Fundamental Forecast for Swiss Franc: Neutral

- USD/CHF COT Points to Correction Ahead
- Swiss Franc Expected to Lose Further
- Swiss Investor Confidence Falters

The Swiss franc continued to weaken against the greenback as the Federal Reserve signaled an increased willingness to normalize policy this year, while the low-yielding currency strengthened against the Euro despite the central bank’s effort to temper the appreciation in the exchange rate. The USD/CHF extended the advance from the previous week to reach a fresh yearly high of 1.0900 and is likely to maintain the upward trending channel from the January low (1.0130) over the following week as investors increase expectations for a rate hike by the Fed in the second-half of the year. At the same time, the ongoing turmoil in Greece, Spain and Portugal may continue to add downward pressures on the EUR/CHF as European policy makers fail to take decisive action and extend additional support for the ailing economies operating under the single-currency, which is likely to stoke increased demands for safe-haven assets.

As a result, the Swiss National Bank is likely maintain its pledge to counter any “excessive” appreciation in the domestic currency, and may increase its sale of the franc over the coming months as the central bank aims to balance the risks for growth and inflation. Despite higher exchange rates, Switzerland’s trade surplus widened to CHF 2.42B in January from CHF 1.36B in the previous month, led by a 3.2% rise in exports, while producer & import prices increased 0.3% during the same period, which topped expectations for a 0.2% rise. Nevertheless, the economic docket for the following week could instill an improved outlook for the Switzerland as the KoF leading indicator is expected to rise to 1.80 in February, which would be the highest reading since December 2007, while a rise in employment could encourage expectations for the SNB to unwind its emergency measures as the economy continues to recover from the recession.

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