Swiss pares losses, CPI next

USD/CHF moved higher earlier in the day and briefly pushed above 0.9800 but has pared these gains. The Swiss franc is having trouble finding its footing, as USD/CHF has climbed 350 points in the past two weeks.

Switzerland releases inflation and retail sales reports on Thursday. It has been a disappointing week so far. The KOF Economic Barometer declined for a fourth consecutive month in August. The index dropped to 86.5 (vs 90.5 in July), shy of the estimate of 89.0. Much of the August decline was related to weakness in consumer spending and manufacturing. ZEW Economic Expectations remained in deep freeze, with a reading of -56.3 in August (vs -57.2 in July).

SNB eyes Swiss inflation

Inflation in Switzerland remains much lower than levels in the eurozone or the UK, but the June reading of 3.4% marked its highest level since 1993. Another reading of 3.4% is expected for July. With inflation well above the Swiss National Bank’s target range of 0-2%, the open question is how uncomfortable the SNB is with high inflation. If July inflation is higher than expected, the SNB could respond by tightening policy in order to rein in inflation. In June, the SNB shocked the markets with a 0.75% basis point hike, the first increase in 15 years. Even with the massive hike, the benchmark rate remains in negative territory, at -0.25%.

In the US, the ADP employment report showed a sharp decline in August, with a weak reading of 132 thousand (vs 270 thousand in July), well short of the market consensus of 288 thousand. The ADP release is generally not a reliable indicator for the nonfarm employment report, which will be released on Friday. Interestingly, the forecast for the NFP is also a sharp deceleration to 300 thousand, down from 528 thousand. If NFP is weaker than expected, it could raise speculation that the Fed will ease on tightening, which would weigh on the US dollar. Conversely, a strong NFP would allow the Fed to be aggressive, in the knowledge that the labour market is resilient, even if other US data is not as strong.

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USD/CHF Technical

• USD/CHF is testing resistance at 0.9720. Next, there is resistance at 0.9760
• There is support at 0.9642 and 0.9524

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