USD/CHF in tight range as Switzerland records historic GDP contraction

USD/CHF in tight range as Switzerland records historic GDP contraction
Written by:
Crispus Nyaga
27th August, 06:35
  • The USD/CHF pair was little changed after the Swiss statistics bureau released strong GDP data.
  • The Swiss economy contracted by a record 8.2% in the second quarter after dropping by 2.5% in Q1.
  • The sharp contraction was better than that of the United States, United Kingdom, and the Eurozone

The USD/CHF pair is little changed as investors reacted to the better-than-expected economic data from Switzerland. The pair is trading at 0.9083, which is slightly higher than the intraday low of 0.9070.

USD/CHF

Switzerland economy records historic contraction

Like all countries, Switzerland has been affected by the coronavirus pandemic. The disease has infected more than 40,600 cases and more than 2,000 deaths. Most of the confirmed cases have recovered. As a result, the pandemic has affected consumer spending, fixed asset investments, exports, and industrial production.

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A report by the Federal Statistics Office (FSO) showed that the economy contracted by 8.2% in the second quarter. It dropped by 2.5% in the first quarter, meaning that the country is now in a technical recession. Still, the decline was slightly better than the 8.6% that analysts were forecasting.

The economy contracted by 9.3% on a year-on-year basis after dropping by 0.7% in the previous quarter. This decline was also better than the previous contraction of 9.6%.

While the economic weakness in Switzerland was bad, it was better than the 32.9% weakness in the United States. It was also better than the 20.5% decline in the United Kingdom and the 12.1% decline in the Eurozone.

According to the Swiss statistics bureau, the historic contraction was partially offset by the increased turnover in the pharmaceutical industry. In total, manufacturing contracted by 9% while goods exports fell by 9.4%. Accommodation and food services contracted by 54.2% because of the strict lockdowns. Transport and communications declined by 21.7% while the healthcare sector declined by 8.6%.

As a result, private consumption declined by 8.6% while investment in construction and equipment fell by 4% and 11.7%, respectively. Government consumption rose by 0.7%.

Still, flash data show that the Swiss economy is bouncing back. For example, the unemployment rate remains at 3.2% while ZEW expectations have bounced back to 45.6. The country also exported goods worth more than $3.379 billion in July, up from the previous $3.2 billion.

USD/CHF technical outlook

USD/CHF
USD/CHF technical chart

The weekly chart shows that the USD/CHF pair has been in a strong downward trend since April 2019 when it reached a high of 1.0235. The trend has accelerated in the past few weeks, which has pushed the pair to its lowest level since 2015. Subsequently, it is below the 100-week and 50-week exponential moving averages. The RSI has also moved to the oversold level of 30. Also, the price is below the important resistance level of 0.9186. Therefore, I suspect that the downward pressure will continue as bears attempt to move below this year’s low of 0.9000.

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