Fundamental Forecast for Swiss Franc: Bearish

- Consumer Prices declined 0.8% from a year ago surpassing estimates of -0.7%
- The Swiss recession slowed as 2Q growth contracted 0.3% versus 0.9% the quarter prior
- Franc Looking To Bounce From Range Lows

The Swiss Franc finds itself relatively unchanged despite a week of improving fundamental data. Swiss growth figures from the second quarter confirmed expectations that the country’s recession had eased with the rate of contraction slowing to 0.3% from 0.9%. The break down of the report showed business investments increased 1.1 percent from the first three months of the year, with household consumption rising 0.6%. However, the most important development may be that the rate of decline for exports slowed to 2.7% after tumbling 6.4% in the first quarter. Moreover, manufacturing activity in Switzerland expanded for the first time in a year, with the SVME index rising to 50.2 in August from 44.3 in July, topping forecasts for an increase to 46.9. Additionally, we saw deflationary pressures ease as consumer prices fell 0.8% versus July’s 50 year low -1.2%.

Despite the diminishing risks of deflation, Swiss inflation is still expected to lag other developed nations which should keep the SNB on hold for the foreseeable future. Central bank member Thomas Jordan has continued to reaffirm policy makers commitment to not allow further appreciation of the local currency against those of their main trading partners namely the U.S. and Europe. Therefore, we have see a solid level of support for the EUR/CHF and USD/CHF which have held in spite of prevailing broader risk trends and impact from fundamental releases. Nevertheless, risk trends can have an influence on price action and should be monitored to determine price direction. Still the most prudent strategy for Franc crosses has been to wait for tests of the support levels and take long positions in anticipation of a retrace. The levels to target are 1.0500 for USD/CHF and the 200-Day SMA which stands at 1.5127 for the EUR/CHF. The only fundamental release on the economic docket is the unemployment rate which is forecasted to jump to 4.1% from 3.9% which will only strengthen the SNB’s case for intervention.

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