro zone.

[PipDiddy]

The Swissy took some hits on Friday, as the USD gained for the third consecutive Friday. The USDCHF rose on some good data from the US, breaking past the 1.0300 handle and ending the week at 1.0341.

At 8:15 am GMT, the producer price index will be released. The index – which measures the change in the prices of goods and raw materials paid for by manufacturers – is expected to show a rise in prices by 0.2%. The report is an indicator of inflation, although its impact on the markets is minimal.

Tomorrow will be unusually busy for Swizterland, as three medium impact reports coming out. First, at 6:45 am GMT, the SECO economic forecasts report will be available. The report includes forecasts for all the major components of Switzerland’s GDP. Some of the components are consumption, investment, inflation and employment.

Later, at 8:15 am GMT, the quarterly industrial production report will be released. Growth in industrial production is estimated to have slowed down slightly, showing an increase of just 0.5%, down from the 2.7% rise the previous quarterly.

Lastly, and maybe most importantly, SNB Chairman Jean-Pierre Roth will be delivering a speech. Take note that as head of the central bank, traders hang on to every word he says as it could indicate what could be the next moves for the central bank. One thing I doubt will be on his agenda will be potential currency intervention, given how the CHF has weakened the past couple of weeks.

[PipDiddy]

Whew! The Swissy was able to cap its losses yesterday as the price action cooled down for a bit. The USDCHF managed to keep its head under the 1.0350 level amidst the lack of top tier economic reports from the US.

Today's price action could be much more exciting since the US has a jampacked economic schedule. Brace yourselves for the release of US PPI, core PPI, Empire State manufacturing index, TIC long-term purchases, and industrial production data. Yikes!

On top of that, Switzerland is set to report its SECO economic forecasts by 6:45 am GMT. This report would forecast the major components of the GDP, such as consumption and investment. It would also provide forecasts for inflation and employment figures. Better watch out for that!

[PipDiddy]

The dollar has been rising over the Swissy for the past couple of weeks. It continued to do so again in yesterday’s trading. The USDCHF went as high as 1.0430 before closing at 1.0321.

Yesterday, the Swiss government upgraded its economic forecast for 2009 and 2010 due to the growing demand for the country’s exports. A strong 3.4% growth in its industrial production for the third quarter plus a rise in its November leading indicators support the government’s projection.

As mentioned, Switzerland’s industrial production grew by 3.4% versus the 0.4% consensus during the 3Q due to a pick-up in global demand as economies all over recover from the global recession. Production was, however, down by 9% on the year and 6.7% down on an annualized basis. So despite the better-than-expected third quarter figure, the Swissy still lagged behind the dollar.

No economic reports are due in Switzerland today. Be mindful, though, of some possible volatility coming from today’s US CPI release and FOMC statement.

[PipDiddy]

The Swissy managed to retrace some of its losses in early in Asia yesterday but the FOMC rate statement late in the US session pushed it back near to its opening price.

No economic data came out of Switzerland yesterday but it has the ZEW Economic Expectations survey for December on its cupboard today. The survey basically gauges what investors, analysts and economists think about the economy using a optimistic/pessimistic scale. A reading higher than 0 means they were more optimists than pessimists. Expect to see the results of the survey at 10:00 am GMT.

[PipDiddy]

The Swissy melted like cheese on bread as the USD carried the heat in yesterday’s trading sessions! The USDCHF rose to as high as 1.0508 before closing at 1.0471.

Released yesterday was the ZEW economic expectations index, which printed a slight decline. The index had a score of 54.0, down 2.4 points from November’s release. This indicates that while optimism is still high, it died down just a little bit in the past month. What I’m interested to see is how news from its European neighbors will affect franc trading. Take note, the EUR and CHF are highly correlated. If EUR weakness grows in the coming weeks, we could see the CHF take a hit as well.

[PipDiddy]

With the US dollar's seemingly unstoppable strength, the USDCHF climbed all the way up to the 1.0500 area last week. However, traders now seem to be more interested in the EURCHF's behavior as the possibility of SNB intervention resurfaces.

The EURCHF pair has been tumbling down ever since Greece's credit concerns hit the markets. As the holiday season dries up trading liquidity, increased volatility could push the pair further below the 1.5000 mark. Recall that the central bank intervened last March when the pair dipped to the 1.4900 area so tread carefully around those levels!

Today, the SNB will release its quarterly bulletin at 10:00 am GMT but this report is slated to have a minimal impact on CHF price action. A more high-impact event is tomorrow's trade balance data, which could show that the surplus widened from 2.44 billion CHF to 2.79 billion CHF.

No other economic reports are due from Switzerland until the end of the week but be mindful of economic reports from the US which could make or break the USD rally.

[PipDiddy]

The Swissy snapped its 3-day winning streak yesterday with a loss against the euro. But hey, it’s not Christmas everyday! So with the pair closing below the significant 1.5000 support, it is likely that this support-turned-resistance will hold given the lack of high impact economic reports for the rest of the year that could swing the euro upwards.

With the EURCHF falling below a significant level, a huge Swissy sell order that was made by a commercial bank spurred rumors that it was the SNB intervening in the markets. The SNB and the Bank for International Settlements, however, decline to comment. Since the USDCHF and EURCHF trading just below key technical resistances, it would probably take one more huge push or intervention to at least cap the Swissy's potential rise.

Today (7:15 am GMT), Switzerland’s trade balance for the month of November will be published. The country’s trade balance is projected to expand to CHF2.79 billion from CHF2.44 billion. Generally, an advance in this account would be bullish for the Swissy. Given this potential gain, will somebody, perhaps the SNB, place a huge sell order on the Swissy again?

[PipDiddy]

Just like the EUR, the CHF experienced a beating from the USD yesterday. From the looks of it, it won’t be long until the USDCHF tests last week’s high at 1.0508.

Switzerland’s trade balance yesterday failed to meet expectations. The report printed a 2.14 billion surplus in November, down the 2.44 billion surplus seen the month before and lower than the 2.79 billion surplus initially predicted. However, digging deeper into the report revealed that it was an increase in imports and not in exports that caused the surplus to narrow. In fact, exports grew, adding more evidence that the country’s export industry is starting to pick up.

No economic data is due for release today so expect the CHF’s price action to be primarily driven by news coming out of the Euro zone and the US. Still, given the low market liquidity, we could see a the CHF move sideways throughout the upcoming trading sessions.