The Swiss economy is having a challenging year. This has been caused by a slowing global economy, which has affected the external demand of the exports. In January, the country reported that the trade surplus had slowed to 1.897 billion Franc. Data from February showed that exports were reducing as well. In addition, inflation has been constrained while retail sales have shrunken. The inflation grew by 0.6%, which is below the 2% target set by SNB. In the fourth quarter, the economy expanded by 1.4%, which was lower than the expected 1.7%. The unemployment rate remains at a lower level of 2.7%.
At the same time, the Swiss Franc has continued to strengthen against the USD. This month, the currency has strengthened from 1.012 to the parity level of 1.0000. This is viewed as a bad thing for the Swiss economy, which derives most of its income from exports. In an export-based country, when the local currency weakens, it makes the exported goods cheaper. It is this reason that has made the Swiss National Bank (SNB) do a lot of work to lower the value of the franc.
Therefore, traders will pay close attention to Switzerland this week because the SNB is expected to leave rates unchanged. The challenge for the bank is on how to weaken the currency further. This is because interest rates have been in the negative side for years. As such, the bank might only point to a more sustained period of negative interest rates.
The USD/CHF pair has declined to the parity level of 1.0000. This level is slightly below the important 21-day and 42-day moving averages. The Relative Vigor Index (RVI) and the Relative Strength Index (RSI) have been largely unmoved. The pair could either resume the previous highs of 1.0125 or move lower to the important support of 0.9950. These movements may depend on what the Fed and SNB says in this week’s monetary policy decisions.