At the Forex currency market Swiss Franc rate is moving away from historic highs on Monday, however it is still quite strong.

Forex forecast: MACD indicator is in the negative area for the pair USD/CHF and started to go down, forming a pair sell signal; while volumes remain average. Stochastic Oscillator has come into the oversold zone, giving a pair sell signal.

Forex recommendations: in case of breakdown at the level of 0.8510, the pair USD/CHF will go to 0.8480 and to new lows of 0.8465. If downward breakdown does not take place, the pair will consolidate close to the current levels.

Index of leading indicators KOF in Switzerland rose to 2.30 points in May against the forecast of growth by 2.22 points.
New week will be eventful in terms of CHF news: Swiss GDP in QI will become known on Tuesday, the data on retail sales and PMI will be released on Wednesday.

In general the situation in Swiss economy has not changed fundamentally.

The head of the National Bank of Switzerland, Mr. Hildebrand noted that strong and expensive Franc undermines exports and disrupts tourism industry; therefore negative impact of the CHF could be worse than predicted. “We intend to take any measures to achieve price stability” stressed the monetary politician. According to him, downside risks to recovery are still preserved, although economy demonstrates steadier growth rate than previously expected. It was worth noting Hildebrand’s statement that expansionary monetary policy constitutes a menace to a number of industrial sectors in the long term.

Julius Baer Group believes that it is not clear yet whether Swiss economy requires the increase in the   interest rate or not: “any rise will have an impact on the economy as a whole for a year”. However it is quite possible that local economy and its recovery process are strong enough to cope with the interest rate rise to 1%-1.5%.

Note that real effective exchange rate of the Franc grew by 10% last year.

As it was made public earlier the level of trade balance in Switzerland rose by 1.52 billion in April against the rise of 1.0 billion in March. In addition, exports in Switzerland increased by 7.9% in April against the fall by 3.1% in March.

It became known earlier that index of investors’ economic expectations ZEW in May fell by 20.3 points in May, to the level of -11.5 points against the previous level of 8.8 points. Due to such background, a number of those who expected the increase of the interest rate in the next quarter have dropped sharply.

However, economists do not assess Swiss economic situation as negative, on the contrary, it is described as “good” (majority -68.6% of respondents think so). The share of those, who expect the rise in inflation in the near future, has fallen to 51.4% (-25.1%).

Swiss National Bank is going to discuss monetary policy issues on 16 June.

The Japanese Yen rate retreats slightly at the Forex currency market on Monday under the pressure from the USD; however it is still close to the local highs.

Forex forecast: MACD indicator for the pair USD/JPY is in the negative area, increasing slightly and, giving a pair buy signal. Stochastic Oscillator is declining in the neutral zone and is giving a pair sell signal.

Forex recommendations: in case of breakdown at the level of 81.00 the pair will go to 80.80 and 80.60. If downward breakdown does not take place, the pair will consolidate in the current range.

Macro-economic situation in Japan remains almost unchanged this morning.

According to the data released last week, preliminary volume of retail sales in Japan reduced by 4.8% y/y in April against expectations of fall to -6.0% y/y; In addition, net CPI in Japan rose by 0.1% y/y in May against the increase of 0.2% in April. Japan has confronted with the rise in inflation for the first time over 28 months, which is crucial for the economy; however, it requires confirmation over the next few months. Japanese consumer prices grew by 0.6% y/y excluding food, and prices for utilities and food skyrocketed.

The data released last week showed that volume of imports increased by 8.9% y/y in April against the forecast of growth by 12.8% and the previous rise by 11.9%; volume of exports fell by 12.5% in April against the forecast of reduction by 12.7% and previous decline of 2.2%.

In addition, minutes of the meeting of the Bank of Japan of 28 April which were made public earlier, stated that members of the Bank were requested to expand program of the quantitative easing due to the deterioration in the economic sentiments. The Bank also agree that it is required to focus on the downside economic risks and take further steps to support the process reconstruction after the earthquake.

It became known earlier that index of prices for corporate services in Japan fell by 0.8% y/y in April against the level of -1.2% in March. The data is positive as it reflects ability of the local economy to recover and regenerate.

Japanese Economy Minister is confident that the economy of the Country of the Rising Sun is very easy to adapt to various changes and prior to the earthquake the state of economy had improved. “We are making progress in the fight against limited supply and by the end of this fiscal year GDP will increase by 1%” –he said. The Minister is also assured that economy can avoid recession. Ex-deputy head of the Bank of Japan Mr. Muto said this morning that national economy is weak and will reach the bottom in QIII this year. Future economic prospects are vague.

At the Forex currency market the Australian Dollar rate goes down on Monday, as investors are not interested in risks due to the surge of attention to the debt problems in Eurozone.

Forex forecast: MACD indicator is in the positive area for the pair AUD/USD and continues to go down, being ready to break through the signal line from top to bottom, and confirming a previous sell signal. Stochastic Oscillator is increasing in the neutral zone, giving a pair buy signal.

Forex recommendations: off the market.

Feasible event scenario at Forex: in case of breakdown at the level of 1.0700 the pair will go to 1.0720 and 1.0750. If upward breakdown does not take place the pair will consolidate at the current levels. There is high possibility that aggressive sellers will be back for the pair.

Australian economic situation remains mostly unchanged; however a new week will bring a lot of new macro-statistics.

The minutes of the Reserve Bank of Australia meeting of 3 May which were made public earlier stated that growing Australian Dollar has assisted to curb inflation; while interest rate remains at the previous level of 4.75% per annum. 

The RBA admits that if economic situation will develop according to expectations, interest rate increase will become a necessity.

Representative of the Reserve Bank of Australia Mr. Batellino noted yesterday that growth of the Australian Dollar is a direct reflection of the situation in the global economy. “It is difficult to change this situation, so some sectors of the economy will suffer from high exchange rate of the currency” –he stressed. However, he clarified that growth in inflationary pressure is natural amid recovery of the global economy.

Batellino also reported that increase in savings is positive for the economy because high level of savings in the households does not mean that consumption will suffer. In addition, the rise in income will enable to increase spending.

It became known earlier that leading indicators index in Australia increased by 1.5% m/m in March, to the level of 284.5 points, while annual gain is assessed at 5.3%. Index of coincident indicators rose by 0.7% (+2.0% y/y) in March.

Westpac believes that growth rate of the leading indicators, which helps to assess economic prospects for the next 3-6 months, has stabilized, and shows moderate rate of recovery in the Australian economy.  “The results of the first half of the year might be not the best, due to slowdown in the pace of development in QI, which was caused by weakness in external sector and wholesale inventories”, pointed Westpac.