Fundamental Forecast for Swiss Franc: Neutral

- Swiss Producer and Import prices fell to -6.1% which was the largest decline in 34 years
- USDCHF: US Dollar Swiss Franc Exchange Rate Forecast

The Swiss Franc steadily advanced throughout the week against the dollar and euro as the pairs continue to trade off of technical levels. The USDCHF remains range bound between 1.0600 and 1.0900 as the threat of Swiss National Bank intervention has put in a floor and lack of dollar support has filed to break above resistance levels. The dollar has started to find support again on waning risk appetite which could lead to another re-test of resistance, but giving the recent trading pattern a fall back to 1.0600 remains a strong possibility. The EURCHF has also failed to break above resistance at 1.5350 and a break below the 20-Day SMA leaves support at 1.5196-50 Day SMA. There was little in the form of fundamental releases with only the producer & import price report showing a decline of -6.1% against expectations of -5.8%, which was the largest decline in 34 years. The increasing deflation risks only strengthens the argument for further SNB intervention which could remain a supportive factor for the franc crosses.

The lack of conviction from dollar and euro bulls could lead to more Swiss franc gains in the coming week until we see support levels threatened. There is also a number of key fundamental releases that should be watched despite their lack of potential impact as they may give insight into the level of deflation risks and the potential course of action from the central bank. The Swiss trade balance may show that exports continue to decline as they did in May by 2.6%, which would further encourage the desire for a weaker domestic currency. Retail sales for June will get the week started and a consecutive decline in domestic growth will leave the economy without any sources of growth. Ultimately, the Swiss Franc rarely trades on fundamentals and technically there exists downside potential, but as we have seen over the current trading range reversals can come before testing the lower bound.- JR

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