Review: The GDP for Europe released yesterday showed that Europe is in recession despite small positive surprises in Germany and France. The decline in growth was, however, marginal and even minimal changes in GDP at the upcoming correction may change the picture, yet without this having any effect to speak of on the financial markets. The most important signal is that Europe is slowing down and that the slowdown takes place in Northern Europe as well as Southern Europe – which we are also beginning to feel here in Denmark.
The UK retail sales turned out lower than expected, but fully in line with the process/period we expect the British economy to enter over the coming months and quarters.
Market sentiment: The sentiment is still relatively negative as German and US equities fell slightly yesterday. This morning Chinese equities have fallen, while Japanese equities (prospects of weaker JPY) have increased by 2%. However, today will not offer much and therefore we should not expect any major movement in the financial markets over the day.
We still point out the idea of buying a 14-day EURUSD call option (previously we also mentioned as a buying opportunity EURJPY, but for this cross rate we have already seen a very strong upward movement, so therefore EURUSD should be preferred). A 14-day EURUSD call option, strike 127.75, costs about 0.5% (spot ref. 127.55).
However, today’s chart shows that investors should be cautious not to expect upside for EURUSD unless we get a solution to the situation in Greece (a decision will be made either on 20 November or 26 November). Therefore investors should not sell other assets to finance the purchase.
Today’s events: There are not very many events in store for today. The most important one will be the announcement of industrial production data in the US at 15.15.
GBPSEK (NEUTRAL): Investors wanting a recommendation based on two opposite, fundamental developments have to search high and low - the various economies are inextricably linked. Nonetheless it is possible to find such a recommendation. For instance, investors could look at the so-called surprise indices, which show to which extent analysts have been surprised negatively as well as positively. Such indices show a very strong divergence between Sweden and the UK. In Sweden the analysts have time after time been surprised negatively over three months. In the UK, the situation is totally the opposite. If we look at the graphs, we think investors should have a contrary approach to trading - i.e. buy SEK and sell GBP. The economic indicators in the UK were boosted by the Olympics - and they will fall again. In respect of Sweden, we do not believe so much that we will see improving economic indicators but rather that analysts have become too negative.
Ideally, investors should take a 3 or 4-month position to let the scenario materialise (a bought 3-month GBPSEK put option, strike 10.65 costs about 1.2% of the investment amount (spot ref. 10.74)).
EURUSD (SELL): We recommend that in the short term investors SELL EURUSD with S/L at 129.02.
The first strong level of resistance will be found at 129 - 129.48. According to today's chart, there is a strong likelihood of a downward intraday movement - especially because the German DAX futures (indication of the DAX opening prices) was flat this morning (0%).
NOKSEK (NEUTRAL): We have closed our investment case for NOKSEK (4.15%). We still see further potential to the upside, but the recommended options mature on 31.1. and we see a real risk that SEK may offer positive surprises over the coming one or two months. Hence the close should be regarded as an attempt to optimise the gain.
We will look out for a new attractive level to buy at. Among our Spot On top picks, we maintain our BUY recommendation for NOKSEK.
USDPLN (SELL): We recommend investors to SELL USDPLN and to take profit at 315.00 and place stop orders at 328.72.
A positive market today will support further declines in USDPLN.