Swiss franc bounces back after inflation eases

• Swiss inflation ticks lower to 1.6%
• US nonfarm payrolls expected to dip to 200,000 on Friday

The Swiss franc is in positive territory on Thursday. In the North American session, USD/CHF is trading at 0.8738, down 0.41%. This follows a five-day slide for the Swiss franc, where it declined as much as 220 basis points.

Swiss inflation inches lower to 1.6%

Swiss inflation dipped to 1.6% in July, down from 1.7% in June and matching the consensus estimate. The core rate dropped to 1.7%. Switzerland can boast the lowest inflation rate in the developed world, and headline inflation remained within the Bank’s 0%-2% target for a second straight month.

Still, the Swiss National Bank remains wary about inflation, as policy makers are concerned that a rise in rental and electricity prices in the coming months could push inflation back to 2%. SNB President Jordan has been hawkish and I don’t expect that the small drop in inflation will prevent an expected rate increase in September.

With all the talk about Switzerland’s inflation level, it’s important to keep in mind that the Swiss franc is at very high levels. Just last week, the Swiss franc rose to 0.8551 against the dollar, an eight-year high. The SNB has shown in the past that it will intervene in the currency markets if it considers the Swiss currency to be too high since that could dampen the economy’s crucial export sector. If the Swiss franc renews its sharp appreciation, the SNB could respond with verbal intervention in order to push the currency lower.

In the US, unemployment claims rose slightly to 227,000, up from 221,000. Investors are keeping a close eye on Friday’s nonfarm payrolls for July, which is expected to dip to 200,000, down from 209,000 in June. The ADP employment report showed a massive gain of 324,000, raising speculation that nonfarm payrolls could follow suit and force the Fed to be more hawkish. However, in June ADP also was red-hot while nonfarm payrolls were soft, and it would be a huge surprise if the July NFP shows strong gains.

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USD/CHF Technical

• USD/CHF is testing support at 0.8758. Below, there is support at 0.8665
• 0.8848 and 0.8959 are the next resistance lines

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