Forex: USD/CHF: SNB not jumping on forward guidance bandwagon

on Jan 17, 2014
Updated: Oct 21, 2019

**, Friday 17 January:**

The just-released Swiss Producer Price Index for December showed no change m/m, disappointing the consensus for inflation of 0.2 percent and falling short of forecasts for the fourth month in a row.
Nevertheless, the PPI rebounded last month after a drop of 0.1 percent in November.
Right now, the USD/CHF is trading at around 0.9059, up 0.09 percent intraday. Further to the upside, the bears may be emboldened by the 100-day Simple Moving Average, which has been acting as strong resistance for the pair in the last six month and currently stands in the vicinity of 0.9085. South-bound, the USD/CHF could find support near this week’s low of 0.8986.

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Swiss National Bank chairman Thomas Jordan said yesterday in Zurich that the central bank does not plan to enhance its communication toolkit by releasing minutes or introducing forward guidance.
In a speech entitled “A new role for central bank?”, Jordan emphasised that SNB’s main focus is ensuring price stability and the minimum exchange rate will be the attention of monetary policy “for the foreseeable future”, given the low inflation backdrop in Switzerland.

Jordan warned that the trend in advanced economies towards a broader set of communication tools may not be all positive as “sometimes transparency can be counterproductive”. For example, he opined that if the SNB releases minutes of its meetings, “discussions within the body would probably become less candid and open and – ultimately – the quality of decision-making would suffer as a result”. In addition, it is questionable whether a publication of minutes would actually improve the public understanding of monetary policy within Switzerland, Jordan argued.

The head of the SNB also cautioned that forward guidance has many “pitfalls and this could easily lead to confusion in the market, especially if the guidance is attached to too many conditions”. Jordan stressed that the bank’s conditional inflation forecast, which offers “certain information about the future path of interest rates”, sheds light on policymakers’ reaction function. While the SNB is “carefully monitoring international debates about the right objective and the best way of communicating” it will not “simply jump on the latest monetary policy bandwagon without careful consideration,” the chairman concluded.

In the US, the market will assess the health of the country’s housing market with the simultaneous release of Building Permits and Housing Starts at 13.30 UTC. Both gauges are leading indicators of construction activity, which has a wide-reaching ripple effect on the US economy.
The annualized number of new building permits issued during December is expected to rise marginally to 1.015 million from November’s 1.007 million. The market consensus for Housing starts calls for an easing to 0.985 million in December from the prior month’s 1.091 million, which showed a significant rise of 22.7 percent from October.
The US economic calendar today also offers December’s Industrial Production at 14.15 UTC and the preliminary University of Michigan Consumer Sentiment at 14.55 UTC.


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