The USD/CHF continued its recent rally as investors reflected on the latest Swiss inflation, retail sales, and PMI data published on Thursday. It is trading at 0.9262, which is the highest it has been since April this year.
Swiss economic recovery
The Swiss economy has staged a relatively strong recovery, helped by the country’s government support and the rising international demand. This trend has seen the country’s unemployment rate remain below 3%, making it one of the best in the developed world. The government and the Swiss National Bank (SNB) expect the country will grow by more than 3% in 2021 after contracting in 2020.
However, recent data shows that Switzerland is still seeing low inflation growth. According to the Federal Statistics Office (FSO), the country’s headline consumer price index (CPI) increased by 0.1% in June after it rose by 0.3% in May. This increase was lower than the median estimate of 0.2%. The increase was unchanged at 0.6% on a year-on-year basis.
The Swiss inflation is still below the Swiss National Bank (SNB) target of 2%. It is also substantially lower than that of other countries like the United States, the UK, and the Eurozone. Recent data showed that the US inflation rose by 4.2% in May. UK prices rose by 2.1% in May, while preliminary data showed that the Eurozone CPI rose by 1.9%.
Therefore, the weak inflation number points to a wider divergence between the Fed and the SNB. While the Fed has hinted at a rate hike in 2023, the SNB is expected to take longer to act. This divergence will likely keep pushing the USD/CHF higher.
Further data showed that the Swiss retail sales rose by 2.8% in May after rising by 37.7% in the previous month. This decline was partly because of the overall weakness in food sales. Additional data revealed that the purchasers manufacturing index (PMI) declined from 69.9 in May to 66.7 in June. This decline was worse than the median estimate of 69.7.
US non-farm payrolls ahead
The biggest catalyst for the USD/CHF on Friday will be the latest employment numbers. The data comes at a time when many American companies are reporting a tight labor market. Indeed, companies like Southwest Airlines and McDonald’s have had to boost their wages to attract and retain workers.
On Wednesday, data by ADP showed that the private sector added more than 692k jobs in June. Historically, the ADP data tends to differ significantly from the official figures. For example, last month, its reading came in at more than 900k, while the BLS figure came in at 549k.
Additional data by the Bureau of Labour Statistics (BLS) showed that more than 364k Americans filed for initial jobless claims. This was the lowest figure since the pandemic started.
Economists polled by Reuters expect the data published on Friday to show that the economy added 700k jobs while the unemployment rate declined to 5.6%.
USD/CHF technical analysis
The USD/CHF pair rose above the important resistance at 0.9238 this week. This was the highest level in May. The pair also moved to the 61.8% Fibonacci retracement level at 0.9267. Further, it has also moved above the short and longer-term moving averages (MA), while the Relative Vigor Index (RVI) has also risen. Therefore, the pair will likely keep growing as bulls target the next key resistance at 0.9356, which is the 78.6% retracement level.
