Swiss Franc Weakness Seen Short-Lived as Haven Allure May Return

(Bloomberg) -- The franc is trading near a two-week low versus the euro on Swiss data weakness, with both positioning and charts signaling more short-term pain. Yet, losses may be limited as the currency’s haven appeal should eventually prevail amid the deepening global economic gloom.

The franc has pared its year-to-date advance to about 3% on expectations the Swiss National Bank may need to ease monetary policy amid slowing inflation and a manufacturing slump. It had run into resistance even before the recent poor data when it traded at levels stronger than 1.09 per euro, which are historically associated with increased currency intervention by the SNB.

Scheduled events over the coming week offer limited scope to unsettle ongoing currency trends and while trade and Brexit headlines may stir up some volatility, market reactions are unlikely to extend beyond the knee-jerk.

The franc’s weakening potential looks limited even on any SNB move to add stimulus, as the institution would only be joining peers such as the European Central Bank and Federal Reserve in leaning more dovish.

While Swiss policy makers are scheduled to meet next on Dec. 12, officials would actually break a longstanding habit if they acted then. The SNB’s trademark style has been to deliver surprises between meetings -- such as when it scrapped the franc’s 1.20 per euro cap in 2015.

Technically, the euro has scope to strengthen due to a bullish crossover of short-term moving averages. This developed Thursday when traders noted a very large buying clip in dollar-franc, which was seen as a one-off transaction. History suggests that such a pattern, when it occurs within a firm downtrend, results in a relief rebound without triggering a big change in market sentiment.

• NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

What to Watch:

• Chinese Vice Premier Liu He visits Washington for trade talks with his U.S. counterparts on Thursday, Oct. 10
• The Brexit impasse continues as U.K. Prime Minister Boris Johnson attempts to make a deal with the EU before a key summit later this month; opposition legislators will probably continue to plan a strategy to prevent a no-deal Brexit
  • The U.K. Parliament will be suspended on Oct. 8 ahead of the Queen’s Speech and State Opening of Parliament, scheduled for Oct. 14
• FOMC minutes released on Oct. 9 from the Sept. 17-18 policy meeting
• Series of FOMC speakers include Chair Jerome Powell , Kansas City Fed President Esther George, Boston Fed President Eric Rosengren and Chicago Fed President Charles Evans
  • Policy maker speeches also include BOE Governor Mark Carney, ECB Chief Economist Philip Lane, Norges Bank Governor Oystein Olsen
• Economic releases include euro area confidence index, U.S. inflation, U.K. GDP, Norway and Sweden inflation; see data calendar
• The U.S. and North Korea are set to hold working-level talks on ending Pyongyang’s nuclear program

To contact the reporter on this story: Vassilis Karamanis in Athens at vkaramanis1@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma, Neil Chatterjee

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