Strong Retail Sales Growth Turns Swiss Franc Bullish

Strong Retail Sales Growth Turns Swiss Franc Bullish
May 3, 2017

 
In anticipation of a huge boost to the US economy from the Trump’s tax reform, the USDCHF was consolidating at 0.9930 levels, after declining from a high of 1.0110 reached in early April. Even the poor first-quarter GDP data was discarded by the market. However, considering the recent economic data, and inclusion of Swiss Franc in the currency watch list of the US Treasury, we anticipate the USDCHF to resume its downtrend soon.

Switzerland has received a place in the US Treasury’s list of potential currency manipulators, along with Germany, Japan, South Korea, China, and Taiwan. According to the US administration, the SNB was involved in purchasing considerable amount of foreign currencies, while selling the Franc. Additionally, in 2016, the SNB had a current account surplus of 10.7% of GDP. These two factors paved way for the inclusion in the list of probable currency manipulators. Switzerland, however, does not have adequate trade surpluses with the US. Bilateral talks would be triggered if the trade surplus crosses $20 billion, from the current level of $13.5 billion. Even though the Swiss Finance Ministry has denied the allegation, still, analysts believe that the SNB would refrain from aggressive intervention.

The data from Switzerland is also indicating an improvement in the economic situation. On Monday, the Federal Statistics Office reported a 2.1% y-o-y growth in the retail sales in March, compared to analysts’ expectation of a 0.5% increase. In the previous month, the retail sales increased 0.7%.

In the US, the manufacturing sector grew slower than expected in April. According to the Institute of Supply Management, the manufacturing PMI reading declined to 54.8, from 57.2 in March. Analysts had expected a PMI reading of 56.6. Thus, minimal intervention and strong retail sales data is expected to keep the Swiss Franc stronger against the Greenback.

The USDCHF pair faces resistance at 0.9970. The main line of the MACD indicator is below the zero line. Similarly, the stochastic oscillator is descending towards the bearish zone. Thus, we can expect the pair to descend to the next support level of 0.9650.

To gain from the analysis, a Forex trader should go short at around 0.9920, with a stop loss order at 1.0040. Profit can be taken near 0.9760.

By investing in a put option, a trader can realise gains of up to 80% from the probable downtrend. To ensure better chance of success, a trader should opt for a contract with an expiry date on or around May 11th. It is also advisable to invest when the pair trades near 0.9920.

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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