EUR/CHF Forecast Dec. 08, 2011, Fundamental Analysis

The EUR/CHF is still fluctuating in its tight range and was merely flat on Wednesday with the franc still affected by the flow of weak data and especially the rising deflation risks.

Unemployment in November held at 3.1% as expected yet the overall outlook for the Swiss economy remains under high uncertainty and under downside pressures as the deflation pressures rise and growth slows further. The pair is mostly influenced now by expectations for the SNB movement and other than that it remains tight within a limited range as the euro troubles are not as tempting either to risk holding the euro over the franc.

With the make it or break it summit for the EU it might be even the moment the SNB awaits to take its final decision on the set 1.20 floor, especially as a failure from leaders to address to high market expectations will surely bring the euro under unprecedented downside pressure as it is the last chance now and the risk of not taking strong action is a the key for markets to start pricing the fall of the big guns starting with Italy and Spain and surely S&P will take its action as it warned on the rating, especially take it out on France that is under the spot for now!

The countdown nonetheless is coming to an end and the EU leaders will start with the first meeting on Thursday as they lightly start the hard task set for Friday as eyes turn to the ECB and the awaited decisions from the central bank. The ECB is expected to cut rates for the second time in as many months to support faltering growth as the eurozone is already judged to have entered its mild recession with fourth quarter data very weak and expectations also signal for more liquidity operations to be announced by the bank with longer term tenders to address the market tension and insure the financial system’s stability.

The European Central Bank announce the Interest Rates Decision at 12:45 GMT with expectation the Governing Council will lower the key rate to 1.00% from 1.25% and eyes will surely turn to Draghi’s press conference at 13:30 GMT for more details from the bank.

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