Fundamental Forecast for Swiss Franc: Neutral

- The Swiss unemployment rate hit its highest level in nearly 5 years during July
- USD/CHF: US Dollar Swiss Franc Exchange Rate Forecast

Based on price action on August 7, it appears that the three major “safe haven” currencies have been winnowed down to two, following the surprisingly strong US non-farm payroll results. Indeed, the Swiss franc and the Japanese yen were the weakest of the majors not only for the day, but for the entire week as “riskier” assets like stocks and FX carry trades rallied. The moves were likely very encouraging for the Swiss National Bank, which has made no secret of their desire to prevent the Swiss franc from appreciating against the euro. However, with EUR/CHF now facing several levels of resistance at 1.5345, 1.5380, and 1.5446, traders may be feeling a little more cautious of assuming that the pair is on a one-way track higher.

Focusing on USD/CHF, the pair remains contained to a two-month old range of 1.0590-1.1000, despite the surge we saw on Friday. Nevertheless, the US dollar could easily return to holding an inverse correlation with the stock markets, and it will be important to see how these trends fare in the coming week.

As far as scheduled event risk goes, there will only be one major indicator on hand: producer and input prices. The monthly rate of price growth is forecasted to rise 0.1 percent for the month of July, which would be the first increase since July 2008. This will not be of much help to the annual rate of growth, though, as it is projected to fall to -5.8 percent, its lowest level in nearly 34-year, from -5.6 percent. Ultimately, negative to very weak price growth will keep the SNB edge and keep the risk for physical intervention alive and well, as the main reason why they’ve undertaken the task is to prevent a severe case of deflation in the Swiss economy.

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