It is a new critical week for the EUR/CHF with eyes clearly now on the SNB with the meeting queued for Thursday and expectations are for any action or comments signaling a soon move.
The pair last week fluctuated heavily with the dominant volatility before and after the EU summit. The market reaction to the decisions from the EU leaders was rather mixed as they are happy yet not pleased and it provided a solid outlook but the ECB did already crush hopes for the fiscal pact and whether it will give it a reason to step up its bond purchases and that clearly downplayed the chances for the euro and the outcome of the summit.
We still see the euro not lucrative over the franc and the pair is only as good as the SNB’s word and with the growing signs of downside pressure on the Swiss economy and rising deflation threat the SNB is likely to seize the opportunity and act especially as lingering hopes on a breakthrough in the euro area grow slimmer by day.
The jitters will be clear ahead of the meeting with speculation that the SNB might raise the floor on the EURCHF especially after the finance minister said they are considering options from negative interest rates to capital controls.
We still expect the EUR/CHF to fluctuate heavily this week and retain the upside bias and with either extend the rally on a confirmed action from the Swiss National Bank or slightly correct yet overall we remain bearish on the franc still.
Other news from the euro area and the Swiss economy to affect the pair this week:
Monday December 12:
The start of the week lacks data from major economies yet the sentiment will remain in control after the EU summit and with more debt auctions from the euro area which will keep the volatility evident especially as the market reaction to the EU summit last week remained mixed.
Tuesday December 13:
Switzerland will start the day early at 06:45 with the SECO December 2011 Economic Forecasts.
Wednesday December 14:
Switzerland will start the day at 08:15 GMT with the Producer & Import Prices for November which is expected to add more fears over the deflation pressures in the nation. The index is expected with 0.3% drop on the month following 0.2% decline and on the year to fall 1.9% after 1.8% drop the previous month.
The euro area will release the Industrial Production for October at 10:00 GMT with expectations for a slight 0.3% drop on the month after 2.0% drop.
Thursday December 15:
It is a critical day for Switzerland and the data will start with the Industrial Production for the third quarter at 08:15 GMT which is expected with a steep retreat and to record a drop of 0.9% after 3.6% rise the previous quarter and on the year to remain flat after a rise of 2.3%.
The more critical event will be at 08:30 GMT with the SNB Three-Month Libor Target which is expected to be held steady near its zero level yet eyes will be on the bank for any movement or even comments on any coming step to fight deflation and prevent the economy from drastically worsening amid the escalating market tension and uncertainty over the outlook.
As for the euro area, the start will be with the ECB December report at 09:00 GMT following on the decisions taken by the bank last week to lower rates and increase the liquidity to support faltering growth.
Also at 09:00 GMT the flash PMI estimate for November is due, where we are likely to see ongoing contraction across key euro area sectors after the contraction recorded in November with the index below 50, where the manufacturing PMI in November was 46.4 and the services at 47.5.
The CPI index is also due at the same time for November and inflation probably held at 3.0% inline the flash estimate.
The Employment Index for the third quarter is also due and likely to have deteriorated as we have witnessed the broad slowing in employment with faltering growth.
Friday December 16:
The euro zone will end the week with the October trade figures at 10:00 GMT and we are unlikely to witness any improvement from the seasonally adjusted surplus in September of 2.1 billion euros as global trade continued to be fragile.