The Swiss Franc like most major currencies rose against the greenback midweek on the back of renewed financial market concerns. The potential bailout of the GSE”s and increased expectations of further write downs from investment banks would spark risk aversion and sink the USDCHD over 200 points. The economic pictures for the Swiss economy continues to deteriorate as inflation has weighed on consumer consumption and confidence.
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Will Renewed Risk Appetite Sink The Franc Further?
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[B]Fundamental Outlook for Swiss Franc: Bearish[/B]
- Swiss retail sales rose 0.7% far less than the 3.3% that was expected as higher energy costs sapped purchasing power.
- The Swiss trade balance remained unchanged at 2.37 billion, as rising exports offset declining imports.
- The ZEW Survey of Investor business confidence fell to -79.6 from -76.9 as a European slowdown had dimmed the growth outlook
The Swiss Franc like most major currencies rose against the greenback midweek on the back of renewed financial market concerns. The potential bailout of the GSE”s and increased expectations of further write downs from investment banks would spark risk aversion and sink the USDCHD over 200 points. The economic pictures for the Swiss economy continues to deteriorate as inflation has weighed on consumer consumption and confidence.
Equity market in Europe and the U.S. ended the week on a up note, as fears regarding the financial system abated on an increase in M&A activity and news of a possible takeover of Lehman Brothers. The beleaguered investment bank which has been rumored to be on the verge of insolvency has lost almost 80% of its value. Investors are hoping that its purchase and the pending resolution to the GSE problems will finally bring an end to the financial crisis. The increase in risk appetite will weigh on the Swiss Franc as cash flows from the safe haven currency into riskier assets. The economic docket presents a few significant indicators that are expected to show the Swiss economy is continuing its current slide. Employment is expected to have dropped to 2.1% from 2.8% the quarter prior as global demand has slowed in the face of rising prices. The UBS consumption indicator should reflect the impact of rising prices on domestic demand as last month’s improvement was most likely an aberration. The near term outlook isn’t expected to improve as the KOF leading indicator is expected to fall to 0.83 from 0.90. Declining fundamentals and renewed risk appetite could lead to a down week for the Franc, especially with significant technical resistance ahead for the USDCHF. - JR