Sharp drops in Swiss Gross Domestic Product and Consumer Price Index releases had relatively little effect on the Swiss Franc, and the domestic currency remained nearly motionless to finish the week’s trading.
[B]
Fundamental Outlook for Swiss Franc: [/B][B]Bearish[/B]
- Swiss Gross Domestic Product falls most in 15 years
- Swiss Consumer Price Index falls by most since 1959
- Read our Swiss Franc Monthly Forecast Report
Sharp drops in Swiss Gross Domestic Product and Consumer Price Index releases had relatively little effect on the Swiss Franc, and the domestic currency remained nearly motionless to finish the week’s trading. The closely-monitored Euro/Swiss Franc pair finished nearly even, while a late-week US Dollar reversal left the USD/CHF considerably higher. Traders have shown little interest in Swiss economic data, and it seems only major Swiss National Bank monetary policy announcements have forced truly noteworthy moves in the CHF. Yet it serves to note that the downside surprise in CPI results added to risks of sustained domestic inflation—potentially boosting the SNB’s resolve to ease stressed financial conditions in the small European economy. Year-over-year changes in CPI now stand at their most negative in 50 years.
Forex options markets subsequently continue to favor further EUR/CHF through the medium term, and there seems to be little reason to disagree with said assessment. Swiss National Bank officials are near the end of their rope on conventional tools to improve domestic monetary conditions—target interest rates are at their effective lower bound, and the bank has already embarked on a path of Quantitative Easing. This leaves FX market intervention as the last clear option to stave off deflation and highlights the risk to the EUR/CHF rate.
An empty week of economic event suggests that markets will take their cues from other major markets, and traders will be on the lookout from any rhetoric and/or actions from the SNB. The EUR/CHF has been stuck in a relatively narrow 400-point range since the central bank first entered the FX market. The pair’s 200-day Simple Moving Average has thus far held back topside breakouts, while the pair has likewise held minor trendline and 100-day SMA support. The risks of SNB intervention should theoretically keep the pair above the psychologically significant 1.5000 mark and ostensibly increases risks for a topside break. Outlook for the USD/CHF is somewhat less clear, but we have argued that the recent US Dollar reversal may be the start of a bigger rally—boosting forecasts for the USD/CHF rate. - DR