The swissie was able to erase three weeks of losses in just two days last week as the pent up bullishness surrounding the unit was finally unleashed once the highly Fed decision was out of the way. Not one indicator over the previous five-day period had disappointed, and that trend is expected to continue this week with an indicator of manufacturing activity and one on the jobless rate. The SVME Purchasing Managers index for June is expected to post the positive move in the gauge for the first time in three months. Though the factors limiting output activity last month are still extant, there are a few intervening factors to help along demand for Swiss produced goods.
Crude oil, lending rates and a more expensive currency continued to hold up business owners who were looking to spend on resources to expand capacity and meet roaring domestic demand, as well as that from the rest of the European bloc. Crude has more than breeched the psychologically and financially debilitating $70 per barrel mark, sopping up revenue that would otherwise find its way into Swiss employees hands in the form of higher wages or new jobs. Lending rates are also eating into purchasing opportunities. Only exacerbating the problem from the previous month, the SNB decided a little over two weeks ago to raise the overnight repo rate. Given the evolution of these burdens, it may be difficult to obtain the forecasted rise in the PMI read for June, but there was help. Key for spurring demand for Swiss goods was the gearing up of the World Cup. Germany, the largest consumer of Swiss goods destined for outside its own boarders, is playing host to soccer fans from around the world. Also, growth in the leading indicators index measured by the KOF, further suggests business confidence is on the horizon. The other read for the week, Junes unemployment rate, will be one that can bring bullishness in the swissie to the next level. In June, the jobless rate is expected further contract, besting Mays read that printed at an over three-year low. With only an expected 3.2% of the available labor pool without a job for the month, the distribution of wealth from the strong export market will continue to spur domestic consumption. If both of these indicators can match expectations, they will be significant additions to the already outstanding argument for the SNB to quicken the pace of its policy tightening at its next quarterly meeting.
After a month and a half of a steadily weakening Swiss franc, a reversal seemed imminent. Confidence that such a reaction would happen in the market was strong as Swiss economic indicators kept beating expectations and in turn representing a robust economy. Last weeks indicators were a relatively accurate sampling of the data that has come out of the economy for the past few quarters. Starting the week off quickly, April retail sales was the first piece of fundamental data for traders to assimilate into their valuations on Monday. While sales soared 12.2% over a 7.0% expected rise, the jump was considered partially a rebound from the previous read, which did not have the usual Easter holiday engrained into the period. Given this 70 points was all the Swiss bulls could muster before support came into view at 1.24000. This level proved difficult to surmount for much of the rest of the week. Close on the heels of the good retail figure, the more up-to-date UBS measure of consumption posted another improved measure of spending by printing a 1.865 figure after 1.618. Keeping the ball rolling, the KOF leading indicators index for June forecasted the fastest pace of growth in six years. The gauge, used to measure expectations of economic activity in the coming six months, reported a 2.50 versus expectations of a 2.40. Finishing off the day, and lending to greatest build on pressure in the USDCHF pair, were simultaneous releases of the SECO economic forecast and June CPI. For the SECO measure, while most of the expectations for 2007 were little changed, two noticeable boosts in this years GDP and export gauges forecast provided an optimistic view of the $340 billion economy. From the CPI reads in June, though the monthly report was unchanged, it did beat out expectations of a contraction. The more reliable annualized figure also bested the consensus, rising 1.6% following the previous months 1.4%. Despite this week of extraordinary data, the market would bid the currency until the event risk associated with Thursdays FOMC meeting in the US was over. Just as expected, when the event passed, the rallied 175 points until the close of the week; ending on the low of period at 1.2224.
