CHF Stable Despite Better-Than-Expected Swiss GDP
Swissquote Bank Ltd | Sep 06, 2016 07:30AM ET
Swiss GDP surprise (by Peter Rosenstreich)
Swiss GDP expanded quicker than anticipated at 0.60% against 0.4% expected, putting the annual pace at a solid 2.0% (Swissquote forecasts 1.4%). This makes Switzerland the fastest growing economy in Europe despite the fact that it carries the competitive disadvantage of an overvalued CHF. According to the State Secretariat for economic Affairs (SECO) in Bern, the positive contributions to GDP came from “foreign trade as well as government consumption.” However, household consumption expenditure is at 0.0% and has now “stagnated.” Overall, exports of goods increased 0.8% led by chemicals and pharmaceuticals which offset disappointment in other areas such a machinery and jewelry. First of all there is scant evidence that Brexit is having a meaningful effect on any economic data. This lack of transmission could prove insightful when forecasting UK and European economic data. Secondly, despite a solid recovery we are still seeing the effects of the negative drag of the strong CHF.
The read would be marginal without the significant 2.6% contribution of government consumption and import of goods, excluding valuables at 8.5%. The longer the Swiss economy goes without currency support, the more likely buyers will be to shift their purchasing behaviour. Chemicals and pharmaceuticals are less elastically taking more time to change buyer to shift supply chains. We remain cautious on the Swiss economy due to CHF pricing. The SNB has done well through negative policy rates and direct FX interventions to stave off excessive CHF strengthening. We do not expect any change to the bank’s current policy mix at next week’s (Sept 15th) rate decision (limiting today CHF buying). However, expectations for ECB easing and increased political uncertainty will further drive investors into the safe haven franc. USDCHF will need to break 0.9750 reactions low before targeting 0.9550. EUR/CHF traders will be focused on 1.0920, then 1.0900.
Concerning data from Germany (by Yann Quelenn)
A day before the ECB announces its rate decision, German data has provided quite a disappointment as July factory orders came in below expectations at 0.2% m/m vs. 0.5% m/m. Over the year, factory orders have shrunk by 0.7%. In addition, industrial production is expected to be released tomorrow morning and the consensus is for a weaker number than the previous read.
Europe’s first economy is clearly decelerating and the benefits from the ECB’s QE program remain to be seen. Since January 2015, the ECB QE program has topped 1 trillion euros in purchases. The program was expected to cease once an adjustment in the inflation path occurred. For the time being, German and European CPI are at 0.4% and 0.2% y/y respectively.
Get The News You Want
Recently, bond yields have slightly risen and markets now believe that this would help the ECB from having to add further stimulus. In any case, the scarcity of bonds is making it increasingly difficult for the ECB to continue its massive asset-purchase program. So this small rally is definitely supporting the central bank.
We believe, that this rally is due to renewed chances of the Fed raising rates in September and/or before year-end. This is driving a risk-on move, which we believe is temporary as the era of negative interest rates is far from being over. Currency-wise, we should see demand for dollar against the euro increase until the next Fed meeting.
EUR/USD - Volatility Lowers.
The Risk Today
Yann Quelenn
EUR/USD keeps on bouncing from hourly support given at 1.1123 (31/08/2016 low). It seems that buying pressures are important around this level. Key resistance is given at 1.1352 (23/08/2016 high) then 1.1428 (23/06/2016 high). Strong support can be found at 1.1046 (05/08/2016 low). Expected to monitor again 1.1100. In the longer term, the technical structure favours a very long-term bearish bias as long as resistance at 1.1714 (24/08/2015 high) holds. The pair is trading in range since the start of 2015. Strong support is given at 1.0458 (16/03/2015 low). However, the current technical structure since last December implies a gradual increase.
GBP/USD keeps its upward move and has erased definitely hourly resistance at 1.3279 (26/08/2016 high). Last significant low can be found at 1.2866 (15/08/2016 low). Closest hourly support is given at 1.3253 (02/09/2016 low). Expected to show further upside pressures towards 1.3400. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.
USD/JPY short-term bullish momentum is consolidating below 104.00. Hourly resistance can be found at 104.32 (02/09/2016 high). Hourly support is given at 102.80 (02/09/2016 low). A key support lies at 99.02 (24/06/2016 low). Expected to show renewed bullish pressures, yet a break of support at 102.80 may indicate a further bearish bias. We favour a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).
USD/CHF is now trading without much volatility. The bullish move has ended abruptly. The pair is set to head lower. Support can be found at 0.9739 (02/09/2016 low). Hourly resistance is given at 0.9885 (01/09/2016 high). Next resistance lies at 0.9956 (30/05/2016 high). Expected to further weaken as buying pressures seem to fade. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.