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Fundamentals and FX Movements, Week September 23 to September 27

Weekly summary of fundamental news on FX with a focus on CHF and gold price movements.

Weekly price movements

The U.S. budget discussion and rather bad U.S. fundamental data made JPY and CHF the winners of the week. After weeks of improvements, the currencies of the Emerging Markets and carry trade currencies, like NZD, AUD and NOK, depreciated again. One reason was that tapering fears persisted given that U.S. unemployment claims dropped to 2007 levels.

Weekly FX Price Movements September 23-27

FX prices in the week from September 23 to September 27, 2013

Friday, September 27
For a couple of months politics has not been able to influence currencies a lot: they moved with fundamental data. Today things were different: the potential government shutdown let the dollar fall against the safe-havens gold, CHF and JPY, most risk-on currencies depreciated. The good U.S. personal income reading of +0.4% MoM, the personal spending of +0.3% combined with very low U.S. inflation figures could not stop the fear. The preferred US Fed gauge “Core Personal Consumption Expenditures Deflator” was only 1.1% in Q2/2013, well below the Fed target. The continuing decline points to “never-ending” Quantitative Easing.

Core PCE Q2 2013Rising Japanese inflation intensified the JPY strength, headline inflation is now +0.9%. Our interpretation is different: Japan is slowly reaching the end of its inflationary episode in terms of y/y price increases. We judge that by December 2013 the y/y CPI should fall to zero again. The yen has stopped falling, so fuel and energy price appreciation has slowed down. Prices for services are unchanged y/y and the CPI index ex. fresh food and energy is down -0.1% y/y for Japan in August and -0.3% for Tokyo in September.

KOF September 2013

Swiss KOF September 2013, click on graph to expand

The BoJ is desperately calling for wage rises to stop a return to deflation. In Europe, however, politicians would be happy when unemployment comes down; while, European wage increases are slowing or even falling. Only in Germany is it different: despite a decline in the headline CPI to 1.4% caused by falling energy prices, Germany sees wage hikes and price increases for services of +1.6%.

With rising fears, Gold inched up by 1% to 1336$. Due to the fear factor, silver could not follow gold and appreciated only slightly. USD/CHF inched down -0.5% to 0.9047. EUR/CHF -0.2% to 1.2253. The continuing improvement of the Swiss economy visible in the KOF index was not able to move the CHF, but it was rather the U.S. budget.

 

 




This post is an extract of our CHF and Gold News Bar on our home page or at this address.

It explains daily CHF and gold price movements based on the most important fundamental indicators in a few sentences. Keep in mind that the only Swiss fundamental data that is able to move the CHF must come from the SNB and from Swiss  inflation data – from 1% y/y CPI the SNB should remove the CHF cap. The other data is global macro: mostly US and German data, some European and Chinese/Japanese news publications determine CHF behaviour. CHF is positively correlated to good data from Germany and to some extent China and Japan. Good data from the United States lets CHF fall against both USD and EUR; it is hence negatively correlated to good US news. As for EUR/CHF, the Swissie is negatively correlated to good Southern European and French data. Understand the terms “American bloc” and “Asian bloc” (read here). As for gold prices please understand the basis here. Remember also that the currency movement over months is a combination of the daily movements explained here.

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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