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Review
The US:
Non-farm-payroll offered a positive surprise. The figure came out at 195K against the estimate of 165K. Also, the past two months were revised up by 70K.
Employment has now increased by a monthly average of 202K over the past 6 months. On the whole, this development signals that the US again has a strong labour market, and that the Fed therefore should begin to scale down its monthly QE.

The market is still divided in its assessment of which quarter will see the beginning of the scaling down - will it be Q3 or Q4?
On Wednesday we get the minutes from the most recent Fed meeting, and hopefully we get some indications of the Fed's assessment of the employment situation. This will be of importance as to whether Q3 or Q4 will be chosen and hence whether EURUSD will fall now or whether this will happen in about a month.

Equities: Shanghai and Nikkei fell by 2% and 1%, respectively. This may add to risk aversion in Europe and therefore push EURUSD lower. It should be noted that Nikkei began to increase decently and subsequently it fell by more than 1%.

EM: Due to the steeply rising US interest rate, there is a risk that the EM currencies will fall further. There is a risk that investors will send the flow normally intended for the EM universe to the US. Also, the falling carry is bad news for EM, which means that at present we should be very cautious about investing in EM.

Today's chart
The chart illustrates the downtrend of US rates since the 1980s. If the interest rates break out above 2.90-3.0%, we expect that financial market to become concerned about negative consequences and we will be in for steeply rising volatility.

Market sentiment
If US interest rates continue to rise, it is to be expected that the recent fall in volatility is about to be over. This would in particular put pressure on EM, commodity currencies, EUR and the equity market.
There are still more factors that may cause rising volatility:
rising US interest rates; growing political unrest in Greece, Italy and Portugal; liquidity crisis in China; falling economic indicators in the US, EU or China; or not least a strong correction of US equities.

Recommendations
In general, we recommend that, for the long-term, investors buy USD, JPY and NOKSEK. We also recommend close S/L for all short-term investments.

EURPLN (from Sell to NEUTRAL): We were stopped out at S/P with a gain of 0.80%.
We expect that EURPLN will trade in the wide range of 440 to 420 over the coming period. Therefore we are looking for a new recommendation if EURPLN rises above 433.

NOKSEK (BUY): We recommend that investors BUY NOKSEK with S/L at 107.91.
We assess that at the current level NOKSEK is a most attractive buy for both short-term and long-term investors. We expect NOKSEK to be quite a few points higher before the end of the year.

NOKSEK

NOKSEK

EURUSD (NEUTRAL): Place entry orders at 127.28.
We expect that USD will show relatively strong performance relative to EUR over the rest of 2013.
The reasons for this view are in particular the rising US interest rates as well as the relatively stronger economic development.

For the short term, we have expected in the past few days that USD will face a correction - but it does not seem as if the correction will materialise. We therefore recommend that investors in EURUSD place a sell order at 127.28 to catch a possible breakout below the IMPORTANT support level at 127.35-128.

The chart shows that technically, EURUSD is very oversold. If we look back over the past year, we have twice before been at such oversold levels with two very different outcomes. The vertical lines illustrate the starting points of these two situations. In November, EURUSD turned around and rose by several percentages, and in February, EURUSD fell by more than 2%. As EURUSD is on the red neckline, we have to pay very close attention to the development because if EURUSD breaks out below 127.35-50, there is a risk of extensive S/L hunting, which may send down EURUSD by several percentages. Therefore we recommend that investors place a stop entry at 127.28.

EURUSD

EURUSD

EURTRY (NEUTRAL):
If EURTRY breaks out below 250, it is very likely that it will quickly fall to the 242-45 range.

EURCHF (NEUTRAL):
A short-term top in EURCHF is about to be formed, which causes us to keep an eye out for a good level to sell at. If EURCHF rises to 124.4-80, investors should sell the cross rate with a target of 122.50.

Today’s events
09:15 CHF: Industrial production
09:30 SWE: Industrial production
12:00 The EU: German industrial production

Short Term


Chart of the day: US Govt. 10 years rate

Chart Of The Day