Forex Market: USD/CHF daily trading forecast

Yesterday’s trade saw USD/CHF within the range of 0.7360-1.0221. The pair closed at 0.8582, losing 15.76% on a daily basis.

At 8:07 GMT today USD/CHF was up 4.13% for the day to trade at 0.8758. The pair touched a daily high at 0.8807 at 7:25 GMT.

Fundamentals

United States

Consumer prices

The annualized consumer inflation in the United States probably continued to decelerate in December, falling to 0.7%, according to market expectations, from 1.3%, registered in November. If so, this would be the lowest rate since October 2009, when an inflation of -0.2% was reported. In monthly terms, the Consumer Price Index (CPI) probably dropped 0.4% in December, after another 0.3% fall in the prior month. If so, this would be the largest monthly decrease in six years. In November energy prices dropped 4.8% year-on-year, as prices of energy commodities lowered 10.2%, gasoline prices went down 10.5% and cost of fuel oil declined 10.1%. Food prices, on the other hand, rose at an annualized rate of 3.2% in November, while cost of electricity was up 2.8%, according to the report by the Bureau of Labor Statistics.

The CPI is based on a basket of goods and services bought and used by consumers on a daily basis. In the United States the Bureau of Labor Statistics (BLS) surveys the prices of 80 000 consumer items in order to calculate the index. The latter reflects prices of commonly purchased items by primarily urban households, which represent about 87% of the US population. The Bureau processes price data from 23 000 retail and service businesses.

The CPI includes sales taxes, but excludes income taxes, costs of investments such as stocks and bonds and sales prices of homes.

The annualized core consumer inflation, which is stripped of prices of food and energy, probably remained steady at 1.7% in December. It is usually reported as a seasonally adjusted figure, because consumer patterns are widely fluctuating in dependance on the time of the year. The Core CPI is a key measure, because this is the gauge, which the Federal Reserve Bank takes into account in order to adjust its monetary policy. The Fed uses the core CPI, because prices of food, oil and gas are highly volatile and the central bank’s tools are slow-acting. In case, for example, prices of gas surge considerably, this could lead to a high rate of inflation, but the central bank will not take action until this increase affects prices of other goods and services.

If the CPI tends to distance from the inflation objective, set by the Federal Reserve and considered as providing price stability, or 2%, this will usually reduce the appeal of the US dollar.

The Bureau of Labor Statistics is to release the official CPI report at 13:30 GMT.

Industrial production, Capacity utilization

Industrial output in the United States probably remained flat in December compared to November, following a 1.3% expansion in November compared to October. The latter has been the fastest growth rate in more than four years, driven by expansion in manufacturing and utilities production. In November the output of utilities rose 5.1%, as colder-than-usual weather for the month increased demand for heating. Manufacturing production expanded 1.1% in November, with the indexes for both durables and nondurables gaining more than 1%, while the output of every major industry group rose or remained unchanged. The index of mining activity, on the other hand, fell 0.1% during the same period.

The index of industrial production reflects the change in overall inflation-adjusted value of output in the three major sectors mentioned above. The index is sensitive to consumer demand and interest rates. As such, industrial production is an important tool for future GDP and economic performance forecasts. Those figures are also used to measure inflation by central banks as very high levels of industrial production may lead to uncontrolled levels of consumption and rapid inflation. It is a coincident indicator, which means that changes in its levels generally echo similar shifts in overall economic activity. A larger-than-projected increase in the index would usually boost demand for the US dollar.

The Board of Governors of the Federal Reserve is to release the production data at 14:15 GMT.

In addition, Capacity Utilization Rate in the country probably decreased to 80.0% in December from 80.1% in November. The latter has been the highest utilization rate since March 2008, when a rate of 80.4% was reported. This indicator represents the optimal rate for a stable production process, or the highest possible level of production in an enterprise, in case it operates within a realistic work schedule and has sufficient raw materials and inventories at its disposal. High rates of capacity utilization usually lead to inflationary pressure. In general, higher-than-anticipated rates tend to be dollar positive.

Reuters/Michigan Consumer Sentiment Index – preliminary estimate

The monthly survey by Thomson Reuters and the University of Michigan may show that consumer confidence in the United States continued to improve in January. The preliminary reading of the corresponding index, which usually comes out two weeks ahead of the final data, probably rose to 94.1 during the current month from a final value of 93.6 in December. If so, this would be the highest index value in almost eight years. The survey encompasses about 500 respondents throughout the country. The index is comprised by two major components, a gauge of current conditions and a gauge of expectations. The current conditions index is based on the answers to two standard questions, while the index of expectations is based on three standard questions. All five questions have an equal weight in determining the value of the overall index.

The sub-index of current economic conditions decreased to a final reading of 104.8 from a preliminary 105.7 in December, after a month ago it stood at 102.7. The sub-index of consumer expectations came in at a reading of 86.4, up from a preliminary value of 86.1 in December and a final 79.9, registered in November.

In case the gauge of consumer sentiment showed a larger improvement than projected, this would boost demand for the greenback. The preliminary reading is due out at 14:55 GMT.

Switzerland

Retail Sales

Annualized retail sales in Switzerland probably rose at a pace of 1.1% in November, according to the median estimate by experts, following a 0.3% climb in October. If so, this would be the fastest annual rate of increase since August 2014 and also the fourth consecutive month of gains. This indicator reflects the change in the total value of inflation-adjusted sales by retailers in the country and provides key information regarding the consumer spending trend, while the latter is a major driving force behind economic growth. In case retail sales increased at a faster than expected pace, this would provide support to the franc. The Federal Statistical Office is expected to release the official report at 8:15 GMT.

EUR/CHF and USD/CHF below parity on SNB decision

The Swiss National Bank (SNB) surprised global markets yesterday, as it gave up the minimum exchange rate of the EUR/CHF cross (1.2000), which marked the end of the three-year policy aimed to safeguard the Swiss economy against the sovereign debt crisis in the Euro area.

In addition, the central bank reduced the interest rate on sight deposit account balances that exceed a given exemption threshold to -0.75% from -0.25%. The bank also shifted the target range for the three-month Libor to between -1.25% and -0.25%, from the current range of -0.75% and 0.25%.

Within half an hour following the announcement, EUR/CHF plummeted 31.70% to a daily low of 0.8204, or the lowest level on record. Meanwhile, USD/CHF plunged 27.76% to a daily low of 0.7360, or a level unseen since August 11th 2011, when the pair registered a low of 0.7239.

Some analysts claim that such a move by the SNB may not be considered as that unexpected, because in case the European Central Bank launched an easing program to support economic activity, this would lead to additional selling pressure on the euro, while it would be more expensive for the SNB to defend the EUR/CHF minimum exchange rate.

SNB Governor Thomas Jordan said at a press conference on Thursday that inflation outlook in Switzerland remains dampened, as low oil prices will probably continue causing pressure. Jordan also noted that the SNB will continue to intervene in the currency market in order to influence monetary conditions when needed.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.8721. In case USD/CHF manages to breach the first resistance level at 1.0082, it will probably continue up to test 1.1582. In case the second key resistance is broken, the pair will probably attempt to advance to 1.2943.

If USD/CHF manages to breach the first key support at 0.7221, it will probably continue to slide and test 0.5860. With this second key support broken, the movement to the downside will probably continue to 0.4360.

The mid-Pivot levels for today are as follows: M1 – 0.5110, M2 – 0.6541, M3 – 0.7971, M4 – 0.9402, M5 – 1.0832, M6 – 1.2263.

In weekly terms, the central pivot point is at 1.0123. The three key resistance levels are as follows: R1 – 1.0237, R2 – 1.0333, R3 – 1.0447. The three key support levels are: S1 – 1.0027, S2 – 0.9913, S3 – 0.9817.