USD/CHF Dec 11 – Lower as Euro-zone, German Sentiment Data Shines

USD/CHF has lost ground in Tuesday’s European session, as the Swiss franc was helped by positive Economic Sentiment releases out of Germany and the Euro-zone. These indices measure the level of optimism of institutional investors and analysts, and their views on the economy are highly respected by the markets. ZEW German Economic Sentiment, a key release, climbed to 6.9 points. This marks the first time that the index has been above the zero level since May. Euro-zone Economic Sentiment was also strong, coming in at 7.6 points, well above the forecast of 0.1 points. This was the index’s best showing since April. A reading above the zero level indicates optimism, and the strong readings have allowed both the euro and Swiss franc to improve against the greenback.

The big story over the weekend was the surprise announcement by Italian Prime Minister Mario Monti that he intended to resign, after only 13 months on the job. Monti, a technocrat who is essentially acting in a caretaker capacity, has cut government spending and helped restore Italy’s financial credibility with its international partners. Unsurprisingly, his popularity has dropped as the government has introduced austerity measures. The markets are not happy to see Monti go, and news of his departure weighed on the euro in the early part of the week. However, Monti has sought to reassure the markets, stating that he intends to remain on the job until the 2013 budget is passed.

The markets are eagerly awaiting the outcome of the upcoming Federal Reserve policy-setting meeting, set for Wednesday. There is growing speculation that the Fed will introduce additional monetary easing in an effort to boost US economic growth. While the politicians in Washington continue to squabble over the fiscal cliff, the Fed may decide to intervene with an additional monetary stimulus package. Operation Twist is nearing its end, and the Fed could decide to purchase $30-40 billion a month of Treasury notes. This would be in addition to the Fed’s current program of purchasing $40 billion a month of agency mortgage-backed securities. There is little room for the Fed to adjust interest rates due to their low levels, and the markets are anticipating that the current low rates policy will continue well into 2015. Although recent unemployment data was positive, the unemployment rate is still quite high at 7.7%, and there are other weak spots in the US economy, particularly in the manufacturing and housing sectors. These soft spots could serve as the catalyst for further Fed intervention. If the Fed does indeed intervene, look for the dollar to soften against the Swiss franc.

USD/CHF for Mon, Dec 10, 2012

USD/CHF Dec 11 at 14:10 GMT
0.9331 H: 0.9370 L: 0.9317

S3 S2 S1 R1 R2 R3
0.9065 0.9164 0.9240 0.9385 0.95 0.9650

USD/CHF Technical
The pair was rangebound in Tuesday’s Asian session, as the pair consolidated around 1.2340. In the European session, the pair exhibited some volatility, with the swissie improving against the greenback. However, the dollar’s losses have been limited as USD/CHF has been unable to break below support at 0.9315. Strong resistance can be found at the round number of 0.95, and this line continues to act as the top of the range. On the downside, the bottom of the range lies at 0.9240.

•Current range: 0.9315 to 0.9385

Further levels in both directions:
•Below: 0.9315, 0.9240, 0.9164, 0.9065 and 0.90.
•Above: 0.9385, 0.95, 0.9650 and 0.9783.
•0.9315 continues to providing weak support. 0.9240 is stronger.
•0.9385 is the next line on the upside.

We continue to see a strong bias towards long positions, indicating that USD/CHF has room to move on the upside. The pair has weakening in the Tuesday European session, but has been unable to break through resistance at 0.9315. This leaves room for USD/CHF to bounce back towards the next line of resistance, which lies at 0.9385.

Today’s Expectations
Following strong sentiment data out of Europe earlier today, the Swiss franc has made some gains against the dollar. However, the pair has been unable to push further downwards. Look for the pair to consolidate with the franc making modest gains against the dollar.
USD/CHF Fundamentals
EUR/USD Fundamentals
•13:30 US Trade Balance. Estimate -42.7B. Actual -42.2B.
•15:00 US IBD/TIPP Economic Optimism. Estimate 51.6 points.
•15:00 US Wholesale Inventories. Estimate +0.5%.
(All release times are GMT)

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