- The Swiss Franc is weakening in most of its pairs, but especially against the USD and GBP after the release of US Payrolls.
- Nonfarm Payrolls in November rose by 199K, higher than the 180K expected; Unemployment dropped to 3.7% and wages rose.
- The data supported the US Dollar and riskier currencies against the safe haven Franc.
The Swiss Franc (CHF) sold off in most of its major pairs on Friday after the release of a better-than-expected US jobs report supported risk appetite, driving flows away from the safe-haven Franc. The Swiss Franc has lost 0.61% against the Greenback, while it loses 0.23% and 0.24% against the Euro and Pound Sterling, respectively.
Daily digest market movers: USD/CHF rises as Dollar gains boost from labor report
- The Swiss Franc is weakening versus the US Dollar on Friday after the release of the US Nonfarm Payrolls report shows the US created a higher-than-expected number of jobs in November, reflecting a strong labor market.
- 199K new positions were filled, according to the US Bureau of Labor Statistics report, when a figure of 180K had been expected by economists.
- The report also showed that the US Unemployment Rate fell to 3.7% in November, from 3.9% in October. No change had been expected.
- Average Hourly Earnings came out at 0.4%, beating expectations of 0.3% and suggesting wage inflation pressures could be building. Hours Worked also rose, suggesting more full-time positions filled.
- The higher wage data and stronger employment metrics in general indicate the US economy is healthier than thought and that fresh inflationary pressures may yet emerge.
- The data could make the Federal Reserve keep interest rates higher for longer and think twice before cutting interest rates.
- Higher-for-longer interest rates will benefit the US Dollar since they are a magnet for capital inflows.
- The next big release for the US Dollar is the preliminary Michigan Consumer Sentiment Index out at 15:00 GMT, which is estimated to show a rise to 62 from 61.3 in December.
Swiss Franc technical analysis: USD/CHF posts short-term reversal insignia
USD/CHF – the number of Swiss Francs that one US Dollar can buy – is trading higher on Friday after the release of Nonfarm Payrolls.
The pair is rising after having completed a Measured Move price pattern during October and November. Measured Moves are three wave patterns that look like large zig-zags. The first and third waves are usually of a similar length. Wave C completed after achieving the same length as A. This further reinforces the bullish reversal since the December 4 lows.
US Dollar vs Swiss Franc: Daily Chart
The MACD has completed a bullish cross (circled) in negative territory, adding more evidence, signaling potentially more upside on the horizon.
The short-term trend is bullish, and more gains are possible. The next target is at 0.8825, which offers soft resistance. Then comes the confluence of major moving averages residing at 0.8900, where tougher resistance is expected.
A break below the 0.8667 lows would negate the recovery and see bears back in charge, with likely losses to the 0.8552 July lows.
Daily digest market movers: Haven Franc weakens after German inflation data, US jobs
- The Swiss Franc falls against the Euro on Friday as risk appetite pivots on better-than-expected jobs data from the US.
- German inflation data comes out in line with expectations, with the country’s Harmonized Index of Consumer Prices (HICP) rising 2.3% YoY in November but falling 0.7% MoM, according to data from the Federal Statistics Office of Germany.
- Following lower-than-expected Eurozone inflation data as a whole, the German figures suggest a risk the European Central Bank (ECB) will cut interest rates, which is weighing on the Euro and limiting its gains.
- Lower interest rates tend to weaken a currency as they reduce capital inflows.
Swiss Franc technical analysis: EUR/CHF rebounds from 2023 lows
EUR/CHF – the number of Swiss Francs that one Euro can buy – has rebounded after touching its lowest level for the year.
Thursday saw the formation of a Bullish Engulfing Japanese candlestick reversal pattern (see rectangle on chart below) at a major support and resistance level, after the pair recovered from record lows. For the candlestick pattern to be confirmed, it would have to be followed by a green bullish day on Friday. This would provide a short-term bullish reversal signal.
Euro vs Swiss Franc: Daily Chart
The pair is in a downtrend on all key timeframes (weekly, daily, 4hr), however, suggesting bears have the upper hand overall and prices remain at risk of capitulation.
A break below the 0.9403 lows would reconfirm the bearish bias and see prices fall into uncharted territory, with major whole numbers then expected to provide support at 0.9300, 0.9200, and so on.
Daily digest market movers: GBP/CHF declines after BoE survey
- The Swiss Franc falls versus the Pound Sterling pair on Friday after the US posts better-than-expected labor market data, easing global recession fears. This supports riskier currencies like the Pound Sterling over safe-havens such as the Swiss Franc.
- Earlier on Friday, the Franc had risen against the Pound after the Bank of England (BoE) published its Consumer Inflation Expectations survey, showing that the British public foresees inflation rising at a slower 3.3% pace in the year ahead, compared to the 3.6% recorded in the August survey.
- The report reflects hopes that inflation may be coming down, and if materialized will mean the BoE will have more incentive to decrease interest rates.
- Lower interest rates are generally negative for a currency as they deter inflows of foreign capital.
- The market view of the course of future interest rates in the UK has turned more dovish recently in line with most of the rest of the world. Traders in interest rate futures saw a relatively high chance of the BoE cutting interest rates by 0.75% (three 0.25% cuts) in 2024, as per data reported on Thursday, December 7.
Swiss Franc technical analysis: GBP/CHF trading at range lows
GBP/CHF – the number of Swiss Francs that one Pound Sterling can buy – is in a sideways trend on short and long timeframes, whilst the medium-term trend could be classified as very marginally bullish.
On the 4-hour chart used to analyze the short-term trend, the pair is bouncing up and down within the parameters of a range-corridor between 1.0990 and 1.1155.
Pound Sterling vs Swiss Franc: 4-hour Chart
More recently it seems to have found a floor at the lows of this range. The pair has just formed a bullish Hammer Japanese candlestick formation (see rectangle in chart above) and is seeing strong bullish follow-through in the period that follows. This provides confirmation of the short-term bullish signal.
It is possible to see the outline of a complete measured move in the zig-zag of price action down from the November 29 high, with wave C completing at the November 7 low.
The MACD has risen above its signal line whilst well below the zero-line, further adding weight to the short-term bullish outlook. Indeed, looked at throughout December, the MACD looks like it might have formed a wide double-bottom bullish reversal pattern, further amplifying the strength of the current crossover buy signal.
All in all, the short-term chart suggests the GBP/CHF pair is turning around at the bottom of a range and beginning a bullish ascent back up to the range highs at 1.1155. A break above the 1.1040 level would provide further confirmatory evidence a new leg higher was underway.
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
How does Nonfarm Payrolls affect the US Dollar?
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
How does Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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The Swiss Franc (CHF) received a shock on Friday after a far higher than expected Non-Farm payrolls report was released from the US, leading to strong expectations of US economic recovery and higher yields on US Treasury Bonds.
The US reported that nonfarm payrolls increased by a staggering 638,000 in October, significantly higher than expected, and more than double the previous month’s figure. This strong result further reinforces the expectation that the US economy is on the path to recovery from the COVID-19 pandemic.
As a result of this strong news, Treasury yields increased and were further buoyed by comments from Federal Reserve Chairman Jerome Powell who stated that the Bank was likely to increase interest rates when the economic recovery is at a more advanced stage.
This news has had a direct effect on the performance of Swiss Franc pairs, with currencies such as the EUR/CHF, GBP/CHF and the USD/CHF all trading lower in light of the news.
Analysts are now expecting a further downward trend for the Swiss Franc in the coming weeks as investors look for higher return opportunities available through the US treasury market.
While the short-term outlook appears bearish for the Swiss Franc, experts are expecting the currency to recover over the longer term as the Swiss economy continues to rebuild from the economic effects of the pandemic.
In conclusion, although the release of nonfarm payrolls on Friday may have sent Swiss Franc pairs lower in the short-term, the outlook for the currency remains positive in the longer term.