Fundamental Forecast for Swiss Franc: Neutral

- Swiss Retail Sales Rose 0.9% in June, following a 1.4% decline the month prior
- Exports rose 4.1% in July on increasing demand from Europe
- Swiss Investor Confidence Rose to 18.6 from 0.0, which was the highest in three years

The Swiss Franc would reach a yearly high against the dollar but failed to hold onto the gains as the threat of SNB intervention continues to provide a ceiling for its appreciation. I week full of positive fundamental data helped lessened the threat as signs that the economy is recovering may keep the central bank on the sidelines. A 4.1% rise in exports was encouraging as the gains came from Europe its main trading partner justifying the bank’s efforts. Like the USD/CHF the EUR/CHF saw its decline stalled as it failed to break below the 200-Day SMA for a second time, which has been a level of support that has held firm since the central bank took action in late June. A 0.9% gain in Swiss retail sales and the ZEW survey of investor sentiment rising to a three year high of 18.6 are clear signs that the domestic economy is improving. Furthermore, second quarter growth in Germany and France and signs that the U.S. is headed for a recovery should lessen the concerns of the MPC.

SNB member Thomas Jordan stated this past week that the bank is comfortable with current exchange rates and is seeing signs of a recovery as demand for exports rise. However, he would go on to state that "We have always made clear that we will not tolerate a rise of the franc against the euro. We believe an appreciation right now is economically dangerous and not justified." Therefore, we may continue to see the verbal intervention from members anytime exchange rates reach undesirable levels. Traders anticipating such action may do the banks work for them as they continue to be reluctant to push the levels beyond their current ranges.

The Swiss Franc has been traditionally linked with risk sentiment as it typically is one of the lowest yielding currencies and the country’s neutral political stance makes it an ideal safe haven. Therefore, as we start to see growth return and interest rate expectations rise expect this status to return. Next week’s full of GDP readings from the majors which could be the catalyst for re-establishing this relationship. The economic docket will also add insights into the domestic economy with the UBS consumption indicator, quarterly employment report and KOF leading indicator on tap. Although a decline in employment could weigh on domestic growth expectations, the forecasted improvement in the leading indicator would validate the prevailing optimism. The USD/CHF and EUR/CHF could both see appreciation this week as they are trading and the lower bound of the ranges, resistance levels to watch are 1.0778-50-Day SMA and 1.5255-20 Day SMA respectively.

DailyFX provides forex news on the economic reports and political events that influence the forex market.