An overview of Swiss Economy (CHF)

August 27, 2015 by

The Swiss economy over the past couple of month as show some signs of a possible recession.  This economy is believed to be the safe haven when the global economy is in a downturn but unfortunately, the Swiss economy is now under pressure.

Earlier this year, The Swiss National Bank removed the 1.20 peg on EURCHF. Swiss bank has spent a lot of money defending the 1.20 level but eventually had to let go because of the risk to the Swiss economy. This decision caused a massive trigger all over the Fx market. SWISS Franc strengthened across board, Eurchf dropped to 0.97215 while Usdchf dropped to 0.83937.

The decision of the Swiss National Bank to remove the peg has caused more problems for the Swiss economy, it should be recalled that Swiss National Bank pegged CHF at 1.20 to against the Euro so as to protect the Swiss export industry. Now that the peg is removed, the strength of the Swiss Franc is having an adverse effect on this industry. Exporters are struggling to cope with the impact of a strong Franc. This is because it’s difficult to find a market for their products in other European countries which is Swiss biggest trading partner.  The tourism industry is also currently experiencing a demand plunge because Switzerland has become an expensive destination for tourists.

All these factors have led to a fall in the value of Swiss GDP. The last Quarter GDP was expected to come at -0.1%, a strong downward revision from 0.6% from the previous Quarter. The figures actually came at a more disappointing figure of -0.2%. The next GDP is expected at -0.1% which is due later tomorrow. The year on year is also expected at 0.9%, a downward revision from the previous year on year of 1.1%. These disappointing figures are signs of a recession in the Swiss economy. Since the first quarter of 2014 we have seen some indications of a slowdown in the Swiss economy. The GDP figures have been coming below expectation. The last quarter of 2014, we saw some improvement in the figures but it did not last long has subsequent figures all missed forecast.

Without any doubt, the Swiss Franc will be hardly hit by this consistent slump in the GDP value, the currency is still very strong; The Swiss National Bank will eventually come out to cut rates in other to devalue the currency to make it cheaper in other to boost export and also the tourism sector of the economy.  This will stimulate growth and bring back the economy to life.

Technically, the CHF saw a massive plunge against the USD in the past couple of weeks; Monday saw the biggest decline all the way to 0.9249. There is a strong support level that is currently holding on the weekly chart at 0.9239 and also the 100MA is also holding as support. We might likely see a rally from this level to test the first resistance at 0.9540 and a possible breakout from the triangle. A strong GDP from the US economy today might strengthen USD to rally and a disappointing GDP from Switzerland tomorrow will help to weaken Swiss Franc.

Fig 1: USDCHF Weekly Chart