Fundamental Forecast for Swiss Franc: Bearish

- Swiss GDP rose 0.3% in the third quarter ending a yearlong recession
- Consumer prices were flat in November from a year ago, after falling for eight straight months
- The SVME-PMI rose to 56.9 from 54.0 in October, as manufacturing expanded for a fourth straight month

The Swiss Franc tumbled at the end of the week as broad based dollar strength on the back of the strong NFP print. The greenback saw support as the U.S. economy is on the verge of job creation which would give the green light for the Fed to start removing liquidity from markets and look to begin a tightening policy as they attempt to stem off inflation. The dollar which has been the primary funding currency during this year could see it replaced by traditional low yielders like the Yen and the Franc. A week of strong Swiss fundamental data failed to generate bullish sentiment for the local unit. The export driven economy saw growth return for the first time in a year as GDP rose 0.3% as exports rose 2.6%. The increase in demand from abroad led to a 3.4% in gross fixed capital as companies prepare for increasing activity. Indeed, the SVME-PMI improved to 56.9 from 54.0 as the manufacturing sector expanded for the fourth straight month.

Despite the improvement in the economy the Swiss National Bank is expected to keep their target rate at 0.25% as they continue to have deflation concerns. The franc’s appreciation, which saw the USD/CHF fall below parity, continues to lead to declining costs for imports which is pushing down broader prices. SNB governor Roth stated that he expects measured growth in 2010 as the economy has been more resilient than expected, but "if the crisis were to be not fully over, we could come back into this situation (of deflation risk) relatively quickly." However, he did acknowledge that price stability couldn’t be attained with low interest rates for an extended period of time. The economic docket will provide some insights into the sustainability of the recent improvement with retail sales and unemployment data on tap. The USD/CHF saw resistance at the 50-Day SMA at 1.0166 which it has traded below since mid August. A break above the technical level exposes upside risks to the 100-Day SMA at 1.0375.

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