Fundamental Outlook for Swiss Franc: Bearish

- Switzerland growth outlook at its lowest levels in 5-years
- Hiring trends one of the few areas of the economy that has yet to respond to the slowdown in growth
- With the Euro Zone cooling quickly, it will be only a matter of time before Switzerland follows suit

Ninety-nine percent of the time, the Swiss franc casts a blind eye to its own economic data to follow a more macro driver (like risk appetite in the carry or the health of the Euro Zone). However, there are times when the Swiss data is significant enough to show up on the event risk radar; and next week’s data certainly has the presence to make its own mark on the currency. Monday will open with the SVME reading on factory activity. A decline through August may be buffered by falling input costs, but the drop in foreign and domestic orders will no doubt overwhelm the advantage cheaper oil may have provided. Then, on Tuesday, the combination of August CPI and 2Q GDP will give the best reading on the policy outlook that we have seen in months. Certainly setting the market up for surprise, the economists are expecting the annual inflation gauge to hold at 3.1 percent through August – despite the notable pull back in gas prices and drop in domestic consumption. As for growth, a forecasts of a 2.4 percent annualized pace of growth would bring about three-year lows in activity. And, even if this data does meet its consensus, it will only be a mater of time before Switzerland catches up to the sharp reversal in the Euro Zone – and traders know this.

Taking the more beaten path of analysis, we can expect the ECB rate decision and activity in the carry trade to also have a significant impact on Swissie price action. For the carry trade, there are active and passive threats that could send yen and swissie crosses soaring or plummeting. Lying in wait, we have growing speculation of a major US bank failure and/or the collapse of Fannie Mae and Freddie Mac. More dependable in its time, the central bank activity for the week ahead could quickly alter yield differentials. The RBA will be a headliner next week as the policy authority is expected to mark its first cut in seven years. Also competing for the franc’s attention (and likely to win) is the fundamental strength of the euro. With recent data showing the Euro Zone is contracting, the two currencies have reestablish a correlation as the Swissie is expected to fall into the same economic malaise sooner or later. The ECB will further be a big event as it is clear that the SNB often takes the lead of its European counterpart in timing policy shifts.

Jamie Saettele is a Technical Currency Analyst for FXCM.