Retail sales in Switzerland is expected to fall 0.2% in February as households face a weakening labor market paired with fears of a deepening recession, and the outlook for private spending remains bleak as the Swiss National Bank forecasts the economy to face its worst economic downturn since 1975.
[B][U]Trading the News: Swiss Retail Sales[/U][/B]
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[B][U]What’s Expected[/U][/B]
Time of release: [B]04/17/2009 07:15 GMT, 03:15 EST[/B]
Primary Pair Impact[B] : USDCHF[/B]
Expected: -0.2%
Previous: 1.2%[B][/B]
Impact the Swiss Retail Sales report had over EURUSD for the past 2 months
[U]January 2009 Swiss Retail Sales[/U]
Retail sales in Switzerland rose 1.2% in January after advancing 3.6% in the previous month, and households are likely to cut back on spending as they face a weakening labor market. The breakdown of the report showed that spending of food increased 5.9%, while demands for electronic goods rose 9.8% however, spending on personal goods plunged 12.1% during the month, while discretionary spending on clothing and shoes slipped 3.4%. Easing price pressures have certainly helped to boost consumer demands as retailers continue to conduct heavy discounting in an effort to lure potential shoppers however, as the region faces its first recession in six-years, the economic outlook remain bleak. As a result, the SNB is likely to ease policy further and may take unprecedented steps to mitigate the downside risks for growth and inflation as the downturn in the global economy intensifies.
[U]December 2008 Swiss Retail Sales[/U]
Private spending in Switzerland increased 3.6% in December after posting a 1.4% drop in the previous month however, as the Swiss National Bank expects the economy to face its worst economic downturn in over a quarter century, the outlook for personal consumption remains bleak. A deeper look at the report showed sales fell 0.5% after adjusting for the number of shopping days as demands for personal goods plunged 20.0% from the previous year, while spending on furniture dropped 4.6%, and the rise in the headline reading was driven by a 12.6% increase in purchases of electronic goods as consumers took advantage of discounted prices. As policymakers expect economic activity to deteriorate further throughout the year, the Swiss National Bank is likely to take additional steps to shore up the economy, and may cut the benchmark interest rate by 25bp to 0.25% as the outlook for growth and inflation falter.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[B][U]Bullish Scenario:[/U][/B]
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If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CHF against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCHF ahead of the data release.
[B][U]Bearish Scenario:[/U][/B]
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CHF against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCHF ahead of the data release.
[B]How To Trade This Event Risk[/B]
Retail sales in Switzerland is expected to fall 0.2% in February as households face a weakening labor market paired with fears of a deepening recession, and the outlook for private spending remains bleak as the Swiss National Bank forecasts the economy to face its worst economic downturn since 1975. The jobless rate surged to a two-year high of 3.3% in March as firms continued to cut back on production and employment in an effort to reduce costs, and as the downturn in the global economy intensifies, the labor market is likely to deteriorate further as trade conditions falter. The trade surplus slipped to 0.73B from a revised reading of 1.99B in January as exports plunged 3.9% during the month, which pushed the SVME purchasing managers’ index to a record-low of 32.6 during the same period, and conditions are likely to get worse as the International Monetary Fund forecasts the global economy to face a recession for the first time since World War II. Moreover, the KoF Swiss leading indicator slipped to -1.79 from a revised reading of -1.37 in February, which is the lowest level since recordkeeping began in 1991, while the headline CPI reading fell 0.4% in March to mark the biggest decline since 1959, and the data reinforces a dour outlook for growth and inflation as economic activity deteriorates at a record pace. Meanwhile, after lowering the benchmark interest rate to 0.25% in March, the SNB announced that it will begin to purchase corporate bonds as well as foreign currencies in an effort to stem the ‘appreciation in the Swiss franc vis-à-vis the euro,’ and as policymakers see ‘a risk of negative inflation over the next three years,’ market participants speculate that the central bank will continue to intervene in the currency market as the board pledges to ‘cushion the effects of the economic crisis, with the aim of limiting the risks of deflation.’ As the SNB expects the annual rate of growth to contract between 2.5-3.0% this year, fundamental headwinds paired with the unprecedented steps taken by the central bank is likely to weigh on the exchange rate however, as market sentiment falters, a rise in risk aversion could fuel demands for the Swiss franc as market participants move into lower-yielding assets.
Trading the given event risk clearly favors a bearish forecast for the Swiss franc as economists expect household spending to weaken further but nevertheless, as the economic outlook remains bleak, an unexpected rise in retail sales could boost demands for the low-yielding currency as growth prospects improve. Therefore, if private spending increased 0.1% or more in February, we will look for a red, five-minute candle following the release to generate a sell entry on two-lots of USD/CHF. Once these conditions are met, we will place our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be purely based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
Conversely, as the region is expected to face its worst economic downturn in over a quarter century, fading demands for employment paired with increased risks for deflation is likely to weigh on households, and private-sector spending is likely to fall further over the medium-term as growth prospects deteriorate at a record pace. As a result, an in-line print, or a drop of more than 0.2% in sales would lead us to hold a bearish outlook for the swissie, and we will follow the same strategy for a long dollar-franc trade as the short position mentioned above, just in reverse.
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