Swiss Franc Turns Slightly Bearish On Mixed Economic Data

Swiss Franc Turns Slightly Bearish On Mixed Economic Data
April 4, 2019

 

The Swiss franc is trading in a mixed manner midweek against the G10 currencies on impressive sales, better-than-anticipated inflation, and lower-than-expected manufacturing data. The economic data related to the US was also mixed in the past few days. As a result, the greenback was unable to capitalize on the weakness in the Franc. The USD/CHF pair continues to remain range bound between 0.9950 and 0.9995.

 

Economic data dominates Swiss franc’s trend

According to the Swiss Federal Statistics Office (FSO), retail sales grew 0.3% in February, compared to the prior month’s decline of 0.1%. The reported figure also surpassed analysts’ forecasts of a 0.2% decline.  However, on a year-over-year basis, retail sales declined by 0.2%. This was still higher than economists’ forecast calling for a 0.6% decline.

The Swiss manufacturing purchasing managers’ index (PMI) plunged to 50.3 in March, from 55.4 in February. It was considerably lower than the 55.5 penned by analysts’. Notably, a figure above 50 signifies expansion and vice versa.

On the contrary, Switzerland’s total sight deposits increased to CHF576.1 billion in the week ended 29th March, from CHF575.9 billion in the earlier week.

Inflation figures, however, surpassed analysts’ expectations. Inflation increased 0.7% m-o-m in March, an increase from an 11-month low of 0.6% increase in February. The inflation data exceeded economists’ expectations of a 0.6% rise.

On the basis of the inflation data mentioned above, economists’ surveyed by FocusEconomics anticipate inflation to stay relatively flat over the medium-term and averaging 0.7% and 0.9% in 2019 and 2020, respectively.

For the rest of the week, there is no prominent data scheduled to be released from Switzerland. The Swiss franc may see action only after the unemployment rate is published next week. The market anticipates a jobless rate of 2.5%.

Contrary to analysts’ expectations, the Swiss franc has been on an uptrend since the beginning of 2019. The safe-haven currency is trading near its two year high, with gains of about 5% in the past year. The global economic slowdown, US-China trade disputes, and Brexit uncertainty are factors that increased the demand for the Swiss franc. Investors continue to take shelter in the yen, gold, and Treasurys in addition to the franc.

Financial experts expect the uptrend to remain short-lived if the Swiss National Bank (SNB) follows loose monetary policy and slash interest rates further. In fact, SNB’s governing board member Martin Schlegel has hinted that the central bank is willing to take the interest rates deeper into negative territory.

Currently, to fight the strengthening of the franc and ensure price stability, the central bank levies a rate of -0.75% on cash it holds on behalf of commercial banks over a pre-determined limit.

While speaking to reporters in Bern, Schlegel said: “we could lower the negative interest rates, we still could intervene in the FX market if necessary. We have room on both instruments. They are our policy pillars and remain absolutely essential at the moment.”

Schlegel is not part of the team that sets policy rates. However, he is in charge of the strategic and operational management of the bank.

The mixed economic data and a dovish statement by Schlegel are expected to keep the Swiss franc range bound with slight bearish bias.

Technically, the USD/CHF pair has received support at 0.9930 and is rising towards 1.0015 levels where the next resistance is expected. The MACD indicator is on the verge of crossing over to the positive region. As a result, we can expect the currency pair to move up in the short-term, but with limited upside.

CHF - technical analysis - 4th April 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.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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