Mid-Day Report: Swiss Recovers as KOF Raised Forecast, Sterling Weak
Swiss Franc extends rebound after KOF economic institute raised growth forecast for Switzerland. GDP is expected to grow 2.7% this year, up from 1.8% as projected in June. While the institute sees growth to moderate in 2011, forecast was still raised from 1.6% to 1.8%. Unemployment rate is expected to rise slightly from 3.7% to 3.8% this year and then falls back to 3.2% next year. Inflation is projected to be around 0.8% this year and 0.7% next year and KOF said there is “no noteworthy risks of inflation or deflation.” KOF also expects SNB to raise interest raise slightly at the beginning of 2011 but note risk on intervention due to “development on the real estate market.”
Sterling is noticeably the weaker one among major currencies. Moody’s retained UK’s triple-A debt rating and affirmed that the stable outlook is “driven by the action to cut the deficit.” Meanwhile, BoE’s quarterly bulletin said that “Sterling appears to have appreciated by more than would be suggested by interest-rate differentials,” “because of reduced uncertainty about the UK fiscal outlook.” Nevertheless, there is little support on sterling as concerns on Irish banking sector remains there and yield spread on Irish debt to bund continues to rise.
Aussie is firm today RBA governor Glenn Stevens hinted on further rate hike. Said in a speech, Stevens expects above trend growth in Australia in 2011. Terms of trade might decline a bit from 60 year highs but remain strong. Resources sector investments are expected to rise further as Australia experiences “largest minerals and energy boom since the late 19th century”. Stevens also noted that if downside risks do not materialize, “the task ahead is likely to be one of managing a fairly robust upswing,” including monetary policy.
On data front, UK Rightmove house prices dropped for the third month by -1.1% mom in September. Major banks mortgage approvals dropped slightly more than expected to 45k in August. M4 money supply unexpectedly dropped -0.2% mom in August. Canadian international securities transactions rose slightly to CAD 5.48b in July. Wholesale sales dropped -0.1% mom in July.
The contrast in the strength of sterling and swissy today is clearly reflected in GBP/CHF cross. Last week’s recovery has likely completed ahead of 55 days EMA. The overall bearish outlook remains unchanged and we’d still expect recent decline to resume sooner or later. Break of 1.5374 will target a test on key support level of 1.5111 (2008 low).
Daily Pivots: (S1) 1.0049; (P) 1.0115; (R1) 1.0163; More.
USD/CHF’s fall from 1.0181 extends further today and intraday bias remains cautiously on the downside for the moment. As noted before, rebound from 0.9932 might have completed already and further fall could be seen to 0.9932 and then 0.9916. On the upside, above 1.0117 will bring another rise but, note that with 1.0276 cluster resistance intact, there is no indication of trend reversal yet and recent down trend is still in favor to continue. However, decisive break of 1.0276 will be first sign that USD/CHF has bottomed out in medium term and turn focus to 1.0624/39 resistance zone for confirmation.
In the bigger picture, USD/CHF is possibly in the process of forming a medium term sideway pattern that started at the long term bottom of 0.9634 (2008 low). The pair will continue to stay in converging range of 0.9634/1.2296 for a while. A break of either 0.9916 support or 1.1729 resistance is needed to indicate that USD/CHF is back into a directional trend. Otherwise, medium term outlook will remain neutral.
23:01 GBP Rightmove House Prices M/M Sep -1.10% — -1.70% 23:01 GBP BoE Quarterly Bulletin — — 08:30 GBP Major Banks Mortgage Approvals Aug 45K 46K 47K 08:30 GBP M4 Money Supply M/M Aug P -0.20% 0.20% 0.40% 08:30 GBP M4 Money Supply Y/Y Aug P 1.80% — 2.30% 09:30 CHF KOF Institute September Economic Forecast — — 12:30 CAD International Securities Transactions (CAD) Jul 5.48B 8.11B 5.39B 12:30 CAD Wholesale Sales M/M Jul -0.10% 0.20% -0.30% 14:00 USD NAHB Housing Market Index Sep 14 13
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