USD/CHF Forecast Dec. 20, 2011, Fundamental Analysis

On Monday trading, the franc strengthened against the dollar to continue its advance for the third session after last week’s SNB decision which involved the hold of interest rate at 0.00-0.25% range and keep of the franc’s cap against the euro unchanged.

The Swiss National Bank (SNB) refused calls from exporters to raise the franc’s cap or push interest rate to negative, giving some strength to it on expectations the bank will not intervene any soon as it will probably wait to see the latest developments in the euro zone.

However, the SNB still believes that “the franc is still high and should continue to weaken over time,” leaving the door opened for further future interventions if needed, especially as the latest data from the Swiss economy referred to a slowdown in the growth pace.

Still, the main focus in the market is on the latest developments from the euro area as many euro zone economies gird for bond selling this week.

Concerns aggravated on Monday after Fitch cut France’s outlook put a number of countries including Spain and Italy under review for a possible downgrade.

On the other hand, ECB’s Mario Draghi said to the Financial Times on Sunday the ECB can not overstep its mandate, lowering expectations the ECB will increase purchases of bonds.

Also, the death of North Korea’s Kim Jong II triggered worries on possible disputes in this hot spot.

On Tuesday, at 07:00 GMT, the Swiss economy will release its most important data for the week which is trade data for Nov. with exports and imports during the month. The trade surplus is predicted to narrow to 2.00 billion Swiss francs from the prior surplus of 2.15 billion francs.

The main focus in the U.S. will be housing starts and building permits for Nov. due at 13:30 GMT which will provide evidence about the status of the housing market that triggered the 2008 crisis. Housing starts are expected to decrease to 630,000 from 628,000 in Oct., while building permits will probably show a fall to 633,000 from the prior 653,000.