Review: The US: On Friday, negotiations about a solution to the fiscal cliff situation really began. Several statements indicate that the parties are seeing strong incentives to find a solution. Geither stated that he believes that a solution will be found within the next couple of weeks. Subsequently the US equity markets turned an otherwise negative day into a positive one.
In Europe the Greek tragedy goes on. The IMF signals that it wishes to find a more permanent solution to it doesn’t have to close gaps all the time.
In respect of the Middle East, we keep an eye on the escalating crisis in Gaza as this will affect the oil market and hence the price of USD.
The UK: A. Sentance (former central bank member) expects that the UK will continue to report low growth and moderately high inflation, which will put a damper on any strengthening of GBP over the coming quarters (maybe years).
US industrial production fell by 0.4%, which was a reasonable level considering the fact that Hurricane Sandy had lowered the level by 1%.
China: Once again, focus is on the efforts by China to make the yuan convertible. If this rhetoric intensifies, there will be a positive spill-over effect on the Asian currencies.
Today’s events: The US: 16:00, existing home sales If the positive development in sales continues, the equity markets will be affected favourably and consequently the safe-haven currencies will come under pressure.
Events of the week: The political scene will – this week – affect the financial market strongly. Particularly events on Tuesday should be noted, when the Eurogroup will meet extraordinarily at 17:00 to clarify the strategy relating to Greece. Will Greece receive the next tranche this week?
At . 18:15, Ben Bernanke delivers a speech at the Economic Club, and we expect that he will make positive comments on operation twist. Will the programme be extended? Will it become less neutral? Will the Fed begin to buy government bonds? -> Then we may see a stronger effect.
Will the rating agencies sharpen their rhetoric in respect of the US?
It should be noted that, in celebration of Thanksgiving, the markets will on Thursday be closed the US and they will only be open half the day on Friday. Based on several statistics, the period from Thanksgiving and until Christmas is the period of the year that is most favourable for US equities.
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 SELL EURUSD in the short term with a S/L in the event of a daily close above 128.84. It is important to understand that this is an active S/L. This means that stop-loss is only to be effected if the daily close is above 128.84.
The first level of resistance is at 128.08 (200MA) and then at 129.18 (50MA). Then strong resistance is found at 131.85.
The many current political events are causing a stir and will have a heavy impact on whether EURUSD will continue the upturn that began in July or whether USD will trade at markedly stronger level over the remaining months of 2012. We are very much aware of statements and will on an ongoing basis present our views of what the outcome will be. So far, we expect that EURUSD has a short-term target down to the range of 125.50-126.50 and then it will increase strongly through December due to a clarification of the fiscal cliff and the situations in Greece and Spain.
USDPLN (SELL): We recommend investors to SELL USDPLN and to take profit at 315.00 and place stop orders at 328.72.
A positive financial market this week will support further declines in USDPLN. If trading takes place below 323, the decline will intensify and S/L is moved to 327.