USD/CHF: Trading the Swiss KOF Barometer December 2011

The Swiss KOF Economic Barometer is a leading indicator which measures overall economic activity and is an excellent indicator of Swiss economic conditions. The indicator, which is released monthly, has a major effect on USD/CHF.

Here are all the details, and 5 possible outcomes for USD/CHF.

Published on  Wednesday at  10:30 GMT.

Indicator Background

The KOF Economic Barometer is  composed of 12 economic indicators, and provides important data to analysts trying to predict the direction of the Swiss economy for the next six months.

The index is painting a gloomy picture, as it has been on a downtrend for six consecutive months, plummeting from a reading of 2.30 in May to an alarming 0.35 in November.  This is the lowest reading since 2009, at the height of the global financial meltdown.   Even worse, every reading since  July has  been well below the market forecasts.

The December forecast  calls for a further drop in the index  to 0.25. A  poor reading will end 2011 on a very dissappointing note, and is bound to hurt the Swiss franc.  Will the indicator be able to reverse the trend and beat the market prediction?

Sentiments and levels

Swiss economic indicators continue to paint a picture of an economy headed in the wrong direction, and analysts are predicting that the Swiss economy will dip into a recession sometime next year. The US economy appears to be improving, and the dollar has been  on  a recent  upswing  against most major currencies.  So, the overall sentiment is  bullish on USD/CHF towards this release.

Technical levels, from top to bottom:   0.9540, 0.9479, 0.94, 0.9340, 0.9210, 0.9085 and 0.90.

5 Scenarios

1. Within expectations: 0.18 to 0.32: In such a case, USD/CHF is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  0.33 to 0.38: An unexpected  higher reading can send the pair well  below one  support line.
3. Well above expectations: Above 0.38:   Given the downtrend in the index, the chances of such a scenario are low. Such an outcome would prop up the franc, and a second  support line might be broken as a result.
4. Below expectations: 0.12 to 0.17: A sharper decrease than forecast could  help the pair break  one level of resistance.
5. Well below expectations:  Below 0.12: In this scenario, USD/CHF will  push upwards  and could break two or more levels of resistance.

For more on the Swiss Franc, see the USD/CHF forecast.