Fundamental Forecast for Swiss Franc: Bearish

- SECO Raises Its Growth Forecast to 0.7% from 0.4% fro 2010
- Industrial Production Improves by 3.4% for Consecutive Quarter
- Swiss Franc Technical Outlook

The Swiss franc continued to lose ground against the greenback with the USD/CHF reaching above 1.0500 for the first time since September 8th. However, the biggest story of the week for the low yielder was its appreciation against the Euro on the back of the downgrade of Greece’s debt rating and the nationalization of an Austrian bank.

The EUR/CHF broke below 1.500 for the first time since the SNB intervened in March to a low of 1.4906. The lack of a reaction to this point from the central bank could be an indication that their concerns over deflation have abated, but the upcoming thin holiday volume would be an ideal environment for policy makers to influence exchange rates. A0.1% rise in import prices led by a 6.0% increase in petroleum costs should ease deflation concerns and put the focus in potential inflation. Earlier in the week Swiss National Bank President Jean-Pierre Roth said "In no way has the financial crisis called into doubt the definition of central banks' mandates regarding price stability." The remarks come on the heels of speculation that policy makers may look to allow inflation to grow in an effort to reduce national debt.

The State Secretariat for Economic Affairs (SECO) raised its growth outlook or the economy in 2010 from 0.4% to 0.7% as household spending and construction activity is expected to be stronger than previous estimates. The demand for exports was also upgraded with improvement forecasted to continue into 2011. Indeed, 3Q industrial production rose 3.4% matching the improvement from the prior period. The notable difference was the improvement in orders on hand and sales which are signs of continued growth. Meanwhile, the KoF Economic Institute projected growth of 0.6% in 2010 with similar improvements in consumption and exports. The fundamental calendar is light next week with the Swiss trade balance the only highlight. The November measurement of imports and exports will give insight into the sustainability of foreign demand which the improving growth outlooks are based on. The key to the upcoming week will be whether the SNB stands aside and let the local currency appreciate against the Euro any intervention could lead to broader Franc weakness.

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