USD/CHF Forecast Dec. 21, 2011, Fundamental Analysis

On Tuesday trading, the franc strengthened against the dollar with the improvement in the general sentiment which damped demand on the dollar as a refuge after better-than-estimated rise in German business confidence and successful bond selling by the Spanish Treasury.   

German business confidence unexpectedly advanced for the second month; business climate indicator rose for the second month to 107.2 from 106.6 in November.

The data came after a wave of upbeat data from Germany which provided some hopes amid the mounting worries the euro area debt crisis would drive the euro zone and global economies into another recession. 

On the other hand, a Spanish bond selling witnessed a rise in demand and decline in yield as the Spanish government auctioned 5.64 billion euros of short-term debt, above the maximum target of 4.5 billion euros. The yield on the 3-month and 6-month notes fell to 1.735% from 5.110% and 2.435% from 5.227% respectively.

Still, the main focus in the market is on the latest developments in the euro area. 

On Monday, the four-hour talks between European finance ministers yielded in an agreement which include providing the IMF with 150 billon euros to fight the debt crisis, where the loan may increase up to 200 billion euros if euro area outsiders the Czech Republic, Denmark, Poland and Sweden managed to get Parliamentary approval to give loans to the IMF.

Moreover, the Swiss franc advanced also after the release of upbeat trade data which showed that the Swiss trade surplus widened to 3.00 billion francs in Nov. compared with the prior surplus of 2.15 billion francs. Exports, however, dropped 6.8% from the prior 0.9% rise while imports fell 7.7% from the 1.7% advance a month earlier.

In the U.S., housing starts showed a rise to 685 thousands in Nov. from 627 thousands.

On Wednesday, the Swiss economy will start the day with the release money supply M3 for the year ending Nov. at 08:00 GMT. 

Thereafter, eyes will be on U.S. MBA mortgage applications for Nov. 18 at 12:00 GMT while will be followed by existing home sales, as of 15:00 GMT,  which are estimated to record 2.2% drop in Nov. compared with a prior of 1.4%.