Commodity Daily News

Deflation Returns to Switzerland

SNB officials may begin to worry over October's CPI data which showed consumer prices contracted by -0.1% m/m. Consensus estimates were for an increase of 0.2% m/m. The y/y rate is down to -0.1% from +0.5% as last reported in September. The CHF was sold across the board following the data release as market players expect the SNB to take additional action to weaken the Swiss franc in light of the deflation threat. One possible step the SNB could take would be to raise the floor of the EUR/CHF to 1.25 from the initial 1.20 level. Today SNB Governing Board Chairman Philipp Hildebrand will be speaking in Berlin and may shed more light on the strategy behind the SNB's battle with deflationary forces and an overvalued Swiss franc.

The EUR/CHF reached as high as 1.2390, a level that coincides with its long term downtrend off of the May 2010 high. A decisive break here might find resistance at the October high of 1.2470, followed by the late April highs of 1.2960. Likewise the USD/CHF is moving higher and a crossing of the 50-day and 200-day moving average is a bullish technical indicator. Resistance is found at the October 20th high of 0.9080 and the October high of 0.9310.