USD/CHF: Swiss franc steady as president presents dooms day scenario

USD/CHF: Swiss franc steady as president presents dooms day scenario

  • The USD/CHF pair was little changed after the country's president said the economy would shrink by 10%.
  • The government is preparing to ease restrictions on movement to cushion the economy.
  • Recent data from Switzerland show that the unemployment rate has risen while manufacturing has shrunk.

The USD/CHF pair was little changed as the government pledged to open-up the economy soon. In a news briefing, President Simonetta Sommaruga, said that her government was preparing to ease the current restrictions to ease pressure of people and businesses.

USD/CFH little changed as government prepares to ease restrictions

Swiss franc unchanged

Switzerland hit hard by coronavirus

Switzerland’s economy has been affected significantly by the current pandemic. Official figures show that more than more than 23k people have been infected. More than 800 of these have lost their lives.

The economy has been hit hard as well. According to the government, the economy could slide by more than 10% this year. This would be the worst performance on record and will depend on how fast people return to work. It will also depend on how the neighbouring and international markets open up after the crisis. The country’s economy shrank by 3.9% in the peak of the 2008/9 financial crisis.

Many industries in Switzerland have been affected. The manufacturing and industrial sectors, which employ thousands of people in the country, have halted. This was evidenced last week when the country’s manufacturing PMI dropped to a record low of 43.7. Analysts polled by Bloomberg expected the PMI to drop to 40.

The employment situation too, is not doing well. Yesterday, data from the government showed that the unemployment rate surged to 2.9% in March. This was the highest it has been since June 2018.

Part of the reason for this weakness is that most people in Switzerland are staying at home. Another reason is that its biggest trading partners are going through similar problems. For example, Germany, its biggest trading partner expects to go through a recessionthis year. The same is true with the United States, the other key trading partner.

Swiss bond yields rise

The effects of this weakness are also being seen in the bond market. Yesterday, the country’s bond yields shot higher than those from Germany for the first time in more than ten years. This is partly because investors are rushing to EU bonds because of the large QE that the ECB is doing. This, in turn, has led to a relatively stronger Swiss franc, which is a net negative for the country because it depends mostly on exports. The stronger franc is also partly because of the currency’s role as a safe-haven. This means that investors move to it in times of crisis.

This has been complicated by the fact that Trump administration recently designated the country as a currency manipulator. This means that there is little the SNB can do.

Meanwhile, the government has intervened too. The government has launched a $63 billion stimulus package that will help cushion workers and companies. This is the biggest stimulus the government has ever given.

USD/CHF forecast

USD/CHF technical forecast

Looking at the daily chart, the USD/CHF has been a bit volatile in the past few days. This has seen the Average True Range (ATR), which is a common measure of volatility rise to its highest level in the past year. The price is also caught between the 100-day and 50-day exponential moving averages. Also, the price is caught between the parallel channel shown in black. Therefore, I expect the price to make a significant breakout in either direction in the near term.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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