Swiss franc news - page 17
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SNB Jordan: CHF is still significantly overvalued
Negative interest rates appropriate for now
USD/CHF Retreats from the Highs, Testing Support
USD/CHF spiked higher to test the psychologically important 1.00 level in Tuesday trading, but failed to sustain the move and ended the N.Y. session well off the highs of the day. Downside momentum continues to have a grip on the pair in today’s trading, as USD/CHF is currently holding near the 0.9915 level, down 0.26% from Tuesday’s N.Y. close. The weakness in the pair appears due to a retreat in the dollar, as the greenback is currently trading down 0.21% from Tuesday’s N.Y. close.
In play as a result of today’s pullback is first support at 0.9913, a former resistance level. Holding this level would keep the short term trend firmly bullish. On a drop below this support, the next level of support is at October 20th’s spike low at 0.9843. While a drop below 0.9913 would suggest a follow through decline to the 0.9843 level is possible, a decline to this support would not damage the broader bullish outlook in the pair.
Technical damage would occur, however, on a sustained move below third support at the 0.98179 level, another area of former resistance, which also corresponds to a 50% retracement of the advance from the late September corrective bottom.
Given the recent breakout from a symmetrical triangle pattern that is shown on the weekly chart, the intermediate term bias in USD/CHF is to the upside and a breakdown below important support is not expected. It appears the pair is merely working off what had become an extreme overbought condition resulting from the protracted gains off the September low.
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CHF: SNB Intervention Level
When the SNB tells you they think the CHF is overvalued, you wouldn't think USDCHF hitting an 8 month high and approaching 1.00 would be an issue. However when the USD has been rallying this month, EURCHF has been falling to approach the 1.08 level, which we think has been a line in the sand for the SNB before.
Of course whether the SNB intervene to stop the CHF appreciating will depend on the pace of the EURCHF move but we are finding that pace is becoming increasingly related to reaching this 1.08 level. Actually the SNB doesn't hide away from the fact they have been intervening since formally removing the floor in January 2015. The SNB's VP Fritz Zurbruegg said yesterday “We don’t have a fixed limit for growing the balance sheet; it’s a corollary of our foreign exchange market interventions”. Sight deposits, a measure of intervention, have increased by 10.8% since the start of the year.
We expect EURCHF to remain in a 1.08-1.10 range, while USD strength should push USDCHF towards 1.01 in coming weeks.
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Swiss UBS Consumption Indicator Hits 8-Month High in September
The Swiss UBS Consumption index strengthened to 1.59 for September from 1.53 previously and was in contrast to weak official reports for retail sales. This was the strongest figure since January this year and significantly above lows seen during the second quarter.
There was further strong demand for cars in the latest survey with an annual increase in sales and the second strongest September reading for 16 years.
There was also optimism surrounding the domestic tourism sector with a net increase in hotel stays, although this was led by domestic visitors and there was a small annual decline in the number of foreign visitors, which will maintain concerns surrounding an overvalued franc.
There has been further evidence that the strong franc is undermining spending, especially in border areas and there will be pressure on the National Bank to maintain downward pressure on the currency in order to provide relief.
The data overall will maintain expectations that spending is holding firm away from the traditional retail areas and there will be increased confidence in the second-half GDP data following strong growth reported for the first half.
There was no market reaction with EUR/CHF holding around 1.0835.
USD/CHF Forecast: Strong Buying On Dips, Parity Still a Big Ask
Overall yield trends will remain an important negative factor for the Swiss currency, especially if there is further upward pressure on US yields. In this context, there should be strong dollar buying support on any significant correction weaker. The US currency has, however, already nearly priced in a December rate increase, which will make it difficult for the dollar to gain sufficient momentum to push decisively above the parity level unless there is extremely strong US data and a very hawkish Fed statement.
The dollar pushed to a seven-month peak close to parity against the franc during the week, but was unable to sustain the gains and dipped back to 0.9875 on Friday as the dollar was subjected to a wider correction.
The Swiss manufacturing PMI report will be released on Tuesday, although the overall impact is likely to be limited. Last week, there was a stronger than expected release for the KOF business confidence index, which rose to the highest level for over two years and will underpin confidence in the outlook.
In this context, the overall data impact is likely to be limited and there will be speculation that the National Bank (SNB) will be slightly less concerned over the underlying domestic considerations and need to prevent franc gains. The SNB will still be very reluctant to let the currency strengthen significantly.
Overall trends in risk appetite will be watched closely with the franc liable to gain some net support if there is a sharp deterioration in confidence surrounding equity markets. In contrast, a more positive tone surrounding risk would tend to weaken the Swiss currency.
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As the Swiss currency heads back toward the 1.08 mark versus the euro, the SNB has accelerated its reserve accumulation efforts in an attempt to stem the appreciation. It’s the third time in three months that EURCHF is trending back to that level and has seen reserves reach a fresh high of CHF 628 bn (Chart 5).
It’s likely that the SNB will be able to maintain the 1.08- 1.10 range that has prevailed since the Brexit vote using only sight deposits.
As a result, the possibility that the central bank would ease monetary policy via other methods in the current environment is remote, limiting downside risks for rates.
USD/CHF Under Pressure Following Failed Test of Resistance
USD/CHF rebounded on Monday following Friday’s steep sell-off, but failed to surpass first resistance at the 0.99036 level. The pair has followed this failed test of resistance with a pullback in today’s session to the 0.9860 level, down 0.30% from Monday’s N.Y. close.
Support on a further move lower is at the October 20th spike low at 0.9843. The pair is currently testing the 38.2% retracement of the advance from the late September corrective bottom. Failing to hold this retracement combined with a drop below the aforementioned support would leave the next target at the 50% retracement of the advance from the September bottom, which corresponds to former resistance at a series of rally highs formed in September. A decline to this support would not result in material technical damage to the pair.
With the Stochastic within reach of a fully oversold level, USD/CHF has the potential to stabilize over the near term. Maintaining a downside bias in the presence of an oversold condition would be considered a sign of underlying weakness, warning that a 50% retracement of the rally from the September low is likely.
On the upside, reinforced first resistance is at the 0.99036 level. A sustained move above this resistance would leave the target at the October spike high near the psychologically important 1.000 level.
A sustained break above 1.000 would leave the intermediate term target at the 2015 high at 1.0330. This represents the approximate upside target derive from the symmetrical triangle breakout shown on the weekly chart. Ahead of this peak, the next higher resistance for the pair is at the March spike high at 1.00925. Despite the recent pullback in the pair, the symmetrical triangle breakout remains valid.
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EUR/CHF: SNB Intervention On Radar
The USD started the month dropping broadly, in particular the CHF performed well: the USD/CHF drop pulled the EUR/CHF to below 1.08, where we think the SNB intervenes more actively. SNB’s Jordan was out to reiterate that the CHF is “significantly overvalued” right late in the afternoon. So do we believe. However with any chance Trump can win, the pressure will be on.
USD/CHF Stabilizing in Reaction to Oversold Condition
Jitters surrounding next week’s U.S. Presidential election have put a considerable amount of pressure on the U.S. dollar index, resulting in a sharp drop in USD/CHF. The pair plummeted on Tuesday, breaking down below several areas of support.
In today’s trading, however, the pair has rebounded from the session lows, as extreme oversold conditions are now a factor. USD/CHF is currently trading at 0.9724, down 0.26% from Tuesday’s N.Y. close.
According to the latest poll from ABC News/Washington Post, Hillary Clinton and Donald Trump are neck and neck, with Trump leading Clinton by a single percentage point (within the margin of error) for the first time since May. The possibility of a Trump presidency triggered a risk-off trade, as the dollar and stocks sold off, while gold reached its highest level in nearly a month in yesterday’s trading. This dynamic played out despite the fact that the ISM Manufacturing Index for October signaled ongoing expansion with a reading at 51.9 versus a 51.5 reading in September.
With the election now less than a week away, volatility has the potential to remain a factor. The Federal Reserve’s monetary policy announcement later today will likely be a non-event, especially when compared to the circumstances surrounding the election. The Fed is expected to keep rates unchanged ahead of the election, with fed fund futures indicating a 6.2% likelihood of a rate increase today. The probability of a rate increase in December, however, currently stands at 78%.
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Swiss SECO Consumer Confidence Improves Slightly To -13
The Swiss SECO quarterly consumer confidence survey was -13 for October from -15 in the previous survey and was in line with market expectations. The overall index has also remained below its long-term average of -10 for over a year as underlying caution continues.
There was a slightly stronger assessment of the general economic situation and there was a significant improvement in expectations of the situation over the next 12 months, which should help underpin spending levels.
Consumers were more confident that prices had increased over the past 12 months and there were stronger expectations that there would be price increases over the next year.
In contrast, there were further concerns surrounding job security and there was also a deterioration in expectations surrounding the household financial situation over the next 12 months, although there was no major change in sentiment surrounding household purchases.
The increase in inflation expectations will ease underlying concerns that a deflationary attitude is becoming entrenched in the economy, which will provide some net relief to the National Bank. The overall expectations also suggest that consumer spending will remain firm.
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