FX Strategy

G10 currency markets: Struggling between greed and fear

Mon, May 5 2008, 10:29 GMT
by Teis Knuthsen, Kasper Kirkegaard, John Hydeskov

Danske Bank A/S


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The last few weeks have seen solid gains in equity markets and considerable increases in interest rates. In the currency markets, low yielders such as CHF and JPY have lost out to higher-yielding or commoditybased currencies such as AUD, CAD and ZAR.

We think it’s time to fade this trend, mainly on the view that the worst of the economic downturn remains ahead of us and that the process of financial deleveraging will continue for a while longer. To benefit from this view, we recommend selling EUR/CHF and USD/JPY spot.

In EUR/CHF, we target a move to 1.5650 with a stop just above the February high at 1.6235. Alternatively, buy CHF/DKK.

In USD/JPY, we aim for a move to 100 with a stop just above the recent high at 105.

The biggest risk to both recommendations is a continued rally in stock markets.

Published on  Mon, May 5 2008, 10:31 GMT

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http://www.danskebank.com/ | danskeresearch@danskebank.com

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