Fundamental Forecast for Swiss Franc: Bullish

- Swiss Unemployment rate hits fresh highs
- Swiss Consumer Price Index rises less than expected
- View our Swiss Franc Monthly Forecast

The Swiss Franc finished the week modestly higher against the Euro and US Dollar despite fairly disappointing economic data releases. Recent improvements in leading indicators and other measures of economic health have generally supported a healthy outlook for the landlocked economy. Yet a surprise decline in the SVME Purchasing Managers Index, modest deflation through December, and a jump in the national Unemployment rate all moderated recently-aggressive recovery forecasts.

Economic disappointments nonetheless had little impact on the domestic currency, however. A quiet Swiss National Bank showed absolutely no signs that it would halt the CHF’s appreciation and speculators showed little fear of official action in sending the currency higher. Two top-tier economic releases are somewhat unlikely to force major Swiss Franc volatility in the week ahead, and traders may instead remain on the lookout for any and all official rhetoric regarding the broadly resurgent Swiss currency.

Sharp moves in Swiss Retail Sales results or Producer and Import Prices could ostensibly force volatility for the domestic currency, but the major risk to the Swiss Franc remains any and all SNB rhetoric on its recent strengthening. The SNB had frequently intervened and aggressively sold Swiss Francs on the open market when the Euro/Swiss Franc exchange rate dipped below SFr 1.5000. Yet the lack of reaction to the currency pair’s clear break of the psychologically significant number is telling; it seems that the SNB has grown relatively tolerant in the face of EUR/CHF weakness.

The country’s strong dependence on trade with the Euro Zone leaves domestic producers at a disadvantage if the EUR/CHF falls significantly, and weakness in import prices could likewise worsen the risk of deflation for the mountainous country. It may be important to watch the upcoming Swiss Producer and Import Prices report, but it will be critical to monitor any and all official rhetoric on the Euro/Swiss Franc exchange rate.

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