Fundamental Forecast for Swiss Franc: Bearish

- Swiss exports fell 2.3% in September following a 2.0% rise the month prior
- Technical outlook calls for potential USD/CHF reversal

The Swiss Franc trended higher against the dollar over the past week as risk sentiment continued to drive price direction. Strong corporate earnings from Apple, JP Morgan and DuPont sparked risk appetite to start the week but concerns over valuations led to diminishing returns for bullish investors as equities struggled to hold onto gains. A disappointing U.K.3Q GDP reading, -0.4% versus 0.2%, has raised concerns that other G-7 nations will follow with dour growth results. The U.S. GDP report will cross the wires next week and a similar result could lead to support for the pair. Although Swiss fundamentals have little sway over Franc direction, the 2.3% drop in exports and 3.1% gain in imports during September were negative signs for the economy. Swiss Franc strength has been a concern for the SNB as it continues to deter foreign demand and foster deflation.

Two significant fundamental releases are on this week’s economic docket with the UBS consumption indicator and the KoF leading indicator on tap. Rising unemployment has weighed on domestic demand and although the economy has shown signs of emerging from its recession, the labor market remains weak as declining orders keep companies in cost cutting mode. Nevertheless, the outlook for the next six months is forecasted to rise to 1.10 from 0.85 on the back of an improving global economy. Regardless, traders should take their cue from risk sentiment with a week full of earnings reports ahead and the U.S. growth numbers. A test of parity is a possibility this week if risk appetite returns, but reversals can often follow tests of significant psychological levels. Also, traders must beware of possible intervention from the Swiss National Bank as they continue to fight against Franc appreciation and its negative implications for the economy.

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