In general, fundamental data has limited impact in generating price action for the Swiss franc, and next week will be no exception as the economic docket is particularly light. The Swiss franc tends to follow macro drivers, such as risk aversion/appetite for carry trades, and typically moves in line with the Japanese yen.
[B]Swiss Franc Direction Split Between GDP, ECB Decision And Carry [/B]
[B]Fundamental Outlook for Swiss Franc: Bearish[/B]
- Switzerland GDP falls for second consecutive quarter
- Upside inflation risks subsides for the Euro-Zone and Switzerland
In general, fundamental data has limited impact in generating price action for the Swiss franc, and next week will be no exception as the economic docket is particularly light. The Swiss franc tends to follow macro drivers, such as risk aversion/appetite for carry trades, and typically moves in line with the Japanese yen.
The unemployment rate is the only scheduled event risks for the following week, with the headline figure expected to tick higher to 2.4% from 2.3% in July. Higher input costs paired with slowing demands from the global economy has clearly taken a toll on the Swiss economy as second quarter growth figures slipped to 2.3% from 3.0%. Furthermore, private consumption dipped to 0.7% from 7.4% in May, while the KoF leading index fell to a five year low of 0.68. On a lighter note, consumer price inflation cooled, falling to 2.9% from 3.1% in July, which could raise an argument for the SNB to lower the benchmark interest by next year.
The lack of stability in the financial sector may however, spur volatility for swissie crosses as global investment banks continue to face massive subprime related write-downs, and have recently come under investigation by government agencies. JP Morgan Chase, the third largest U.S. bank by assets, announced earlier this week that the financial giant will leave the municipal bond market as they are under investigation by the Securities and Exchange Commission and the U.S. Justice Department. Meanwhile, Merrill Lynch stocks have been recently downgraded to ‘sell’ by the Goldman Sachs Group as many expect the slew of write-downs to continue for the banking titan. Furthermore, the ongoing turmoil with Fannie Mae and Freddie Mac may also heighten the appeal of the low yielding Swiss franc as investors hold back on higher risk/reward investments. - DS