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Emerging Markets Briefer

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FX trading recommendation − Sell CHF/TRY

Thu, Apr 30 2009, 09:48 GMT
by Kasper Kirkegaard, Lars Christensen, Lars Rasmussen

Danske Bank A/S


We recommend selling CHF/TRY on a one-month horizon as a speculative play on the improved short-term outlook for emerging markets’ FX outlook on the back of increased global risk appetite.

Even though we still believe that the fundamental macro outlook for many emerging markets economies is relatively bleak, we expect some positive surprises on US economic data in the coming weeks/months – specifically we expect a positive ISM manufacturing surprise tomorrow.

In such environment EM FX could advance in the short term. A way to play this - with a high positive carry - would be a short position in CHF/TRY.

TRY – high carry:

The Turkish lira offers high carry for this trade and the Turkish currency in general performs well when the global sentiment improves. Next week’s inflation data will confirm the downtrend in inflation rates, which opens further monetary easing from the Turkish central bank. However, a key factor for a fairly stable currency outlook involves finalising the standby- agreement with the IMF – something we expect to happen in the coming weeks.

CHF – the SNB put:

We expect the Swiss National Bank to be successful in capping any potential short-term CHF appreciation and look for CHF to gradually weaken during 2009 on a continued improvement in risk sentiment and a sustained very expansive Swiss monetary policy.

Risk factors:

A key risk against this trade would be renewed fears over the swine-flu. Last night the WHO raised the current level of influenza pandemic alert from phase 4 to phase 5, but this did not seem to rattle markets with Nikkei rising 4.0% this morning.

Note that this trade is highly positively correlated with the global risk appetite.


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Danske Bank  | Holmens Kanal 2-12, DK-1092 Copenhagen
http://www.danskebank.com/ | danskeresearch@danskebank.com

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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.

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