Fundamental Forecast for Swiss Franc: Neutral

- Swiss Retail Sales Fell For A Consecutive Month By 1.6%
- The Swiss October trade balance surplus rose to 2.46 billion from 1.91 billion as exports gained 0.1%

The Swiss Franc trended lower over the past week against the dollar showing potential to break from its recent range but found resistance at the 50-Day SMA at 1.0217. Price action has held below the technical level since August 12 and a break above would leave significant upside potential. Investors worried that current valuations have outpaced underlining fundamentals have generated safe-haven flows providing support for the USD/CHF. Weak Swiss fundamental data added to the bearish franc sentiment as retail sales fell by 1.6% dimming the outlook for domestic growth. An 8.9% drop in clothing led weakness in tobacco, personal goods and furniture as consumers battling rising unemployment continue to retrench. A 0.1% rise in exports was encouraging but not enough to offset weakness generated by falling equity markets.

The OECD raised its GDP forecast for the Alpine economy with positive growth returning at the end of 2009 offsetting earlier weakness for a net decline of 1.9%. Momentum is expected to carry into 2010 and 2011 which are expected to see gains of 0.9% and 1.9% respectively. SNB Chairman Jean-Pierre Roth said on Tuesday 2010 will still be difficult for the Swiss economy, which will not recover from the world's recession quickly. The central bank leader also went on to say that "we have the have the necessary means to withdraw liquidity from markets.” The comments take on more significance with ECB president Trichet signaling that it is time to start withdrawing some measures that supported the financial system through the credit crunch. Swiss policy makers aren’t expected to alter monetary policy in the near-term as they still maintain concerns over deflation as the Franc strength continues to depress prices of imports. Additionally, policy makers are adamant about defending the currency against appreciation in order to drive demand for exports.

It is difficult to gauge where the risk winds may blow next week with the Thanksgiving Holiday on tap. If fears grow that a double dip in growth is ahead we could see traders look to lock in profits in front of the long weekend sending equities lower bringing the Franc in tow. The prevailing uncertainty could see markets quiet leaving the USD/CHF within its current range between 1.0050-1.0200. The upcoming economic calendar has potential to influence price action with consumption, employment and growth data on tap. The UBS consumption indicator remains near a six year low and based on the sharp decline in retail sales we could see continued weakness in demand. The quarterly employment figures may have the most market moving potential as rising employment has crippled domestic growth. The only positive may come from the KOF leading index which continues to point toward an improving economy and rose to its highest level since February, 2008 last month.

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