Swiss Franc Strengthens On Surplus Budget Forecast

Swiss Franc Strengthens On Surplus Budget Forecast
June 28, 2019


The USD/CHF pair moved in a zigzag manner yesterday before the Swiss franc gained ground slightly against the greenback, aided by the Swiss government’s surplus budget forecast. The government believes that the planned pension and tax reforms would rake in additional revenue. The financial strength of the country, however, is not cheered by investors as they still have concerns over the economy. From a high of 0.98142, the USD/CHF pair has declined to a low of 0.9753 in the past 24 hours.

The Swiss government unveiled a draft 2020 budget yesterday, reflecting a surplus of $613 million. Specifically, the government anticipates revenues to increase 2.9% in 2020 and expenditure to increase 3.7%. As a whole, legislators are expecting surpluses in the three years beginning from 2021.

Notably, Switzerland posted a budget surplus of $3 billion, ten times higher than the sum forecast in the earlier year.

Despite a strong financial position, investors are not very happy. The CS-CFA Society Economic Sentiment Index, which reflects investors’ view of the economy, declined to -30 in June. Last month, the index had a recording of -14.3. After June 2018, the index had never recorded a positive reading.

Switzerland’s relationship with the European Union is going through a rough patch. The EU has decided not to extend its stock market equivalence, which is due to end in June, to Switzerland after Brussels lost patience over the dragging framework agreement. In retaliation, Switzerland has publically announced that a prohibition on Swiss shares from being listed and traded in the EU stock exchanges is being considered.

The Swiss government said, “Trading venues in the EU would thus be prohibited from offering or facilitating trading in certain shares of Swiss companies from that date.”

SIX stated that it welcomes the Swiss government’s decision to implement the protective strategy. Furthermore, the Swiss bourse operator has pointed out that institutional investors and other active market participants will be able to access the Swiss shares by having an account with SIX.

Aquis Exchange Plc, a pan-European stock trading platform, explained that it would comply with the decision of the Swiss government. Aquis said, “If equivalence is not extended, and if the Swiss Federal Department of Finance (FDF) rescinds recognition of EU trading venues for the trading of Swiss securities, then Aquis Exchange will take the necessary steps to comply with the directive.”

Later today the KOF Economic Barometer for Switzerland will be released. The reading reflects the level of business confidence. Analysts anticipate a figure of 94.9 in June, an increase from 94.4 in May. The Swiss franc trend will also be decided by the retail sales, inflation and manufacturing data to be published next week.

Technically, the USD/CHF pair continues to move within a descending channel as shown in the image below. Furthermore, the momentum indicator is making new lows. As a result, we can expect the currency pair to move down in the short-term.

CHF - technical analysis - 28th June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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