USD/CHF Forecast Dec. 06, 2011, Fundamental Analysis

The USD/CHF started the week with a tight movement with a slight downside bias as the franc did not extend heavy gains versus the dollar as the risk appetite improved and investors head to riskier and higher yielding assets which left the pair little support to rally.

The franc is not a favored this period, it is weakening inline with risk assets against a strong greenback yet doesn’t rally in the opposite direction as the SNB’s readiness and willingness to take action against the gains have depressed its appeal as a risky asset and also devalued its haven status.

Surely the sentiment was in better shape with the start of the week after Italy announced a new austerity package and Merkel and Sarkozy agreed on a plan for tighter fiscal integration to prevent the crisis from returning in the future and prepare the framework now for more action to end the crisis. Thos actions supported the overall market sentiment and that kept the general bias in the market against the dollar.

On Tuesday more volatility is expected for the pair the main event will be the Swiss inflation data as further signs of deflation will be the trigger to markets to start pricing a new move from the SNB and can further weaken the franc.

As of 08:15 GMT, the Swiss economy will release CPI for Nov. where the reading is predicted to record -0.4% from the prior -0.1% on the year while rise to 0.0% from the previous -0.1% on the monthly basis. On the other hand, the U.S. has no releases.

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