By Greg Holden – Switzerland is due to publish its KOF Economic Barometer report today at 9:30 GMT. This measure is a gauge of Swiss economic sentiment and is meant to forecast the direction of the economy in the six months following. The Swiss franc has been gaining ground steadily against its rivals due to its safe-haven status during times of financial risk.
As a result, an important currency to compare the CHF to would be another safe-haven whose economy is similar, like Japan’s. The CHF/JPY, therefore, offers an important valuation of the franc’s real strength. In fact, during the franc’s rapid rise against its European counterparts earlier this year, the yen actually dominated the direction of the pair. This highlighted the fact that Switzerland was also pummeled by the Greek debt crisis, and was only opted for in place of the other regional currencies which were far more impacted by uncertainty.
The other area where these two currencies are similar is the undesirability of strong currencies by their respective central banks. Both the Swiss National Bank (SNB) and Bank of Japan (BOJ) would like to see their currencies weaker than they are at present because both countries are trade dependent. Speculation about interventions by these two banking giants has fueled much of the volatility in the market lately.
The importance of today’s KOF barometer is less than many expect. While it is indeed an important piece of data for franc investors, it likely won’t carry much impact on the safe-haven status of the CHF and therefore may not create too much volatility in the major pairs, with the exception of the CHF/JPY.
While these two currencies vie with one another, today’s barometer will be the only piece of fundamental data which carries a direct impact. Today’s expectations are for an insignificant decline in economic sentiment for Switzerland. The reading is expected to fall from 2.23 to 2.22, more accurately reflecting stability over decline. For the CHF/JPY this means we should see some upward appreciation as the safety of the CHF is confirmed.
Technical Analysis
On the technical side we have two clear indications for further upward movement, in support of our fundamental analysis above.
– First, in our Fibonacci retracement we have further potential for an upward move with a target of 83.10-20. Beyond that, our next target would be as high as 84.75.
– Second, the Parabolic SAR (Stop-and-Reverse) on the daily chart shows the indicator switching just this morning into a buy signal (see chart below).
Both of these notions, along with the fundamental forecast above, support the idea that we should see some additional upward movement in this pair; with targets at 83.10-20 and 84.50-75. On the downside, we have a significant support level just above 81.50 and a lower-border support at 79.50.
CHF/JPY – Daily Chart
Forex Market Analysis provided by ForexYard.
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