Fundamental Forecast for Swiss Franc: Neutral

- Swiss Producer and Import Prices Fall the Most Since 1986
- Swiss Retail Sales Falters in May
- Investor Confidence Unexpectedly Falls in July

The Swiss franc remained range-bound against the greenback and the euro this week following the rebound in market sentiment, and the low-yielding currency may continue to trend sideways against its counterparts over the near-term as Swiss National Bank attempts to keep a floor on the exchange rate. The EUR/CHF surged higher after slipping below 1.5150 on Monday, but the rally stalled ahead of 1.5225 to hold a narrow range throughout the week, and the euro-franc is likely to hold its current range in the week ahead as investors weigh the outlook for future policy. Meanwhile, the USD/CHF failed to break above the 50-Day moving average once again, and slipped to the bottom-end of its range to reach a low of 1.0703, and the pair may retrace the decline over the following week as it continues to hold a 400pip range.

Earlier this week, the Federal Statistics Office said producer and import prices unexpectedly held flat in June, with the annual rate of inflation tumbling 5.6% to mark the biggest decline since 1986, while the annual rate of consumption slipped 1.4% in May from the previous year as households face a weakening labor market. As the economic docket continues to reinforce a weakening outlook for growth and inflation, market participants are likely to raise speculation for another SNB intervention as the central bank pledges to stem the risks for deflation, and the Swiss franc is likely to face headwinds throughout the year as central bank maintains its current policy for the national currency. Nevertheless, as risk trends continue to drive price action in the foreign exchange market, fears of a protracted downturn in the global economy is likely to temper the appetite for risk, and the low-yielding currently should continue to hold a broad range against the U.S. dollar and the euro over the following week as it benefits from safe-haven flows. Moreover, the downturn in global trade paired with the strengthen in the Swiss franc could show a fall in the trade balance next week, and the slump in foreign and domestic demands is likely to hamper projections for a sustainable recovery as growth prospects falter.

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