Many see the Swiss franc only as a safe haven currency. With the GDP release, we get the broadest measure of the economy. The release will rock the Swiss franc that is at all time highs against the dollar. Here are the details and 5 scenarios for USD/CHF.
Published on Tuesday at 5:45 GMT.
Indicator Background
Since getting out of the Great Recession, the Swiss economy has been growth for six consecutive quarters. 2010 was exceptionally good, with quarterly growth rates of almost 1% and a stronger than expected growth rate each time.
The Swiss economy is based on exports. The strong growth in Germany, as well as an even stronger growth in China have been the main factors for these surges.
Weighing against this growth is the currency: After the Swiss National Bank stopped defending the 1.50 line in EUR/CHF the Swiss franc strengthened. The rise in the price of oil also contributed to flows to the franc – a way of diversifying oil revenues in US dollars.
The SNB has made conflicting statements about the currency – sometimes expressing concern and sometimes dismissing it.
The strength of the franc has helped moderate inflation caused by rising commodity prices, but also made Swiss exports less competitive. So, the expectations for Q1 are for a slower growth rate – only 0.6%. This would be the slowest since Q3 of 2009.
Sentiment and Levels
The Swiss franc seems unstoppable against the euro and the dollar and just made a new record after taking a break. The sentiment is still USD/CHF bearish.
Technical levels from top to bottom: 0.90, 0.89, 0.8780, 0.8626, 0.8553 and 0.8463.
5 Scenarios
- Within expectations: +0.5% to +0.7%: In this scenario, the franc gains some strength against the greenback, with USD/CHF sliding, probably within range.
- Above expectations: +0.8% to 0.9%: Another quarter of strong growth will boost the franc, with USD/CHF having a good chance of breaking below support.
- Well above expectations: +1% or more: A strong growth rate at or above the round number is likely to send the pair below one level and to challenge another one. A break to new all time highs is on the cards as well. A rate hike will also be discussed.
- Below expectations: +0.2% to +0.4%: Such a scenario means a slowdown. The pair is likely to rise, with some chance of the pair breaking resistance.
- Well below expectations: +0.1% or less: Marginal growth or even less is quite unlikely, but this scenario will take a lot of hot air out of the pair, which will have a chance of breaking one resistance level and challenging another one.
For more on the franc, see the USD/CHF.