Swiss Franc Vulnerable As SNB Pledges To Limit Gains
Fundamental Outlook for Swiss Franc: Bearish
- Swiss Consumer Prices Fell By the Most Since 1959 to -0.4%
- The SVME Purchasing Mangers Index Remained Flat at 32.6 in March
- The UBS Consumption Indicator for February Fell To Lowest Level Since 2004
The Swiss Franc saw a week of choppy price action as it would reach as high as 1.1548 before falling to a low of 1.1314. The Swiss economy continued to show signs of deteriorating as the UBS consumption indicator fell to its lowest level since 2004 as mounting job losses have caused consumers to tighten their wallets. This was reflected in the PMI index remaining at a record low of 32.6 in March, as producers struggle with declining demand from home and abroad. The lack of consumption continues to be a weighing factor on consumer prices which have fallen to -0.4% which is the lowest level since 1959. Food and housing costs have started to replace energy costs as the main drivers of lower inflation as the economy continues to contract. Nevertheless, Swiss fundamentals rarely have a significant impact on price action and we saw the Franc gains towards the end of the week against the dollar on improving risk appetite. However, against other major currencies where the Franc maintains its safe-haven status it continued to lose ground on the increasing optimism.
At the Swiss National Bank, Vice President Philipp Hildebrand said that the central bank will use all means to prevent further gains in the Swiss franc which was counter the anti-protectionism message that was put forward from the G-20 meeting. The central bank has been consistent with its commitment to devalue the currency in order to drive demand for its exports. Therefore, we may see further weakness from the Franc against most majors and ultimately against the dollar. The 200-Day SMA has provided staunch support since the beginning of the year and at 1.1246 is within range for a test, which could lead to a reversal. However, the 1.5000 price level has capped any gains over the last three weeks and with the 20 and 100 day SMA’s converging the level may remain as firm resistance. Therefore, we could see the pair range bound moving forward between 1.1250-1.1500.-JR
