Though the franc was left with only one relevant economic indicator last week, speculation over the approaching Swiss National Bank meeting in September was gaining speed. After nearly a month, the Swiss currency has formed a significant bottom formation against its US counterpart with the 1.2200 preventing a move onto 15-month highs.
While a spate of poor economic data from the crosses could definitely generate the impetus needed to buoy the single unit, the Swissie may be able to make it on its own if data can hold the level until September 14th. For this coming week, there are three market-worthy indicators that will catch the markets collective eye. First out of the gates early Monday is the July read of producer and import prices, an upstream gauge of inflation. With the consumer index already passed, this indicator will act more like a crutch rather than a complimentary number depending on how it prints. As it stands now, the market consensus for inflation in goods leaving the factory gate and crossing the boarder from foreign sources is expected to have risen 0.2% for the period following the previous months unchanged condition. While this may seem a tame monthly advance, it needs to be taken into context with the drop in the CPI a few weeks ago. For July, inflation in the consumer basket dropped 0.7%, weighing annual inflation down to only 1.4%. Generally accepted as the most common measure of inflation for economists and the SNB itself, the CPI is still well below the banks upper limit. This puts added pressure on the producer and import price gauge to suggest price growth will necessitate further policy tightening to stabilize the economy. Printing the following day, Julys trade surplus is expected to ease slightly as a record in crude prices whittled away the inflow of capital funded by European countries that continue to buy Swiss-made goods. Finally, Thursday trading will bring with it the employment level for the second quarter. Over the first three months of the year, employment grew 0.7% to 3.664 million workers, the most in four years as export-driven growth forced managers to fill out its ranks in order to bolster production capacity. Employment trends for following three months were dealt much of the same hand. The jobless rate on a seasonally adjusted basis progressively fell to 3.3% in June, the smallest percentage of the available labor pool since February of 2003. Similarly, leading indicators reached six-year highs and the manufacturing sector grew for the first month in three there. All together, these indicators could rally the Swiss to the 1.2200 level or spark a strong unwinding of positions to the 1.2600 resistance, but unless there is an actual print far off the mark, this pair could stay range bound for the summer doldrums until perhaps until the symbolic momentum the SNB announces its rate decision
Over the past week, the newswires were relatively inactive though a 200-point range in the USDCHF traders occupied. For five business days, the only indicator populating the small nations economic calendar was Fridays retail sales number. The year over year gauge reported 4.8% growth through the month end of June compared to a 2.3% drop in the previous months figure. Swiss consumers spending habits have been facilitated by a jobless rate near at a three-year low, which in turn has boosted confidence. In the month of July, consumers were spending using their greater wealth and more liberal attitudes to purchase electronics, clothing and food. Sales of electronic goods specifically surged 12% for the month as citizens bought TVs to watch the Swiss national soccer team make it to the Round of 16 in the international World Cup in Germany. Domestic spending is steadily ramping up as a by-product of export-driven revenues; and the more complete the pass through, given the currency does not become too expensive, the more likely the economy will be able to stand on its own legs with domestic spending fueling steady growth. Growth forecasts aside, the swissie was able to find some support in the days preceding the single fundamental indicator for the week in an interview given by SNB President Jean-Pierre Roth. In the Sunday edition of the NZZ am Sonntag newspaper Roth took a decidedly more hawkish tone than what he had suggested in commentary before. The policy maker said that the SNB projects inflation of 2% running into 2007, but more importantly he implied the central bank will need additional rate hikes should the Swiss franc remain low.
