The Swiss frank has started the week under pressure, as the equities markets gains last Thursday and last Friday have continued in the beginning of this week too supported by the stronger than expected release of Q2 GDP preliminary reading of Japan which has shown shrinking by 1.3% y/y while the markets were waiting for the double of this rate by 2.6% and this optimism has continued into the US session helping the US stocks indexes eliminating all its loses after 5th of August following the US long term debt downgrading by S&P to AA+ from AAA.
In the same time, the investors have managed to take the SNB's worries about the Swiss Frank appreciation seriously with the SNB threatening the markets by taking further easing steps to stave off this appreciation after cutting the interest rate by 0.25% on 3rd of August to be zero despite the rising of Swiss SVEM PMI to 53.5 of July from 53.4 in June while the markets were waiting for easing to 53 while its counterparts indicators in US and EU are facing down pressure.
But from another side, it looks that the appreciation of the Swiss Frank could has its toll on the inflation which eased to 0.5% y/y in July from 0.6% in June falling monthly by 0.8% while the markets were waiting for easing by just 0.5% from decreasing by 0.2% in June which can really open the door for the SNB to take such easing actions with no threat from inflation upside risks currently injecting more liquidities into the markets.
USDCHF has risen from 0.7063 which has been the new recorded historical low last Tuesday to close last week at 0.7772 opening this week on a gap starting from 0.7829 breaking above 0.7950 reaching 0.7995 before easing again to be traded between 0.78 and 0.785 waiting for new clues from the SNB and in the case of rising of the worries about the investors risk positions, the pair cane meet supporting levels now at 0.78 and 0.7546 then 0.7177 before 0.7063 again.
FX Market Strategist
Walid Salah El Din