USD/CHF Forecast Dec. 14, 2011, Fundamental Analysis

On Tuesday trading, the pair showed some fluctuations before the FOMC meeting with the main concentration remained on the latest developments from the euro area after last week’s EU summit.

The Fed is expected to keep interest rate at its low level of 0.25%, while, on the other hand, later in the week the SNB may lower interest rates to negative to boost the economy and halt prices drop.

Last week, that Swiss consumer prices dropped 0.5% from a year earlier, marking the sharpest drop since Oct. 2009, while Finance Minister Eveline Widmer-Schlumpf said negative interest rates and capital controls “are issues which are being examined.”

The Swiss government lowered 2012 growth forecasts on Tuesday, where the economy is expected now to grow 0.5% compared with the previous forecast of 0.9% as the escalating debt crisis forced downside pressures onSwitzerland, yet Swiss authorities explained that growth will be stable next year as long as the European debt crisis doesn’t worsen further.

The State Secretariat for Economics (SECO) said in a statement “assuming that a further escalation of the debt crisis in the euro zone can be avoided, the economic weakness in Switzerland should be limited and of relative short duration.”

The SNB is under pressure to intervene to halt price drop and boost the economy through depreciating the franc further.

In the market, the sentiment was mixed with more downside tendency after Fitch raised concerns that debt woes in the euro area would continue in 2012 as it said on Monday the decisions announced in last week’s EU summit, which Fitch described as incomprehensive, are not enough to ease pressure on the euro zone nations.

On the other hand, a successful bond selling by the EFSF and the Spanish government made some improvement in the sentiment.

The ESFS sold 1.97 billion euros of 91-day notes with an average yield of 0.2222%, while the Spanish government also saw a successful bond selling which witnessed higher demand and lower yield. The Treasury sold 4.94 billion euros of 12-month notes with an interest of 4.050% from 5.022% the previous auction. The demand climbed to 3.14 times compared with 2.13 in the prior auction.