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FX Crossroads
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It is all about risk
Wed, Nov 26 2008, 16:33 GMT
by Danske Research Team
Summary and conclusions
• In this edition's first article, we define a risk index comprising seven components: implied equity volatility, implied FX volatility, a high yield bond spread, gold, utilities vs. financials, treasuries vs. stocks and emerging markets CDX spread. We use this index to determine the current level of risk aversion and to detect which currencies are affected positively and negatively with risk. We conclude that market sentiment remains too uncertain to enter riskier carry strategies and therefore advise sticking to safe-haven currencies for now. Although USD is found to correlate negatively with risk aversion, we think the greenback has potential due to repatriation flows.
• In the second article, we take a look at the historical depreciations of AUD and NZD. Despite the huge falls, we prefer to stay short both AUD and NZD, preferably against USD. The outlook is less negative for AUD though, and we expect the recent rise in AUD/NZD to continue beyond 1.20 in the short term. We propose two interesting options strategies using reverse knock-out (RKO) put options.
Published on Wed, Nov 26 2008, 16:36 GMT
Archive
- It is all about risk
Published On Wed, Nov 26 2008, 16:33 GMT - Monetary policy and the link to FX: DKK and GBP
Published On Wed, Nov 12 2008, 15:16 GMT - The great carry bubble
Published On Mon, Nov 10 2008, 10:20 GMT - New FX forecasts - USD set to strengthen further
Published On Wed, Oct 15 2008, 15:10 GMT - Financial crisis - three scenarios for global markets
Published On Wed, Oct 1 2008, 13:25 GMT
Danske Bank
| Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com
Legal disclaimer and risk disclosure
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.Related reports
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