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Daily Forex Commentary

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"Hey Guys, let's vote NO and see what happens..."

Tue, Sep 30 2008, 08:50 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Have the US politicians been playing parcel dice game all last week?! You can almost imagine the politicians sitting at their tables in Congress rolling the dice: “1, 2, 3, 4, or 5 the financial markets get the package, 6 they don’t”. Rolling 1- 5s (with an occational 6) all week and in the last game before the vote it was a 1-5. And then some politician who has no understanding of what is going on throws out “Hey Guys, let’s vote NO and see what happens anyway…”. As you probably have guessed, the House of the Congress failed to vote through the bill and it immediately had a negative impact on financial markets. S&P500 closed down almost 9%, the second largest fall ever, only exceeded by Black Monday in 1987. The rescue plan might cost $700B up front, some/most of which will be paid back when the toxic papers are sold back to investors in the end, but last night’s action in the market cost the shareholders more than $1,300 billion! Flight-toquality was massively seen in the market, 2-year US Treasuries rallied and the implied rate fell to below 1.66%. The same was the case with 3- month T-bills where the implied rate fell to below 0.3% - not quite as low as two weeks back, but low enough. Consequences in the FX market are more or less as expected from the fallout of the vote in Congress: carry unwinding! This means stronger yen and Swiss franc whereas Australian and New Zealand dollar weakened. It is not that hard to put a direction on the market right now – it’s down… But as we have argued a million times by now, this is not a time to throw good money after bad money. If you are highly speculative and have very deep pockets, then there might be some good opportunities in the FX market at the moment, but it is very troubling that we should be prepared for just about everything the next few days. In the last few weeks, we have seen NOK, SEK, AUD, and NZD being sold. In addition, we have seen JPY strengthening quite a bit whereas CHF-stength has not been as powerful yet. Hence, we almost have a complete picture, the only thing that we need to see now is a massively strengthening Swiss franc. At the same time, it is very hard for us to see any turnaround in the money market. It did help that the Federal Reserve more than doubled the swap lines (increased by $330B from $290B) to the other centralbanks and extended them through April 2009. The total size of the outstanding swap lines is now $620B, which includes $240B to the ECB, $30B to BoC, $80B to BoE, $120B to BOJ, $15B to Danmarks Nationalbank, $15B to Norges Bank, $30B to RBA, $30B to Sveriges Riksbank, and $60B to SNB. But in light of the disappoint political decision yesterday, the money market is likely to stay under consideral stress.

Emerging Markets

By the Emerging Markets Team

The rejection of the US rescue plan was obviously bad news for EM, which was already rattled by a string of bank failures across the US, the UK, the Euro Area - and Iceland. With the Congress being on leave until Thursday, we really see no positives ahead - and the only reason that we do not recommend selling of most of our EM-crosses is due to the fact that volatility is so elevated that it is very difficult to express directional views while at the same time protecting the downside. But let us just make clear: A neutral stance in the table below does not mean buy! In Iceland, the government finally acted and bought 75% of Glitnir - but once again, the Icelandic authorities act to late and when they had no other choice. The 5-year CDS spread on the state of Iceland thus ballooned by some 200bps, while EUR/ISK once again headed above 140. With the global backdrop taking a severe turn for the worse over the last couple of weeks and markets doubting Iceland's ability to shore up its banking sector, risks for the ISK remain clearly skewed to the downside!

Today’s Key Events

• 08:00 ILO Unemployment, DEM

• 09:25 ECB’s Gonzales-Paramo speaks, EUR

• 10:00 Retail Sales, NOK

• 10:30 GDP, GBP

• 11:00 Consumer Prices, EUR

• 15:00 CaseShiller House Prices, USD

• 15:45 Chicago PMI, USD

• 16:00 Consumer Confidence from Conference Board, USD

• 18:00 ECB’s Trichet speaks, EUR

• 19:00 FED’s Lockhart speaks, USD

• 01:50 Tankan Report, JPY

• Download Full Daily Forex Commentary

Published on  Tue, Sep 30 2008, 08:50 GMT

How will the Plan be received?

Mon, Sep 29 2008, 06:16 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The rescue plan was on Friday without doubt the dominating theme in the financial markets.
It soon became clear that the authorities would not be able to finish the plan before the weekend and it had a disappointing effect among market participants. However, on Sunday congressional leaders agreed on a draft that will allow the US Treasury to buy up to $700 billion of troubled debt securities from the banks. The plan will be sent to Congress today and hopefully President Bush will be able to approve it later on. The draft bill is entitled as the “Emergency Economic Stabilization Act of 2008” and immediately provides $250 billion, another $100 billion are available if requested by the president, and the Congress will have the authority to approve the remaining $350 billion. In return for buying up trouble securities from the banks, the US Government will receive stakes in the companies participating in the plan. Moreover, the plan seeks to limit executive compensation. The first reactions in the FX market are not all that positive. Hence, we see the low-yielders (JPY and CHF) strengthening whereas the highyielders (AUD and NZD) are under a slight pressure. Under a slight pressure are also the Scandinavian currencies and the euro. The pressure on the Scandinavian currencies can probably be related to the features of the rescue plan where the weakening of the euro is probably more related to the partial nationalization of Belgium Dutch financial group, Fortis. The Belgian, Dutch and Luxembourg governments are injecting €11.2 billion in the company and in return receive a 49% stake in the Fortis units in the respective countries. The 6th largest US Bank, Wachovia, late on Friday put itself up for emergency sale.
The bank went from being the hunter to the hunted in less than a week. How ironic is that? Hence, we are expecting yet another “interesting” day.

Emerging Markets

By the Emerging Markets Team

US politicians reached an agreement on the US rescue package but the plan still needs to be formally approved. The excitement following the package is however quite limited as markets are worrying if obstacles will occur in the further process of approving the package and whether the size of the package is going to be big enough. Another point of concern is how the financing of the package is going to affect the US economy. So what was going to be a huge relief for markets now seems to be only short lived. On top of that the financial crisis has now hit Europe again. The approval of the package can provide short term support for EM currencies but looking a few days further ahead the risk on EM currencies will still be on the down side. Looking at the local data today has rate announcement from Hungary on the agenda. Our call is for the rate to be left on hold at 8.50 % and this is in line with consensus. The rate announcement is likely to turn out to be a non-event. Focus will be on the following comments and whether these will give us hint on how close we are to cuts in the key rate are.

Today’s Key Events

• 10:30 Consumer Credits, GBP

• 11:00 Consumer Confidence, EUR

• 14:30 Personal Income, USD

• 14:30 Personal Spending, USD

• 01:01 GfK Consumer Confidence, GBP

• 01:30 Unemployment, JPY

• 03:30 Retail Sales, AUD

• 03:45 FED’s Hoening speaks, USD

• Download Full Daily Forex Commentary

Published on  Mon, Sep 29 2008, 06:16 GMT

Politicians…

Fri, Sep 26 2008, 07:00 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday stock markets rose as negotiations in the US Congress on the infamous 700 bn USD bank bail out plan looked promising.
However all hope of an impending solution was lost as negotiations fell flat after a meeting in the White House between President Bush and the presidential candidates. At the meeting the Republican candidate John McCain supposedly threw his support behind an alternative suggested solution proposed by a group of conservative Republican lawmakers. Thus it seems that negotiations have turned into chaos.

To make matters worse the Seattle-based bank Washington Mutual was closed by regulators in what has already been named the biggest bank failure in US history. The bank collapsed as its credit rating was cut to junk, its stock price tumbled and customers withdrew 16.7 billion USD from their account since September 16th.
The third largest bank in the US, Morgan Stanley, said that it bought the deposits of Washington Mutual for 1.9 bn USD and that it would be business as usual on Friday morning. However there is no doubt that we are in for a rough day with a sustained pressure on credit markets and an unwinding of carry trades in the FX markets. Hence we prefer to maintain a neutral stance for the time being.

Emerging Markets

By the Emerging Markets Team

Financial markets were in a marginally positive mood yesterday as market participants were hoping for Congress to reach an agreement on the USD 700 bn. rescue package. Reports of an agreement having been reached were good news for the financial markets including EM.
But it turned out that a group of Republicans does not agree with the guidelines in the package and it still remains uncertain what the outcome will be. On top of that another US financial was in troubles and had to be taken over - JP Morgan buys Washington Mutual.
Hence what yesterday seemed to have the potential to become a positive day now seems to be yet another day with fragile markets.

Taking a look at the local stories the central banks in the Czech Republic and Romania chose to keep rates unchanged. We had expected a 25 bps cut in the Czech Republic. In spite of a weaker growth outlook and expectations of decreasing inflation, CNB chose to keep the rate unchanged because of the many uncertainties that are present in the financial markets at the moment. We still expect cuts of 50 bps in the key rate within the next 6 months. In Romania we had expected a 25 bps hike but it now seems that the central bank could be reluctant to hike further. There are no important data releases on EM today and focus will once again be directed towards the US and news on the rescue package.

Today’s Key Events

• N/A CPI from German federal states (DEM)

• 10:00 Retail sales (PLN)

• 10:00 Unemployment (PLN)

• 12:15 ECB’ Wellink (EUR)

• 14:30 GDP (USD)

• 14:30 Personal consumption (USD)

• 15:00 ECB’s Bini Smaghi speaks (EUR)

• 16:00 Trade balance (TRY)

• 19:15 ECB’s Wellink and Gonzalez- Paramo speaks (EUR)

• Download Full Daily Forex Commentary

Published on  Fri, Sep 26 2008, 07:00 GMT

The Day of Speeches

Thu, Sep 25 2008, 07:13 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandies Team

The Norwegian central bank kept its key policy rate at 5.75% at yesterday’s rate announcement. The decision was widely expected by the market (and us) and the projections of the key policy rate was also kept steady. The Norwegian currency has together with the Swedish been under pressure since the credit crisis escalated a few weeks back, but regained strength shortly when the central banks intervened and when the “rescue package” was put on the table. This is a logical market reaction in times of crisis as the two currencies will be viewed as too small (and thereby too risky) for the very large investors.
From this point of view, the two Scandinavian currencies remain a buy on dips until the dust settles. Otherwise, the G10 FX market was rather dull yesterday as the high-yielders traded with slightly bullish sentiment and funding traded with bearish sentiment, however, market fluctuation could have been overlooked. Today is the day of speeches since we have a gazillion (and that’s a lot) official speeches from various central bankers. The market participants will be pointing their antennas and tuning in on these speeches due to the last few weeks’ central bank activity. We are still expecting times of slightly negative sentiment as long as the details of the “rescue package” are uncertain. US politicians will be discussing the package in the media until it is voted through in Congress. Uncertainties are never creating positive sentiment in financial markets.

Emerging Markets

By the Emerging Markets Team

Markets remained fragile yesterday as everybody was waiting for news on the proposed US rescue package. The debate continued and it now seems that the 700 bn. USD will only be released little by little and that there will be a limit on how much CEOs in the financial sector can receive. Pres Bush expects to be able to present the final package on Friday and until then markets will remain fragile. Yesterday also saw room for a few local stories on EM in the form of rate announcement from Poland and CPI from Iceland. None of the events attracted much attention as focus in Iceland is rather on concerns for the health of the financial sector.
Credit spreads are still high and EURISK is still flirting with the 140 level. We remain neutral but the risk on ISK is clearly still on the downside. In Poland rates where left on hold but focus was more on the comments following the announcement and possible notes on the aim of adopting the Euro in 2012. Central bank Governor Skrzypek didn’t seem as enthusiastic as PM Tusk and said that 2012 was the first possible date for EMU entry and that it would require amendments to the Constitution. With regard to the monetary policy the MPC would not eliminate further tightening. We still expect one more hike of 25 bps. Today also has room for a few local stories with rate announcements from the Czech Republic and Romania. The former is likely to draw the most attention. CZK has seen support from renewed focus on the EU-convergence story but today’s rate announcement is likely to bring focus back to the new pace of monetary policy. Consensus is for rates to be left on hold but we see 25 bps cut as likely. If this materializes we should see some pressure on CZK. The general direction on EM will still be driven by news from the US.

Today’s Key Events

• 08:10 GfK Consumer Confidence, DEM

• 09:30 Producer Prices, SEK

• 10:00 M3, EUR

• 11:30 Producer Prices, ZAR

• 14:30 Durable Goods Orders, USD

• 16:00 New Home Sales, USD

• 17:00 ECB’s Bini Smaghi speaks, EUR

• 18:00 Bernanke testifies on Fannie Mae situation, USD

• 19:00 FED’s Warsh speaks, USD

• 00:45 GDP, NZD

• 01:30 Consumer Prices, JPY

• 01:30 FED’s Fisher speaks, USD

• 01:45 ECB’s Gonzalez-Paramo and Plosser speak, EUR

• Download Full Daily Forex Commentary

Published on  Thu, Sep 25 2008, 07:13 GMT

Markets remain nervous

Wed, Sep 24 2008, 06:45 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Sentiment was mainly negative on Tuesday as investors seem to worry that Congress will stonewall negotiations on the historical 700 USD plan aimed at bailing out the distressed banking system. Thus the major stock indices slid for the second day in a row, and front Eurodollar futures dropped by around 13 ticks as credit conditions tightened anew.
This morning the Fed has announced that it has established a temporary swap line with the Reserve Bank of Australia (RBA), Danmarks Nationalbank, Norges Bank and Sveriges Riksbank in order to address the liquidity issues which are currently haunting the financial markets. The swap arrangement will provide the RBA and Sveriges Riksbank with 10 bn USD each while Norges Bank and Danmarks Nationalbank are assigned 5 bn USD each.

Today focus is likely to remain on Bernanke, who speaks again this afternoon. However, turning towards Scandinavia, Norges Bank is scheduled to announce interest rates this afternoon. From a macro economic poit of view there is scope for another rate hike in Norway as inflation remains an issue. However as the crisis sweeps across the global financial markets we expect Norges Bank to leave the key rate unchanged at 5.75% this time around.

Emerging Markets

By the Emerging Markets Team

Financial markets continue to focus squarely on the eventual content of the US rescue package - and while the reaction late last week indicated that markets were sure to get the toy they have always wanted from Farther Christmas - aka Mr. Paulson - fears are now increasing that there may just be a woollen jumper under the Christmas tree. Yesterday, Bernanke gave the expected warning on the risk of delaying the package (in rather stark terms), but politicians seem to want to include restrictions on the package itself - and on the banks who are helped out by it. Today, focus continues with Bernanke slated to give two hearings: one on the economy and one on the financial crisis - but it should come as no surprise if the first touches mainly on the subject of the second. Hence, uncertainty remains high. The ZAR took a ride in the roller coaster yesterday, weakening on news that a number of ministers resigned but strengthening again on news that Finance Minister Manuel would be staying on board.
Still, yesterday's news highlights the vulnerability of the ZAR, both from the political front and from the fundamental one (inflation once again ticked higher yesterday while retail sales fell 4.6% y/y). In Iceland, we will receive inflation figures today, but focus here remains on the state of the large Icelandic banks. With credit spreads remaining high, international credit market functioning remaining impaired and the ISK forward market still in disarray, the ISK remains in the firing line - not the least because the speculation of bank rescue packages elsewhere highlights the Icelandic problem of bank size relative to the economy.
While we have reached our 140 target for EUR/ISK and we thus turn neutral on the cross for now, risks remain elevated for a further sell-off. The main event - besides Bernanke speaking again (and again) today for EM is the polish rate decision - not so much for the outcome (unchanged) but for what they have to say on recent events in the financial markets.

Today’s Key Events

• N/A Rate announcement from Poland (PLN)

• 10:00 Ifo (DEM)

• 11:00 CPI (ISK)

• 14:00 Rate announcement from Norges Bank (NOK)

• 14:45 Press conference at Norges Bank (NOK)

• 16:00 Bernanke testifies before Congress (USD)

• 18:00 ECB’s Stark speaks (EUR)

• 20:30 Paulson and Bernanke testifies on the financial crisis before House Panel (USD)

• Download Full Daily Forex Commentary

Published on  Wed, Sep 24 2008, 06:45 GMT

The USD remains under pressure

Tue, Sep 23 2008, 06:45 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Currently market participants have their attention directed firmly towards the unprecedented plan aimed at bailing out the financial sector in the US and prevent further devastating blows to the financial markets which in turn could have fatal consequences for the trembling US economy. So far it looks as though American tax payers will be picking up a bill amounting to a breathtaking 700 bn USD (at least) and as focus has turned towards the deteriorating outlook for the national budgets the USD has weakened dramatically from recent highs. In the short term we expect pressure on the US dollar will sustain. Hence a test of 148.80 on EURUSD doesn’t seem unlikely. However as the dust settles we expect that focus among investors once again will turn towards the deteriorating outlook for growth in the Euro Zone. Thus we don’t believe that the recent developments in EURUSD is a sign that we are about to take leave of the long term downtrend which has been established in recent months. Hence in the long term we stick to our 3-month target in EURUSD at 137.00 (corresponding to 544 in USDDKK)

Following the recent drop in the USD USDCAD and NZDUSD have broken out the trading intervals we have defined for the currency crosses. As we believe that the downside potential on the USD is fairly limited in the short term we have chosen to maintain a neutral stance and adjust our intervals.

There are several interesting events in the macro economic calendar today. However there is little doubt that Treasury Secretary Paulson and Fed’s Bernanke will steal the limelight as they take the stage to testify on the current credit turmoil before the Senate panel.

Emerging Markets

By the Emerging Markets Team

In general we had a quiet European session yesterday. However when the US market opened global risk appetite declined and the global equity markets ended the day much lower (Dow Jones: - 3.27 %). The same happened to EM-currencies in general. Worst performer of the day was ISK, which dropped with almost 4 per cent from the top of the day. TRY declined with 1.7 % against EUR. Following the euphoria on the markets Friday, now the investors maybe have started to look at the fundamental problems in the US-economy (increasing unemployment and lower growth – add to that now: a large fiscal burden to help the banks out of their misery). As a consequence the US-dollar once again showed weakness and dropped 2 % against the Euro.
This put pressure on MXN, but BRL could hold out and ended the day almost unchanged against the Euro. Today we expect pressure on EM-currencies in the European session and look forward to new input, when the US market opens.

Today’s Key Events

• 10:00 Euro Zone PMI manufacturing (EUR)

• 10:00 Euro Zone PMI service (EUR)

• 10 :00 ECB’s Liikanen speaks (EUR)

• 11 :00 New industrial orders (EUR)

• 11 :00 Retail sales (ZAR)

• 11 :30 CPI (ZAR)

• 13 :00 CPI (CAD)

• 16 :00 Treasury Secretary Paulson and Fed’s Bernanke testify on credit turmoil at Senate panel (USD)

• Download Full Daily Forex Commentary

Published on  Tue, Sep 23 2008, 06:45 GMT

From "It's all going to H…" to "Euphoria" in an instant

Mon, Sep 22 2008, 07:03 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

OMG what a week we just had. What we experienced last week will most likely be in the history books of the future. Everything was flying around in a market with extreme volatility. We saw flight to quality in a magnitude rarely seen; investors were fleeing into US Treasuries selling risky assets and an instant later the central banks or the US Government intervened and euphoria was all over the place. During the weekend, the Bush administration finalised the rescue package and sent it to Congress seeking authority to handle probably the worst crisis since the Great Depression. Details of the rescue plan are still uncertain, but we do know that the proposed package features an option to buy up to $700 billion of home and commercial mortgages and related assets from US banks. This should enable the US Government to gather all the toxic securities in one government-controlled company removing them from the balance sheets of the stressed banks. Hopefully, this will improve the trust between banks and boost the credit markets. Short selling has been banned in the US and in the UK for financial companies and in Australia the Australian Securities and Investment Commission has banned ALL short selling. We still prefer to stay on the sideline with our short-term recommendations, which means that we have only updated a few ranges in our table. Today we are leaning towards a positive day, but as we all witnessed last week, positive sentiment can vanish in an instant. The financial markets will most likely be awaiting details of the rescue package and listening to central bankers who are on the wires during the day.

Emerging Markets

By the Emerging Markets Team

Whatever else you may think of Pres. Bush Junior, he does have a refreshing way of putting things simply and clearly: when adressing the proposed rescue package he said that "This is going to be a big package because it's a big problem"! You can say that again, mr. President! While EM currencies also benefitted from Friday's huge relief rally - and could do so further in the days to come - we think that uncertainty remains huge, not the least on the exact form of the rescue package. While Mr. Paulson was asking for full power to spend the 700bn USD (to begin with), including a guarantee that his decisions could not be challenged by the courts. Politicians who are in fact handing him a blank cheque will most likely require tight controls and accountability - not the least because the money will go to help the banks that the politicians are in fact blaming for the whole mess to begin with.
Hence, the week ahead will only be about news and rumours on the rescue package, with local stories still more or less immaterial. Considering that EM currencies weathered the storm well last week, this should also leave upside limited. Hence, uncertainty rules! One position we do stick to is our short ISK position. While the credit spreads did come down slightly for two of the large Icelandic banks on Friday, one actually went higher, leaving the average higher on the day. Distrust of the Icelandic banking sector remains very high, leaving the ISK exposed.

Today’s Key Events

• 09:00 ECB’s Trichet speaks, EUR

• 10:00 BoE’s Gieve speaks, GBP

• 14:00 Core Inflation, PLN

• 14:30 Retail Sales, CAD

• 17:30 FED’s Fisher speaks, USD

• Download Full Daily Forex Commentary

Published on  Mon, Sep 22 2008, 07:03 GMT

IS the Crisis over?

Fri, Sep 19 2008, 06:24 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday the major central banks (FED, ECB, BOJ, BoE, BoC, and SNB) announced coordinated efforts to address the elevated pressure on the short-term US dollar funding.
The FOMC opened swap lines to the other central banks to provide dollar funding for both term and O/N liquidity (ECB: $180 billion, SNB: $27 billion, BOJ: $60 billion, BoE: $40, and BoC: $10 billion). The immediate reaction in the market was relief, but it only lasted to around closing hours in Europe. At that time markets started to turn around. Shortly thereafter, N.Y. Senator Chuck Schumer hinted that Fed officials are considering a more permanent plan to help deal with the stress in financial markets. During the Savings & loan (S&L) crisis in ’90 the Resolution Trust Corporation (RTC) was set up to remove the assets that no one trusts from the banks balance sheets. Several reports indicate that the US Government and the Treasury are working on similar arrangements (let’s for the fun of it, call it RTC part 2 – others already have). Risky assets kicked a….. when Senator Schumer hinted that something was going on – S&P and Nasdaq rose more than 5% and carry trades were again viewed as an interesting opportunity. JPY and CHF fell, but there was nowhere near the same positive effect as on stocks. The dollar rebounded versus the euro as the news about the arrangement came out and the short-term rate differential moved in favour of the greenback. In addition, Wall St. Journal is reporting that the SEC and FSA are working on banning short selling financial shares to avoid share prices crashing. And where do we go from here? The funding to RTC part 2 would have to be approved by the Congress and questions still remain of how long it will take to set up the structure. That said, there is no doubt that Hank Paulson and Bernanke will be working through the weekend in an effort to outline the plan before markets are opening in Asia Monday. At least there is at present a chance we can go on weekend without the world falling apart before we get back to work on Monday. Is the crisis over? –well how long did it take to clean up the mess from the S&L crisis? If – and we stress IF – this plan would fall apart, there is no doubt that it will be a major disappointment to financial markets…

Emerging Markets

By the Emerging Markets Team

Recently, markets have been left with the feeling that Tres. Sec. Paulson was running around with a broom, sweeping financial institutions up one by one as they dropped from the perch (or not, as it where, if he felt that they wouldn't bother others too much) but that nothing was done to address the root of the problem and to keep the remaining canaries glued to the perch. This all changed yesterday evening with the announcement of the possible public institution which would mop up bad assets of financial companies.
Hence, risky assets everywhere got a big lift on the hope that this is just what is needed to get financial markets going again. We have thus been stopped out of our short TRY and ZAR positions - but sometimes, it is actually quite nice to be wrong. Looking ahead, the key question remains whether markets have responded too kindly to the news - after all, the creation of such an entity is not without its problems - but for now, at least, we should head in to the weekend feeling much better. It is highly likely that the ISK will also benefit from this news, but as the ISK market is not yet open, we will wait and see whether our stop is hit at the open. While the ISK should get some tailwind for now, the fear of the collapse of one of the Icelandic banks is likely to be with us for some time to come, and caution is thus still warranted.

Today’s Key Events

• 08:00 PPI, DEM

• 08:30 Barbro Wichman-Parak speaks of the current situation, SEK

• 09:00 ECB’s Stark speaks, EUR

• Download Full Daily Forex Commentary

Published on  Fri, Sep 19 2008, 06:24 GMT

Not a Positive Day in Sight

Thu, Sep 18 2008, 06:20 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

We were witnesses to a European session with a relatively positive undertone, however, that sentiment vanished quickly when the Americans started hitting the numbers on their keyboards. Stocks went into negative territory, JPY and CHF rebounded versus both the dollar and the euro and as did the euro versus the dollar. NASDAQ and S&P500 closed down almost 5%, which does not happen very often.
The TED spread (3-month USD Libor vs. 3- month T-bill) is at levels almost twice as high as during the EMS crisis in ’92-‘93, LTCM ’98, and the Bear Stearns situation in the spring (current level ~300bps). Credit spreads illustrated by Libor fixings vs. OIS (short interest rate swaps) have blown out – especially in USD, but GBP has also been hit. In USD, 1-week spread is currently at more that 250bps while 3-month spread it “just” close to 150bps and this should be compared with the 7-8 bps (for both spreads) before the crisis. As a consequence of the highly unusual situation in the financial markets, we have decided not to put any new recommendations on the list at present. However, to give an arrow of direction in the market for developed FX, we have widened the ranges in the side in which the currency pairs are most likely to be heading.
Hence, lots of updates in the “Majors FX space”.

Only one thing left to say – good luck and manage your positions carefully.

Emerging Markets

By the Emerging Markets Team

Fear, distrust and outright panic continues to dominate financial markets, with widespread closing of positions hitting EM currencies hard - and hitting the popular stories the hardest, simply because that's where there are most positions to close. So far, the authority response has been peicemeal and uncoordinated, and it is an understatement to say, that markets have been far from impressed. Pumping out liquidity and sweeping up the remains of failed institutions quite simply is not enough at the current juncture, and we really need something more comprehensive and coordinated. Until such a step emerges, it is hard to envisage sentiment turning around, and we thus sell both the ISK and the TRY today (we are already short the ZAR). The ISK is obviously one of the (if not the) most vulnerable currencies in times of worries over financial institutions (and the 5-year CDS spreads of the Icelandic banks hit new highs yesterday), while the TRY, one of the most popular EM stories for a long period, is vulnerable through being a crowded long.
Today's central bank meeting is unlikely to alter the fate of the TRY, which is wholly in the hands of global sentiment. Having said that, a rate cut would be the wrong signal to send, not only because inflation remains high but also due to the nervous state of the global investor.
We look for rates to be kept unchanged at 16.75%.

Today’s Key Events

• N/A ECB meeting – No Rate Announcement Scheduled, EUR

• 14:00 Rate Announcement SNB, CHF

• 16:00 Philly Fed, USD

• 18:00 Rate Announcement Central Bank of Turkey, TRY

• 00:45 Current Account Balance, NZD

• 07:00 Leading Indicator, JPY

• Download Full Daily Forex Commentary

Published on  Thu, Sep 18 2008, 06:20 GMT

Fed Funds Unchanged at 2%

Wed, Sep 17 2008, 06:12 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Some relief sentiment has entered the market as the U.S. Government agreed to rescue mortgage insurer American International Group (AIG) with a $85 billion loan from the Federal Reserve of New York. The U.S. Government will in return receive an 80% stake equity interest in AIG and can veto any dividend payments to common and preferred shareholders. Barclays has announced that it has agreed to buy Lehman Brothers North American investment banking and capital markets divisions (including New York headquarters). Morgan Stanley’s earnings were better than the market expected, but there is still some concerns in the market whether or not the bank is going to continue as an independent bank. The Federal Reserve kept the fed funds rate at 2% and gave thereby no gifts to the stressed financial markets. The statement acknowledged the elevated stress in financial markets and that the tight credit conditions could weigh on economic growth, but otherwise it was a relatively dull statement. There is no doubt that the financial markets have taken overnight developments positively. However, it is still way too soon say that everything is back to business as usual – well you could probably argue that we are back to business as usual as per the last 14 months.
Overall, there are still a lot of uncertainties out there and volatility is likely to remain high for the time being. That said, relief sentiment is likely to dominate (unless other bad news are going to disturb the picture) today’s session.

Emerging Markets

By the Emerging Markets Team

The FOMC disappointed some in the market by keeping rates on hold. Initially this was disappointing for the markets and equities were dropping. However during the night the US government agreed to lend as much as 85 billion dollar to AIG to save the biggest insurer in USA from collapse. By these two actions FED chairman Bernanke is betting he can use targeted emergency loans rather than another key rate cut to fight the credit crisis. Looking at Emerging markets we keep our recommendations and have the following comments:
TRY: We look forward to the interest rate meeting tomorrow. We expect the central bank to be credible and keep the key rate unchanged at 16.75 %. This should help supporting the TRY and therefore we keep our range.
PLN: Yesterday the Polish government opened talks about a timetable for euro adoption with central bankers for the first time. After the meeting Tusk told reporters that Poland should meet all euro adoption criteria in 2011 and expects a positive decision on the adoption from the European Commission. He added that a detailed timetable for the euro adoption will be ready in mid-October. This has been very positive for PLN with EURPLN dropping from 3.42 to 3.34. Of the 5 criteria, inflation is likely to be the most problematic for Poland and 2011 is in our view still very optimistic.
ISK: Locals are increasingly getting pro-Euro and pro-EU with the latest polls showing that 55 % + of people want to adopt both. The question is also getting increasingly serious among politicians. However short term EURISK will still be trading around the 131 level because of the risk aversion in global markets.

Today’s Key Events

• 11:00 Eurozone Trade Balance, EUR
  

• 12:00 CBI Industrial Trends, GBP
  

• 14:30 Housing Starts, USD
  

• 14:30 Building Permits, USD

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Published on  Wed, Sep 17 2008, 06:12 GMT

Brace yourselves…

Tue, Sep 16 2008, 06:19 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday European stock markets took a nosedive after the disturbing news of the collapse of Lehman Brothers, Bank of America’s purchase of Merrill Lynch and the problems surrounding the insurance giant AIG.
Credit spreads widened massively and the liquidity injections made by both the ECB, the BoE and the Fed seemed to do little to ease tensions. Thus in the deposit market the O/N USD rate - which traded around 2,50% as the European session was initiated - was traded around 5% as the NY session began.
In conclusion the outlook for today is rather gloomy and at this point we advise investors to lay low. However to give an indication of direction there is no doubt that we will be in for further carry unwind, i.e. a strengthening of the funding currencies (including JPY and CHF) and a weakening in high-yielders (including AUD and NZD). Furthermore further scandieweakness seems likely as investors continue to unload NOK and SEK denominated assets.

On the macro economic front all eyes will be on the Fed who is scheduled to announce interest rates at 8:15 pm. In the wake of the recent events surrounding the financial sector in the US rates have dropped massively across the curve and market participants are currently pricing in a 68% probability of a 25 bps rate cut today. Recent events certainly seem to have increased the possibility of a cut tonight.
However at this point speculation in the markets of a 50 bps cut seems exaggerated and as history has shown rate cuts have done little to resolve the confidence issues amongst players in the financial sector so far.

Emerging Markets

By the Emerging Ma rkets Team

Financial markets responded to the weekend's events as you would have expected: global equities are down some 4-5%, credit spreads soar, money markets freeze up and EM gets a hammering. Hence, no doubt that we are in for a very difficult time for EM currencies, with financial jitters reaching new highs. Focus will be mainly on whether central banks around the world will support markets by cutting rates much earlier than expected. So far, central bank reaction has been 'by the book' - page one of any central bank crisis manual reads 'Pump out liquidity', just what we saw from the FED, the ECB, the BoE and the Danish central bank (among others) yesterday. Hence, we are not getting our hopes up ahead of the FED meeting tonight. Although we have previously seen markets twisting the arm of central banks, a 50bps rate cut would leave the FED with preciously little remaining in its arsenal - and as for the ECB, recent rhetoric has certainly not been promising so we won't even go there.
Rumours of coordinated rate cuts thus seem somewhat exagerated - although such a move seems to be the best hope we have of a shortterm stabilisation of markets. This leaves markets unpleasantly exposed for the time being, and we thus continue to recommend a cautious stance. Positionwise, our short ZAR position is probably not the unwisest place to be! The FED meeting aside, focus will remain on whether other financial institutions buckle under the intense pressure, with AIG (the US insurance giant) first and foremost in people's minds. AIG is supposedly chasing 70-75bn USD in capital - a hunt which was not made easier by yesterday's downgrades from S&P and Moody's. Should AIG fail, we fear that yesterday's mayhem will look like calm markets in comparison - so we keep our fingers crossed for a benign outcome!

Today’s Key Events

• 09:00 Retail sales (CZK)

• 10:30 Consumer prices (GBP)

• 11:00 ZEW index (DEM)

• 11:00 Consumer prices (EUR)

• 14:30 Consumer prices (USD)

• 15:00 TIC flow (USD)

• 20:15 FOMC rate announcement (USD)

• Download Full Daily Forex Commentary

Published on  Tue, Sep 16 2008, 06:19 GMT

"MINE, YOURS, MINE, YOURS, YOURS…"

Mon, Sep 15 2008, 07:17 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

All weekend the Federal Reserve and the SEC have been working with a team of the largest banks in the world in an effort to resolve the Lehman Brothers situation. The two most likely bidders, Bank of America and Barclays, walked away this morning and Lehman has officially filed for Chapter 11 bankruptcy. Lots of sellers in the market but no buyers…However, Bank of America did not walk away without purchasing something as the bank bought Merrill Lynch for $50 billion. In light of the recent developments in the US financial sector, the Federal Reserve has extended its existing liquidity facilities, PDCF and TSLF, to include among other things investment-grade corporate securities. Hmmm the Federal Reserve is now accepting equities as eligible collateral – that can’t be good… But it does show how desperate the Federal Reserve is becoming as the financial crisis is escalating. In order to help preventing a meltdown of the financial system, ten of the largest banks (Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS) have committed to a $70 billion borrowing facility ($7 billion each).

The FX and short-term interest rate markets have been flying around all night. We are expecting a volatile session today with riskaversion dominating the picture. This means that we will most likely see CHF and JPY strengthening (most versus USD) and AUD and NZD weaken (most versus EUR). The US dollar is expected to be under pressure versus the euro as it is currently the US financial sector that is the centre of attention. Short-term interest rates have fallen massively during the night with US rates being down more that 35bps(!) and European rates “just” 23-25bps.
And ohh by the way, we have adjusted a few of our FX trading ranges…

Emerging Markets

By the Emerging Markets Team

Uncertainty regarding the future for Lehman continued to dominate markets Friday. An increase in EURUSD and continued focus on the EU-convergence story provided support to the Central- and Eastern European currencies while USD-related currencies incurred losses.
In South Africa there was news on the political front as the court declared the corruption charges against the (most likely) coming president Zuma invalid. This ruling should be positive for political stability in South Africa but new corruption charges against Zuma can not be eliminated. This morning continued worries for the US financial sector has lead to a further rise in risk aversion. Markets are very nervous and all EM currencies are suffering and will still be very sensitive to news from the US financial sector. Today we will most likely not see the differentiation between EUR-related and USD-related currencies that have been present the past few months as the entire class of EM currencies will suffer.

On the data front this week kicks off with August CPI from Poland. Last week was quite turbulent for PLN as the currency at the start of the week continued its new declining path but then saw good support from a comment from PM Tusk that Euro adoption should be possible in 2011. We do not think this support will continue as PLN will be negatively influenced by a deteriorating growth outlook for the Eurozone, the interest rate soon having peaked, and stronger USD/weaker EUR.

Today’s Key Events

• 09:00 Unemployment, TRY

• 10:00 Trade Balance, NOK

• 11:00 ECB’s Trichet speaks, EUR

• 14:00 ECB’s Tumpel-Gugerall speaks, EUR

• 14:00 Consumer Prices, PLN

• 14:30 Empire State Index, USD

• 15:15 Industrial Production, USD

• 03:30 RBA Minutes, AUD

• 07:00 Consumer Confidence, JPY

• Download Full Daily Forex Commentary

Published on  Mon, Sep 15 2008, 07:17 GMT

Do I hear a bid for Lehman?

Fri, Sep 12 2008, 06:37 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Worries about the health of the financial sector in general and troubled US bank Lehman Brothers in particular dominated market sentiment on Thurdays. Stocks and interest rates fell for most of the day before making a remarkble turnaround late last night on market rumours that US authorities and the Federal Reserve are involed in a possible sale of Lehman to one or several US banks. Apparently the deal is planned to be announced before the start of next week in an effort to calm markets down.
The Lehman story will be in focus today and might keep financial markets in a wait-and-see mode though still nervous and edgy.

Overnight both the JPY and the CHF has weakened slightly from yestday’s hight as the prospects of an end to the Lehman crisis has reduced risk aversions, at least for the time being. With markets so focused and driven by rumors expect volatility to remain high.

The USD also weakend overnight. One reason was a another rumors circling the markets yesterday about a possible rate cut by the US Federal Reserve at next week’s meeting. In view of last Friday’s weak US job report and recent lower oil prices, which have improved the outlook for inflation, markets have started to speculate about the chances of another US rate cut. Short term US rates fell yesterday and at the moment markets price in a 10-12 % chance of a 25 bp hike next week and roughly at 35 % chance of a cut before the end of the year.We doubt the Fed will cut as early as next week but still look for a cut before the turn of the year.

Emerging Markets

By the Emerging Markets Team

The fate and woes of Lehman Brothers continue to drive financial markets. After a bit of panic yesterday (where the CDS spreads on Lehman spiked to almost 800bps), markets thus calmed down as speculation of a possible buyer intensified (Bank of America has been mentioned), as did speculation that the US authorities are once again involved in bailing out the market. Lehman's CDS spread thus ended the day lower at around 540bps. EM also benefitted from calmer markets, although currencies like the ZAR and the TRY still ended the day down against the EUR. The EM calendar is practically empty today, and although the US does give us producer prices and retail sales, we think focus will remain squarely on the a possible resolution of the Lehman situation.
Any news of a prospective deal could be just what is needed to stabilise markets in the short run. Perhaps Hank Paulson will be the man to save the markets for the second consecutive weekend - but in a wider perspective, a solution without government involvement would obviously be preferable. Positionwise, we stick to our long EUR/ZAR position, although we have moved the stop up to the entry level. A Lehman take-over would most likely lift EM across the board - and hence also the ZAR, however much we dislike the fundamentals.

Today’s Key Events

• N/A Svein Gjedrem speaks, Norway
  

• 11:00 Industrial production, Eurozone
  

• 14:30 Producer prices, US

• 14:30 Retail sales, US
  

• 16:00 U of Michigan Confidence, US

• Download Full Daily Forex Commentary

Published on  Fri, Sep 12 2008, 06:37 GMT

FX − When the going gets tough ……..

Thu, Sep 11 2008, 07:04 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The tough get going. The fx market is for sure no kids game any more. The dollar keeps brushing all other currencies aside without looking in the rear view mirror. EUR/USD managed overnight to break through the psychological threshold at 140 triggering another bout of stop loss orders in the market. The next major support area will be coming in between 138.00 - 138.40. Risk aversion is therefore thrieving in general. Consequently, EUR/JPY has been diving below the very important support at 150 thereby dragging EUR/CHF down as well. The area to watch in EUR/JPY will be 149.25 the low from last autumn when the credit crisis broke loose. The corresponding level in EUR/CHF will be 158.20 briefly touched last week.

The AUD and NZD keep getting hammered in the wake of the dropping commodity prices and not least the strengthening of the yen. RNBZ apparently felt the heat so much that they decided to lower interest rates by 50 bps at their monetary meeting overnight. Expect further losses for both currencies. In general hopes are high that the fx market soon will be bound for a major correction. Problem is from which levels. The knives keep falling all over the place and it is starting to get really bloody.

Emerging Markets

By the Emerging Markets Team

EM: Fleeting markets

Market focus continues to change quicker than Denmark can turn around a World Cup Qualifier: While the week startet off with everything being about Freddie and Fannie, these were almost forgotten yesterday, with all focus turning to the premature publication of Lehman's results. While losses were double what analysts had expected (and reached 6.7bn USD over the last 6 months), market reaction was actually relatively subdued. Perhaps markets had feared worse - or perhaps there is a feeling that, no matter what, the authorities will bail out what needs to be bailed out. In any event, focus will remain on whether Lehman manages to sell off selected tit-bits of its business to ensure continued survival. The publication of such a deal could lift financial markets - its absence will do the opposite. Positionwise, we have closed our short EUR/TRY position as the cross traded briefly above our stop of 1.75 yesterday, booking a solid profit of some 5% (carry included). This leaves us short ZAR, which we feel comfortable with as markets remain highly nervous. Today, focus will centre on the Sedlabanki rate decision. Despite inflation running some 10 percentage points above the target band, signals from the Sedlabanki have been somewhat mixed and some market participants are looking for an early start to the rate cut cycle today. We hope this does not materialise as it would, in our view, constitute a policy error and leave the ISK even more vulnerable. The decision illustrates the dilemma of many EM central banks at the moment - with the fear that they will let growth concerns overrule inflation targets. We hold our thumbs and pray for a bit of central bank prudence!

Today’s Key Events

• 09:00 CPI, Hungary

• 11:00 Interest rate decision, Iceland

• 11:00 GDP, 2. quarter, Iceland.

• 14:30 Jobless claims, USA

• 20:00 ECB’s Trichet speaks.

• Download Full Daily Forex Commentary

Published on  Thu, Sep 11 2008, 07:04 GMT

Another day in the FX rollercoaster

Wed, Sep 10 2008, 07:11 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Once again yesterday turned out to be a bumpy ride in the rollercoaster, with especially EUR/USD, EUR/CHF and EUR/JPY showing extremely high intraday volatility. Whether you like it or not the latest strong downtrend in EUR/USD seems unable to loose momentum and the dollar continues to climb higher against all currencies. The psychological support level at 140 in EUR/USD seems within reach and a coming test seems very likely. As for risk aversion market participants are still on high alert bringing both EUR/JPY and EUR/CHF under pressure. In EUR/JPY the big level to watch is 150, acting as well as a big psychological level. Overnight further concerns emerged about the liquidity in the US banking system bringing the US equities under large pressure and thereby adding further fuel to the present burning risk aversion fire. Glancing at the Scandinavian currencies, NOK and SEK, they as well have been victims in the ongoing nervousness, and both EUR/NOK and EUR/SEK are flirting with important levels. Key data out of Norway and Sweden to watch today are Norwegian August CPI and Swedish industrial production.

Worth mentioning is that the oil prices declined about 3 % in New York trading on the back of OPEC, bringing Brent Crude oil below USD 100 for the first time since April. Watch out – the ride is far from over!

Emerging Markets

By the Emerging Markets Team

Markets didn’t take long to turn around again

It did not take long for markets to turn around from the euphoria following President Bush’s rescue plan. Negative stock markets in Europe and the US yesterday dragged EM along and almost all EM currencies ended the day weaker against EUR. Once again ISK was the clear underperformer and we are slowly approaching 130 in EURISK, hence the cross has broken through the upper limit of our interval. For now putting a direction on EURISK seems to be a 50-50 bet. For now we maintain a neutral stance and adjust the interval. It will be interesting to see if Sedlabanki has any reactions on the monetary policy meeting tomorrow. For now we expect the rate to be left on hold at 15.50 %, but a hike would provide much needed support to the currency. Yesterday’s outperformers were the Central- and Eastern European currencies but only marginally firmer. In Turkey the central bank released its bi-weekly inflation expectations survey which showed decent drops in both expectations for end 2008 and 12 months ahead. This could provide support to the recent more dovish stance by the CBRT, but we still think that cuts in the key rate will only be a reality some time in to 2009. Today Q2 GDP is released and a number lower than expected could push to market speculations that cuts in the key rate are not too far away. Asian stock markets are in negative territory this morning and it seems that we could be up for another day of EM underperformance.

Today’s Key Events

• 09:00 ECB’s Trichet speaks
  

• 09:00 CPI, Romania
  

• 09:00 Q2 GDP, Turkey
  

• 10:00 CPI, Norway
  

• 13:00 MBA Mortage Applications, US
  

• 14:00 Q2 GDP, Brazil
  

• 23:00 Rate announcement, New Zealand
  

• 23:00 Rate announcement, Brazil

• Download Full Daily Forex Commentary

Published on  Wed, Sep 10 2008, 07:11 GMT

Extreme fx−race

Tue, Sep 9 2008, 06:59 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Although I have been in the fx-business for many year I'll have to admit that the recent huge waves of volatility in the fx-market are astonishing. The dollar keeps on climbing higher and higher despite major financial events like the Treasury's bail out of Fannie Mae and Freddie Mac over the weekend. After a first jump higher the EUR/USD quickly sobered up and returned to the vehement new downtrend dragging EUR/USD to new lows not seen for many months. Consequently, the dollar is blowing all other currencies aside and is now approaching tough psychological support at 140 thereby making the remaining dollar bears bleed heavily. Whether or not enough blood is flowing still remains the question. Trying to go against the forceful dollar uptrend right now is like catching a falling knife - it is best left undone. A bunch of market participants are still waiting to buy cheaper dollars after having been forced to acknowledge the new existence of the dollar uptrend therefore the longed for correction of EUR/USD will not be as impressive as most traders are hoping for. The dollar is back in vogue. And so is risk aversion. Especially the yen is rising again forcefully taking the CHF along too. A break of 150 in EUR/JPY will fuel another rise in fx-volatility. Better be prepared. The fx-race is on and it is EXTREME.

Emerging Markets

By the Emerging Markets Team

When do the markets calm down?

Monday the market was in a state of euphoria. Especially equity markets were performing brilliantly following President Bush’s decision to rescue Fannie Mae and Freddie Mac. On emerging markets almost every single currency gained against EUR. The Turkish Lira and the South African rand gained about 2 %. This was much needed following last weeks poor performance in general. President Bush’s decision was not a big surprise; however you will always see a kind of relief when the decision is taken. However we now expect the market to calm down and therefore it is likely we will see the EM currencies to underperform in the coming days. We therefore move our stop profit in EURTRY from 1.78 to 1.75.

After initially weakening against euro following President Bush’s decision, the dollar again has started gaining against the euro and during the night we have traded at the lowest level in EURUSD for about a year. This is fully in line with our general recommendation where we are buying dollar related currencies against the euro related currencies.

Finally a short comment to ISK. Even yesterday ISK could not perform against the euro. ISK is following the same trend as it has done for about three months. In positive market sentiment it cannot keep up with other high yielding currencies and in negative market sentiment it looses more than the other high yielding currencies. A rate hike on the September 11 meeting could help ISK short term. However judged by the comments from the central bank it is likely the key rate will stay unchanged at 15.50 at the meeting.

Today’s Key Events

• 11:00. ECB’s Weber speaks.

• 15:00. FED’s Bernanke speaks

• 16:00. Pending home sales, USA.

• 16:00. CPI, Mexico.

• Download Full Daily Forex Commentary

Published on  Tue, Sep 9 2008, 06:59 GMT

US Treasury and the Fed saved the World…

Mon, Sep 8 2008, 06:26 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

And so the U.S. Treasury and the Federal Reserve managed to save the world once again. This Sunday they announced a bailout of the two mortgage giants Fannie Mae and Freddie Mac, which own or guarantee almost half of the entire $12 trillion in outstanding mortgage debt in the US. Treasury Secretary Henry Paulson and FHFA Director James Lockhart argued that the US economy and the financial markets will not recover until the housing correction is in the past. In addition, Paulson and Lockhart argued that Fannie and Freddie are two special cases and it would be devastating to the economy if they were not kept floating. There is no doubt that this will be viewed positive by the market and positive for FX carry in the short-term. Even though we argued that EURCHF would reach sub-155 levels just a few days ago, the actions taken by the U.S. Treasury and the Federal Reserve changes this picture quite drastically. A lot of the risk-aversion we have witnessed in the last two weeks will most likely fade in the shortterm and this will prove positive for highyielders (AUD, NZD) and the funding currencies (CHF and JPY) will be sold once again. Overall, this will by the market be viewed as positive for growth, not just in the US, but indeed in the world as well. In the short-term our commodity analysts expect that commodities will receive a boost and this will not be all that positive to the US trade balance and hence the dollar. The euro is expected to gain versus the dollar on the renewed growth optimism, which means that we in the short-term expect EURUSD to edge higher. However, we cannot stop asking ourselves the following question: “How positive can it actually be when it is that bad that the only solution to save the financial sector in the US (and in the world?) is a government bailout?”. Hmmmm…

Emerging Markets

By the Emerging Markets Team

President Bush decision to save Fannie Mae and Freddie Mac has been very positive towards the Asian equity markets and risk appetite in general. Therefore the decision should also be positive for emerging markets short term. Looking at FX the decision has been negative for dollar against euro. Thus dollar related currencies as BRL, ARS, and MXN after 1½ months with gains now experience a negative day. On the other hand euro related currencies as HUF, PLN and RON are gaining.
However we still like the dollar related currencies more than the euro related currencies. We are considering opening a position in ISK (buying ISK) and considering closing our position in ZAR (selling ZAR) because of the credit friendly decision from President Bush. However we keep our positions today, because we forecast the positive sentiment to calm a little bit down. This week we look forward to a lot of important data from EM. Today we start with CPI from the Czech Republic 9 am.

Today’s Key Events

• 09:00 Consumer Prices, CZK

• 10:30 Producer Prices, GBP

• 13:00 ECB’s Stark speaks, EUR

• 16:30 ECB’s Tumpel-Gugerell speaks, EUR

• 21:00 Consumer Credits, USD

• 01:00 ECB’s Gonzalez-Paramo speaks, EUR

• 01:01 RICS House Prices Balance, GBP

• 03:30 Retail Sales, AUD

• Download Full Daily Forex Commentary

Published on  Mon, Sep 8 2008, 06:26 GMT

Wake−up Call!

Fri, Sep 5 2008, 06:36 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Hey guys! –this is a wake-up call to all of you who think this looks like attractive levels to obtain further FX funding. Take a look at what is going on at the moment:

• Virtually all stock indices in the world fell by 3% yesterday. How often does that happen?

• EURJPY was down by almost six (6!) figures yesterday. How often does that happen?

• EURCHF has left the building! –meaning that it has left the safe-old territory of levels above 160 (466 vs. DKK). This can very well mean that we are facing sub- 155 levels in the near-term.

• AUD and NZD have fallen almost 2% during the night. NZD is currently trading below daily close of August last year.

• S&P 500 closed below 1250 yesterday.

• Do you really think this is over??? – the Fed is not able to cut rates by 75bps this time and save the world once again.

2x unchanged and 1x hike were the results of yesterday’s rate announcements from the ECB, the BoE, and the Riksbank. The European Central Bank and the Bank of England both kept the key rates unchanged while the Swedish central bank, the Riksbank, raised rates by 25bps. The outcomes for the ECB and the BoE were widely expected by the market while economists were more split in the Riksbank case. In addition to raising rates, the Riksbank lowered the repo rate path, which leads us to suspect that it is the last hike in this cycle. Our economists are expecting cuts in Q2 and Q3 ’09 due to the darkened growth outlook. EURSEK fell initially, but bounced back quite quickly reaching intraday highs 951.07.
However, the pair is trading around the same levels as before the rate announcement. Mr. Trichet did not signal cuts in the near-term and kept the inflation focus, which meant upwards adjustments to the inflation forecasts for both 2008 and 2009. We have reached our short-term target on the dollar and even though it is indeed likely that the dollar is going to reach higher levels, we prefer to take profit and stand by while other parties are fighting in the market. Hence, no new recommendation for now. The irrational behaviour in the financial markets at the moment also means that we take our profit in our long JPY position. JPY and CHF are aiming for higher levels, but as mentioned before we prefer to let others fight the battles in the market at the moment.

Emerging Markets

By the Emerging Markets Team

Yesterday, the sell-off in EM currencies continued, with the likes of the ZAR and the TRY losing another per cent against the EUR. But this time round, EM was in better company: the global sentiment has taken a clear turn for the worse, with global stocks e.g. selling off some 3%! On this background, it is more understandable - and less disconcerting - that EM comes under pressure. Once again, however, we lack a clear catalyst for the sell-off. True, the ECB did not lend much of a helping hand (and a down-shift of the growth forecast and the opposite for the inflation forecast clearly smells like something rotten), and true, initial jobless claims did disappoint on the upside (hinting at worse NFP's to come), but none of these events should in themselves be too cataclysmic for financial markets. Maybe markets are realising that a more severe growth downturn is looming ahead, as we have warned for some time. Hence, while our longer term views remain unchanged, we seem to be heading into rough waters. Positionwise, we stick to long TRY/short ZAR and argue that now is not the time to take on additional risk. Now is not the time to forget what childhood painfully taught us: some things are best not done against the wind!

Today’s Key Events

• 08:50 ECB’s Trichet, Stark, Bini Smaghi speak, EUR

• 09:00 PPI, CZK

• 10:00 Industrial Production, NOK

• 12:00 Industrial Production, DEM

• 12:30 Gonzalez-Paramo speaks, EUR

• 14:30 Non-farm Payrolls, USD

• 21:55 Fed’s Yellen speaks, USD

• Download Full Daily Forex Commentary

Published on  Fri, Sep 5 2008, 06:36 GMT

Three interest rate meetings today!

Thu, Sep 4 2008, 06:44 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

One down - three to go

The first central bank to leave rates unchanged this week was Bank of Canada on Tuesday. USD/CAD was dragged to a one year high at 107.77 but as the meeting got closer participants lost their nerve and sent the currency pair lower again. Immediately after the BoC-non-event CAD strengthened even further out of pure disappointment.

The first central bank on the scene today will be Riksbanken, whose decision is probably the most twisted. SEK is slip slip sliding these days and should Riksbanken present a rate cut the cross is expected to test the previous high above 950. Good support is coming in around 943.50 -944.00 should he on the other side keep an unchanged stance.

The second central bank today is BoE. We do not expect any cut which is market consensus, as Mr. King is still caught between a rock and a hard place - namely a too high inflation and falling growth. GBP continues sliding down a slippery slope. Yesterday EUR/GBP reached a new 12 year high at 81.73 and GBP/USD touched a new 2 year low. Although the recent spike has been rather extreme we cannot exclude a coming test of the next major resistance at 83.00. For now good support is coming in around 81.20 and subsequently 80.80.

The last central bank to enter the stage is ECB this afternoon. We do not expect any surprises today, though the following press conference will be scrutinized thoroughly once again as rumours are surfacing about a coming tightening of its lending criteria. History tells us that EUR/USD is probably going to be very volatile up till and probably also after the ECB meeting and the press conference. For now EUR/USD is well supported below 144 and good resistance is supposed to come in at the previous important 145.70.

Emerging Markets

By the Emerging Markets Team

EM: Unpleasant memories - hold your horses

Yesterday brought a veritable bloodbath for EM currencies, with high-yielders ISK, ZAR and TRY all losing more than 1% against the EUR but practically all EUR-EM crosses ending the day higher. As such, the day brought back highly unpleasant memories of the awful month of March, the worst episode so far of serious EM underperformance. It is thus with some trepidation that we look forward to today - but having said that, we do see some encouraging signs that this is not the beginning of a 'new March'. Back then, the world was practically coming to an end, dragged down by systemic worries on the US banking sector. This time round, recent news have not been that bad at all, and we see no obvious trigger for yesterday's sell-off. Hence, we still do not see this as the start of a new round of panic - and hope to see markets calm down today. Position- wise, we stick to our long TRY/short ZAR positions, with the latter offering a good hedge to the former if we are in for another bout of positionunwinding. Today's calendar offers nothing much from EM, with the ECB meeting (and following press conference) being the main event of the day. We hope for a relatively soft Trichet to cushion the pressure on Eastern Europe - but given the noises coming from the ECB hawks recently, this is perhaps too much to hope for. After all, there might be miscreants around Europe who, in the face of historically high inflation and low unemployment will be looking for wage increases - and Trichet is normally the man to try to put a stop to such nonsense…

Today’s Key Events

• 09:00 Wage data, Romania

• 09:30 Interest rate meeting, Sweden

• 11:00 Current account, South Africa

• 13:00 Interest rate meeting, UK

• 13:45 Interest rate meeting, ECB

• Download Full Daily Forex Commentary

Published on  Thu, Sep 4 2008, 06:44 GMT

Focus on AUD, NZD and Turkish CPI

Wed, Sep 3 2008, 06:52 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Japanese loosing their nerves

Apparently Mr. & Mrs. Japan - also known as Mr. & Mrs. Watanabe - are finally starting to loose their nerves. Looking at the recent market moves in the fx-market it certainly looks like it. The yen keeps climbing steadily higher whereas both AUD and NZD are diving rapidly. In their hunt for higher yields especially the Japanese retail investors have been looking towards Australia and New Zealand for attractive yields thereby pressuring their own currency - the yen - extremely. The rapid economic deterioration in those countries - pressured by both the dropping commodity prices and the debtridden economies - is really starting to bite. In both countries the central banks have started new monetary easing cycles which undermines the AUD and NZD too. Expect more of the same as regards to JPY, AUD and NZD. It ain't over till its over. We are now headed towards our first short term target in EUR/JPY at 156 but long term we still foresee a serious appreciation of the yen in general.

EUR/USD is still dropping like a stone. A lot of market participants have been trying to catch a falling knife so far in vain. Whether or not it is getting too bloody is difficult to say. We still expect at least a test of our first target at 143.00 - 143.50 where we recommend to take profit in the first round.

Emerging Markets

By the Emerging Markets Team

Turkish CPI today

We look forward to the Turkish CPI for August today. In June, the inflation rate fell for the first time this year, to 10.61% y/y from 10.73% in May, but the rate rose again in July to 12.06%, a two year high. Market participants expect inflation for August to come to 12.3% y/y. Still, the central bank, CBRT, expects the inflation rate to ease in the longer term. The CBRT has raised interest rates by 1.50 percentage points in 2008 to 16.75%, but they were left unchanged at the meeting in August. The market now speculates in cuts of totally 50 basis points this year. We do, however, still assess that due to continued high inflation and continued high inflation expectations it is most likely that the CBRT will be forced to raise interest rates by an additional 0.25-0.50 percentage point before the end of the year. If we are right in our forecast it will be supportive for Turkish lira, and thus we keep our BUY recommendation on TRY.

Today’s Key Events

• 09:00 Tradebalance, Hungary

• 09:00 Industrial production, Romania

• 11:00 Retail sales, Euroland

• 11:00 GDP, 2. quarter, Euroland

• 11:00 Tradebalance, Iceland

• 15:00 Interest rate meeting, Canada

• 16:00 Factory orders, USA

• 16:00 CPI and PPI, Turkey

• 20:00 Beige Book, USA

• Download Full Daily Forex Commentary

Published on  Wed, Sep 3 2008, 06:52 GMT

Yen on the rise and ISM on the agenda

Tue, Sep 2 2008, 07:02 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yen on the rise

The yen finally managed to break below the psychological threshold at 160 thereby leaving all major moving averages behind. Consequently, the cross is now closing in on our short term target at 156. The break to the downside does, however, mean that the 8 year long uptrend on EUR/JPY is about to crumble should EUR/JPY stay below 161 - 162. A new downtrend on EUR/JPY would mean that much lower levels will be lurking in the wings, hence our long term bullish view on the yen versus the EUR. The falling EUR/JPY has also been dragging the EUR/CHF lower due to increased volatility and risk aversion amongst currency traders. We foresee a coming test of the bottom of our range in EUR/CHF at 160.

EUR/USD is once again flirting with the previous low around 145.70. We consider it only a matter of time before this level of support gives in and opens the gateway towards new lows.
We therefore recommend to stick with already sold EUR/USD positions as a coming test of 143 - 143.50 is lurking in the wings. Sterling is still feeling the heat from a very poor performing British economy. Overnight GBP has been sold off against both the USD and the EUR. The long term trend on GBP is definitely down.

As widely expected the RBA turned the spot this morning and lowered the interest rate by 25bps. AUD/USD managed to get above 85 in the aftermath, but overall the AUD is still living on the edge as are the other two commodity currencies NZD & CAD. The rising yen also makes the present situation of exactly these three currencies especially precarious considering the huge speculative currency positions linked to the uridashi bond issuances.

Emerging Markets

By the Emerging Markets Team

ISM will influence EM today.

Today we do not have any important events on Emerging Markets. In fact the main event will be the US ISM data. We expect a lower number than expected (less than 50.0), which could put pressure on USD short term. This will then put pressure on the dollar related UScurrencies.

Today’s Key Events

• 09.00 PPI, Romania

• 11.00 PPI, Euroland

• 14.00 Industrial production, Brazil

• 16.00 ISM, USA

• 03.30 GDP, Australia

• Download Full Daily Forex Commentary

Published on  Tue, Sep 2 2008, 07:02 GMT

Worst Outlook for the UK in 60 Years?

Mon, Sep 1 2008, 06:27 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The British pound was hit massively this morning as Chancellor of the Exchequer Alistair Darling told the Guardian newspaper that the British economy might face the worst downturn in 60 years. After a long period where the bad news out of the UK have not really affected the pound, the news flow once again affects the British currency. The pound will in the short-term most likely be hit further by the continued flow of bad news, but the Eurozone is not doing that great either and for this reason we prefer to maintain our neutral stance on the currency pair. GBPUSD does on the other hand look quite interesting if you follow that cross.

EURNOK seems in light of last week’s speeches from the central bank and our own rate expectations to have reached its low for now.
Therefore, we recommend closing down bought positions in Norwegian krone while they are still somewhat in the money. At present, the pair looks bound for a retest of the 804 level (92.75 versus DKK), however, lots of moving averages are coming in between the current level and the 804 level and this is why we do not reverse the position at present.

The commodity currencies (AUD, NZD, and CAD) fell once again versus the dollar, but remained relatively stable versus the euro.
There is a lot to say besides the fact that focus is back to growth worries.

Changes in CFTC Commitments of Trades from last week are relatively minor. Speculators increased their long position in the dollar versus most currencies continuing the trend we have witnessed the last few weeks.

Emerging Markets

By the Emerging Markets Team

Financial markets seem to be struggling to find direction these days - neither stronger than expected US data, the threat of hurricane Gustav or diminished fears for the financial sector have been able to convince markets which way we are heading. EM has thus been trading more or less sideways recently. The next move for EUR/USD will be highly important for several EM currencies, but here also, we seem to be stuck in a new trading range around 1,47. Hence, with nothing much new to trade on, we stick to our current recommendations.

Our long EUR/ZAR recommendation has not been performing too well, but we see it mainly as a good hedge for being long TRY during these uncertain times.The week ahead offers plenty of input to allow markets to make up their minds where we are going, including an ECB meeting, the NFP and a range of PMIs/ISMs on both sides of the Atlantic - not to mention more clarity on the impact of Gustav. In EM, it's a slow start to the week.

Today’s Key Events

• 08:30 PMI Manufacturing, SEK

• 09:30 Retail Sales, DKK

• 09:55 PMI Manufacturing, DEM

• 10:00 PMI Non-manufacturing, EUR

• 10:30 PMI Manufacturing, GBP

• 20:45 Fed’s Hoenig speaks, USD

• 06:30 Rate Announcement, AUD

• Download Full Daily Forex Commentary

Published on  Mon, Sep 1 2008, 06:27 GMT

Inflation & Personal ConsumptionCommentary

Fri, Aug 29 2008, 06:20 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The British pound was yesterday under pressure from the beginning of the session as nationwide house prices once again fell to a new low. GfK consumer confidence was no good either early this morning, but at least it was a bit better than expected. At present the EURGBP cross looks a bit toppish, but momentum is still point upwards and with the euro performing at the moment, we prefer not to initiate a new short strategy in light of our latest experiences. The euro gained (or rather the dollar lost as the oil rallied) this morning on speculation that Russia might cut off oil flow to Western Europe in response to EU sanctions and Nato naval actions in the Black Sea. The data releases out of Sweden continue to deteriorate and it has lately put pressure on the Swedish krona. EURSEK has now breached virtually all the moving averages on its way from 935 to 943. The pair seems to be bound for a test of 948 (or perhaps 952), but it has at least changed trading range. Hence, we adjust our range to account for the worsening Swedish outlook. Eurozone CPI estimate is due shortly before noon today and we do not expect inflation will keep rising in light of the lower oil and food prices. From the US we get personal consumption (including the PCE deflator, the FED's favourite inflation gauge). Personal consumption fell in June due to rising unemployment and high oil and food prices, but even though oil and food prices have fallen lately, it has not yet had an impact on the US consumers. In addition, when having the latest retail sales in mind, it all points towards a renewed fall in personal consumption.

Emerging Markets

By the Emerging Markets Team

After what was an extremely quiet morning, the mood in the global financial markets got a firm lift from another positive data surprise from the US - this time a better than expected Q2 GDP. We are not convinced that this dataprint is a signal from better times to come - it was primarily driven by net exports and private consumption, both factors we do not see as growth drivers going forward - and perhaps EM markets shared this conviction. Whatever the reason, EM failed to benefit from the strong performance of other risky assets, with most EM currencies ending the day weaker against the EUR. Today offers nothing much by the way of data releases in EM (unless you belong to the small minority who cannot get enough of trade balances), although we do receive private consumption from the US and inflation from the Euro Area. Our overall convictions remain unchanged: We look for the TRY to outperform the ZAR (and thus stick to our implicit long TRY/ZAR position) and expect Eastern European currencies to remain under pressure. Thus, much will depend on the next move for EUR/USD, which seems to have established a new trading range around 1.47. A correction higher would go against our expectations (but offer better levels to enter our 'rotation' trades), while a continued drop would support recent trends. Longer term, we remain convinced that EUR/USD will head for lower levels!

Today’s Key Events

• 10:00 ECB’s Liebscher speaks, EUR

• 11:00 Unemployment, EUR

• 11:00 CPI, EUR

• 11:00 Trade Balance, ISK

• 11:30 KOF Leading Indicator, CHF

• 13:00 Trade Balance, ZAR

• 14:30 GDP & PPI, CAD

• 14:30 Personal Consumption, USD

• 15:45 Chicago PMI, USD

• 16:00 Michigan Consumer Confidence, USD

• Download Full Daily Forex Commentary

Published on  Fri, Aug 29 2008, 06:20 GMT

Notorious Hawks

Thu, Aug 28 2008, 06:16 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday proved that the euro is not quite ready to throw in the towel just yet. Axel Weber & friends, notorious hawks, were on the wires yesterday talking the usual hawkish talks. At first it seemed a bit surprising that the market reacted that aggressively on especially a speech from the well-known über-hawk aus Deutschland Axel Weber, but it might have been just what the market had been waiting for since Trichet was unexpectedly dovish in the beginning of July. The euro has been sold massively over the last month and a half and there is no doubt hat quite a few people in the market (ourselves included) have felt that at least at some point the euro sell-off has gone too fast. The Hawkish talks from the ECB members yesterday were as we see it just a statement from the central bank that the market should not anticipate any cuts this year. It has also meant that it has gone the wrong way for our three latest recommendations and in the case with EURGBP that we were stopped out last night. We do not view this as a sterling case and it does not change our short-term view on the British pound, but we have to acknowledge that our timing was wrong. Hence, no new recommendation for now.

Emerging Markets

By the Emerging Markets Team

Yesterday was an eventful day on EM purely data wise with CPI from Iceland and South Africa as well as rate announcement from Poland on the agenda, but none of the releases were able to surprise the market. Icelandic CPI came out as expected and hence turned out to be a non-event. The number should have surprised significantly on the upside in order to spur expectations of further hikes in the key rate. We maintain our view of Sedlabanki keeping the key rate on hold at 15.50 % in the coming months as an expected slowdown in the economy will help dampen inflation. In South Africa CPI also came out as expected.

ZAR closed almost unchanged against EUR but market rates fell 15 bps on top of the number.
In line with the market we expect the key rate to be left on hold in coming months. Poland also refrained from surprising the market as the central bank (NBP) chose to keep the key rate on hold at 6 %. The following press statement was rather balanced with NBP stating that in spite of a coming slowdown in Europe the need for further monetary tightening can not be ruled out. We still expect one more hike of 25 bps whereas the market calls for two times 25 bps. The timing to sell PLN still does not seem right and we remain neutral for now. Following yesterday’s packed calendar there are no important data releases on EM today.

Today’s Key Events

• N/A Unemployment, ZAR

• 08:00 Nationwide House Prices, GBP

• 09:00 Unemployment, HUF

• 09:30 Unemployment, DKK

• 09:30 Retail Sales, SEK

• 10:00 Unemployment, NOK

• 11:30 Producer Prices, ZAR

• 12:00 CBI Trades Report, GBP

• 14:30 GDP, USD

• 01:01 GFK Consumer Confidence, GBP

• 01:15 Nomura PMI, JPY

• 01:30 Unemployment, JPY

• Download Full Daily Forex Commentary

Published on  Thu, Aug 28 2008, 06:16 GMT

To Hike or Not to Hike

Wed, Aug 27 2008, 06:26 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The dollar rallied in the European trading session as the German IFO survey was unexpectedly soft. EURUSD fell almost a full figure on the back of the IFO release. Our first reaction was that such a move was not justified by the IFO release alone, but it does inevitable say something about the market sentiment and something about in which direction the arrow is pointing at the moment. This made us initiate a short strategy in EURUSD (English translation will be out shortly). However, the euro made a comeback this morning during Asian trading, which supposedly should be due to higher natural gas and oil price expectations. We are still confident in our recommendation as nothing has changed since we sent it our yesterday, but we would have liked a daily close below 146.
Minutes from the last FOMC meeting were out last night at 8 p.m. and they showed that most members generally expect the next move to be a hike. But there is no doubt that the nature of the economic situation the FOMC is facing is tough and that the fragility of the financial markets is still a major concern. Our economists are disagreeing with the next move from the FOMC since the labour market will weaken further and eventually force the FOMC to cut rates. We also initiated short strategies in EURGBP (which is already out in English) and in EURJPY (will be out in English shortly). This Wednesday offers consumer prices from the German federal states, unemployment from Norway, mortgage applications and durable goods orders from the US.

Emerging Markets

By the Emerging Markets Team

We look forward to CPI from Iceland 11 am. The analysts surveyed by Bloomberg expect inflation to increase from 13.6 % to 14.6 % y/y.
The key rate is 15.50 % and the central bank is on neutral stance right now. However if we get a big surprise on the upside, maybe the market will start speculating in a hike on the September meeting. Short term the market focus on credit spreads on the Icelandic banks. The credit spreads have widened during the last two weeks (e.g. Kaupthing bank from 700 to 775 basis points). If this widening continues it could prove negative for ISK. However credit spreads are still some way from the highs (Kaupthing bank was above 1000 basis points) at the end of June. We keep our neutral recommendation. South African CPI is released 11.30 am. The analysts surveyed by Bloomberg expect inflation to increase from 12.2 % to 13.6 % y/y. Despite the expectation of increasing inflation it is expected the central bank do not hike more this year. The drop we have seen in oil during the last 1½ month has been positive for ZAR. ZAR has strengthened with about 10 % against EUR and DKK during the last 1½ month. We now expect a correction downwards in ZAR. The combination of high inflation, lower growth data and a large current account deficit makes ZAR vulnerable to lower risk appetite.
Thus we keep our negative recommendation on ZAR. Finally we look forward to the interest rate decision from the Polish central bank. We expect unchanged key rate at 6 % as all of the analysts surveyed by Bloomberg. We stay neutral, but are considering selling PLN. We are waiting for the right timing. A negative recommendation on PLN would be in line with our rotation from currencies related to EUR (as PLN, HUF and RON) towards currencies more related to USD (as MXN and BRL).

Today’s Key Events

• N/A Rate Announcement from National Bank of Poland, PLN
  

• N/A Consumer Prices from the German federal states during the day, DEM
  

• 09:00 Manufacturing Confidence, SEK
  

• 10:00 Unemployment, NOK
  

• 11:00 Consumer Prices, ISK
  

• 11:30 Consumer Prices, ZAR
  

• 13:00 MBA Mortgage Applications, USD

• 14:30 Durable Goods Orders, USD

• Download Full Daily Forex Commentary

Published on  Wed, Aug 27 2008, 06:26 GMT

Minutes from the FOMC

Tue, Aug 26 2008, 06:15 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday was a very quiet session since London was visiting the local pubs on a bank holiday. The euro traded with a soft undertone most of the day and weakened marginally against most currencies. None of the currency pairs we follow has breach any significant resistance or support levels during yesterday’s trading. The most interesting pair was NZDUSD, which fell on a larger than expected trade deficit (11-month high). Shorting NZDUSD once again begins to look interesting… Interest rates fell up to 10bps across the short end of the curve in the US and in the Euro Area. However, overall it was a very quiet session.

Several interesting releases are due today including house prices (CaseShiller & Ofheo), consumer confidence, and new home sales from the US. Existing home sales surprised on the upside yesterday and the market will be hoping for at better than forecasted number.
Our economists are expecting a slight fall due to tightened credit conditions, falling mortgage applications, and very pessimistic construction companies. Minutes from the last FOMC meeting at the Fed are due tonight. The press release August 5 showed that the committee was becoming less concerned with growth and inflation. The interesting part of the minutes will be how the votes were divided among the FOMC members. Our economists are still forecasting 2x 25bps rate cuts from the Fed (in Q4 ’08 and Q1 ’09) due worsening outlook for unemployment.

Emerging Markets

By the Emerging Markets Team

Yesterday the Hungarian central bank kept the key rate unchanged at 8.5 %. This was expected by everybody in the market and in general we had a quiet day, because of the bank holiday in England. Yesterday evening US equities dropped because of the collapse of another US bank. Despite that USD performed against EUR during the night. This USD movement is consistent with our general recommendation in which we prefer Latin American currencies to Eastern European currencies. Today we do not have any important EM data on the agenda. Thus we expect another quiet day in the office. We keep our recommendations for now.

Today’s Key Events

• 08:10 GFK Consumer Confidence, DEM
  

• 09:30 Producer Prices, SEK
  

• 10:00 IFO Business Climate, DEM
  

• 10:00 Retail Sales, PLN
  

• 15:00 CaseShiller House Prices, USD
  

• 16:00 Consumer Confidence from Conference Board, USD
  

• 20:00 Minutes from last FOMC Meeting, USD

• Download Full Daily Forex Commentary

Published on  Tue, Aug 26 2008, 06:15 GMT

EURUSD still supported

Mon, Aug 25 2008, 06:09 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

According to CFTC Commitments of Traders, the speculative investors increased their combined long USD position by 3.5 billion (12.7 billion versus 9.2 billion last week). It is especially versus the yen, the Swiss franc, and the pound the speculative investors have become more bullish on the dollar whereas the EURUSD contracts have changed by a relatively low number. Since Tuesday when the data was collected the euro seems to have found at least some support versus the dollar. However, since Thursday EURUSD has fallen almost two big figures, but so far nothing suggests that the pair should not continue to be supported around 146.70. There has not been a lot of news out that should affect either leg of the EURUSD cross, which suggests that the rebound of the dollar the last two trading days can be linked to the sharp fall in the oil price.
We are still considering EURUSD as a “sell on rallies”, but there seems to be reasonable buyinterests around the support level mentioned above. Currently, we are viewing 149.50 as an attractive sell opportunity for EURUSD. Existing home sales from the US are due later today and our economists see a risk that there will be posted a renewed fall in the figure. This is due to further tightened credit conditions and a reduced number of mortgage applications. This week offers among other things minutes from the last FOMC meeting, consumer confidence, and durable goods orders from the US. Friday offers consumer prices and unemployment numbers from the Eurozone.

Emerging Markets

By the Emerging Markets Team

¨On Friday, we discussed 3 issues which were putting some pressure on EM: renewed increases in oil, ditto in EUR/USD and renewed financial worries. While the question remains whether these are just small bumps on the road to something better or whether we need to consider the possibility of something more sinister, financial markets certainly did what they could to allay our fears on Friday!

EUR/USD has dropped almost 2 big figures, oil is down some 7 USD/barrel and financial stocks rose following news that the Korean Development Bank was considering investing in Lehman - a potential sign that the drop in financial stocks has reached a point where value is once again emerging. Most EM currencies benefitted on this benign background, leaving our long TRY position further in the money but also pushing our short ZAR position into loss-giving territory. We stick to both positions for now - seeing short ZAR as a good hedge for long TRY, not the least as we see the TRY performing best, come rain or shine. With the Olympics out of the picture, we now need to refocus on the financial markets in our morning comments (blast!), but thankfully the economic calendar does turn more interesting following a quiet week.
Today's Hungarian rate decision should cement the outlook for Eastern European central banks reaching the end of the tightening cycle (we look for rates to be left at 8.50%), which leaves the respective currencies lacking an important support they have enjoyed in recent years. We are looking for an opportune moment to sell the CZK and the PLN.

Today’s Key Events

• 09:30 Consumer Confidence, DKK

• 09:30 Trade Balance, SEK

• 16:00 Existing Home Sales, USD

• Download Full Daily Forex Commentary

Published on  Mon, Aug 25 2008, 06:09 GMT

EURJPY is balancing on the edge

Fri, Aug 22 2008, 06:22 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The USD fell the most against the EUR in more than a month in yesterday’s trade. The move was primaryly caused by speculation regarding further writedowns in the financial sector and an increase in crude oil prices.
EURUSD is currently testing levels around the highs of November ’07 and January-February ’08 and technical indicators suggest that momentum is on the upside. Thus at this point a test of 150 seems within reach. However for the time being we prefer to maintain a neutral stance as we regard EURUSD as a “buy on dips”.

The slide in the USD and the jump in oil prices caused USDCAD to drop markedly yesterday.
Thus the lower boundary on the interval we have set up in our recommendations box was broken. As mentioned we are inclined to think that there is a bit further potential on the downside on the USD in the short term. At the same time though our commoditites analysts believe that the upside potential in oil prices is limited in the short term. Hence in conclusion we have chosen to maintain a neutral stance on USDCAD for now.

Yesterday the JPY rose to the highest level versus EUR since mid May and the 100-week moving average (currently at 160.24) on EURJPY was under immense pressure. This morning however the JPY has retreated somewhat and in our view it will be crucial whether EURJPY manages to close below the above mentioned level or not. If EURJPY does manage to make a weekly close below the moving average we are inclined to recommend selling the currency cross. However for the time being we prefer to maintain a neutral stance on the currency cross.

Emerging Markets

By the Emerging Markets Team

It has been a difficult week for those of us writing morning comments. The market themes have not been entirely clear: are we witnessing the third wave of the credit crisis - or just a bit of froth? Are we witnessing a rebound in commodities - or just a correction to what has been a very fast move downwards? And ditto for EUR/USD? All in all, EM currencies have held up reasonably well on this uncertain background. On top of the lack of clear market themes, it has also been a very quiet week on the agenda - something which continues today with only a couple of bi-weekly inflation prints and a single trade balance from Latin America on tap (and nothing of interest globally) - hardly riveting stuff. Bernanke does speak at the annual Fed conference in Jackson Hole this afternoon. His topic is Financial Stability - highly topical but the absence of a Q and A session means that revelations are unlikely. Hence, we can only look forward to the weekend and hope that next week brings a clearer outlook. And with the Olympics drawing to a close, we need other things to write about...

Today’s Key Events

• 10:00 Euro-Zone current account (EUR)
  

• 10:30 GDP, revised (GBP)
  

• 11 :00 Industrial orders (EUR)
  

• 16 :00 Fed’s Bernanke speaks on financial stability (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Aug 22 2008, 06:22 GMT

Eurozone PMIs

Thu, Aug 21 2008, 06:14 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The minutes from the MPC meeting at the BoE earlier this month showed that seven members voted in favour of leaving the bank rate unchanged whereas one (not surprisingly Tim Besley) voted in favour of a hike, and one (just as unsurprisingly David Blanchflower) voted in favour of a cut. The most interesting about the minutes was the distribution of votes since the inflation report last week highlighted the basis for decision. Besley argued that a hike in spite of slowing growth was necessary to contain inflation and inflation expectations.
Blanchflower argued that a cut was necessary since the high inflation was temporary and that there is a risk that inflation will fall below target in the medium-run due to a significant fall in growth. The release of the minutes had unnoticeable impact on the pound.

The market will be watching the German and Eurozone PMIs today. We have seen some terrible readings the last few months and especially the southern European PMIs have been worse than terrible. Even though the oil price and the euro have fallen the last few weeks, our economists are still forecasting even weaker PMIs for August than in July (so does the market).

Otherwise, Philly Fed from the US is due in the afternoon, retail sales from the UK shortly before noon, and GDP from Norway at 10 a.m.

Emerging Markets

By the Emerging Markets Team

Yesterday was a very quiet day indeed for risky assets in general and EM in particular.
Following a few days of renewed financial jitters, markets calmed down yesterday and most EM currencies ended the day more or less unchanged against the EUR. Financial jitters are obviously not what EM currencies like best, but we still think the TRY is better placed to weather the storm than the ZAR. We thus stick to our long TRY and short ZAR positions, and the latter can be seen as a hedge to the former. In fact, a short-term rise in EUR/USD seems to be as potent a threat to the TRY as financial worries as the TRY in periods follows the dollar quite closely - and the EUR/USD rebound we have seen since the beginning of the week has likely been a major contributor to TRY underperformance. The question remains whether the first drop in EUR/USD was too much, too fast. If we are to see EUR/USD head back towards 150,this could drag the TRY down with it - but we believe this would only be a temporary phenomenon. A rebound in EUR/USD could offer some reprieve for the Eastern European currencies, which have been hit by Eastern European disease recently - a combination of weakening European growth and waning central bank support. We would use any rebound to sell the CZK and the PLN.
Today offers Polish Core inflation and Turkish inflation expectations - both numbers that could make markets rethink the outlook for central bank rates. Upward surprises should be currency supportive. Elsewhere, we will keep an eye on the Euro Area PMIs.

Today’s Key Events

• 09:30 Unemployment, SEK

• 09:30 PMI, DEM

• 10:00 PMI, EUR

• 10:30 Retail Sales, GBP

• 11:30 RBA Bulletin, AUD

• 13:00 CPI, CAD

• 16:00 Philly Fed, USD

• 01:50 BOJ Minutes, JPY

• Download Full Daily Forex Commentary

Published on  Thu, Aug 21 2008, 06:14 GMT

Rebound in EURUSD

Wed, Aug 20 2008, 06:54 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday sentiment in the financial markets was somewhat downbeat and market participants didn’t seem to take too much comfort in the fact that the German ZEW index for August came in above consensus estimates. Although higher than expected the index didn’t paint an optimistic picture of the outlook for the German economy in the coming months.
Furthermore as data showed that US producer prices grew at the fastest pace in 17 years in July market sentiment deteriorated further. Thus the major US stock indices fell for the second day in a row and the USD dropped from a six-month high against the EUR. Technical indicators on EURUSD suggest that there is potential for a further rise towards 148,75-149 in the short term (corresponding to the peaks from November ’07 and January and February of ’08). However looking a bit further ahead there is no doubt that the trend on EURUSD is down. Thus overall we prefer to play EURUSD from the short side but as we feel that the timing for a selling recommendation is off at this point we prefer to maintain a neutral stance for now.

EURSEK rose rapidly yesterday as stop loss orders on short positions was triggered. The move was initiated as rumours emerged that Vattenfall was to make a bid for a British company. However at this point it remains unclear whether there is any truth to the rumours. Techincal indicators suggest that there could be further upside potential on the currency cross, but at this point we have chosen to maintain a neutral stance on the Swedish currency until the dust settles a bit.

Today doesn’t offer too much exitement from a macro economic perspective. Thus it looks like we are in for a relatively quiet day.

Emerging Markets

By the Emerging Markets Team

As we mentioned yesterday we got a perfect start to the week on Monday. Almost every local currency gained against EUR and DKK. Yesterday the market went down again. TRY and ZAR were the worst performers – declining more than 1 percent against EUR and DKK.
The reason for this move was probably declining equity markets globally.

Yesterday the US equity dropped again. Thus we expect some pressure on EM currencies from the morning. We do not have any very important EM data today. Maybe Polish PPI and Industrial Output can affect the PLN, but we expect the global sentiment (Oil and Equities) to be the most important factors to influence EM. We keep our recommendations.

Today’s Key Events

• 10:30 BoE Minutes (GBP)

• 12:00 CBI Industrial Trends (GBP)

• 13:00 MBA mortgage applications (USD)

• 14:00 Producer prices (PLN)

• 14:00 Industrial production (PLN)

• 14:30 Retail sales (CAD)

• 01:50 Trade balance (JPY)

• Download Full Daily Forex Commentary

Published on  Wed, Aug 20 2008, 06:54 GMT

ZEW Economic Sentiment

Tue, Aug 19 2008, 06:31 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The dollar fluctuated with commodity prices in a largely uninspiring session. The dollar index (DXY) and the trade-weighted dollar index (TWI USD) were more or less unchanged at the end of the day.

Bank of Japan kept its target rate at 0.50% at this morning’s rate announcement as widely expected. The economic outlook was at the same time lowered its forecast for the economic outlook as growth is expected to be sluggish due to weaker growth in exports and high energy and raw material prices. The decision had only limited impact on the yen.
Overall, the outlook for the yen begins to look positive in the short-term, but we prefer to await a breach of 100-week MA at 160.25 versus the euro (JPYDKK 465.45), which means that we have to adjust our range slightly.

Yesterday we initiated a short EURNOKstrategy. NOK has strengthened in spite of falling oil prices and there is at the same time still risks of another hike from the Norwegian central bank. Our house view calls for no further hikes in Norway, but we believe that the market will speculate in an additional hike and this will offer support for NOK. At the same time, EURNOK has breached 200-day MA, which has opened the path for further strengthening of NOK.

This Tuesday offers – in the interesting corner – producer prices from the US and probably more importantly ZEW from Germany and the Eurozone. Our economists are forecasting an increase in the indicator – especially with the falling oil prices and the indicator’s historical low in mind. This should offer some support to the euro, which has had a tough time the last few weeks. It might even provide enough support to make the euro rebound as we have argued would come.

Emerging Markets

By the Emerging Markets Team

Yesterday was a perfect start to the week.
Almost every EM currency gained against EUR and DKK. The best performers of the day were ZAR, HUF and CZK – gaining more than 1 percent against EUR and DKK. In general the Eastern European currencies (EUR related) outperformed the Latin American (USD related) currencies.

ZAR gained 2.3 per cent against EUR and DKK yesterday. We do not think the large move is justified by any data or news. Therefore we expect a correction in the other direction short term. Today South Africa will publish growth data. Annualized GDP for 2nd quarter is expected to be 4.2 % versus 2.1 % in 1st quarter. We think the risk is to the downside – and therefore the risk is also to the downside for ZAR. We buy EURZAR at 11.36. We take profit at 12.00. We take stop loss at 11.00. In TRY we move our stop profit from 1.81 in EURTRY to 1.78.

Only ISK and ARS had a poor day yesterday – ending unchanged against EUR and DKK. In both currencies the credit story is the main theme. In Iceland investors are focusing on the bank’s debt and in Argentina investors are focusing on the government’s debt. We stay neutral in Iceland, but the last two month of perfect conditions for high yielding currencies have not helped ISK in a positive direction and it is therefore difficult to see what should bring ISK stronger.

Today’s Key Events

• 08:00 Producer Prices, DEM

• 11:00 ZEW Indicator, DEM

• 14:30 Producer Prices, USD

• 16:00 Fed’s Fisher speaks, USD

• Download Full Daily Forex Commentary

Published on  Tue, Aug 19 2008, 06:31 GMT

Speculators increased their USD−positions

Mon, Aug 18 2008, 06:33 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Speculators once again increased their net long positions in the dollar according to CFTC Commitments of Traders. It is in line with what we have seen in the FX market the last 1½ week and I would not surprise us if the speculators are actually longer in the dollar than what the numbers indicate as they are collected Tuesday of last week. Speculators have sold almost 10.000 additional EURUSD-contracts compared to the week before (-19,417 this week vs. - 9,447 last week). It is not just against the euro the speculators have bought the dollar.
Actually, it is only versus the Swiss franc the speculators have reduced their dollar-holdings and only by a negligible number of contracts.
This is very much in accordance with the broad dollar-strengthening we have seen over the last 1½ week and it only supports the thesis that the dollar has reversed its multi-year downtrend.

On Friday the dollar extended its gains as most of the US data were slightly better than expected and commodities softened. EURUSD has been testing the psychologically important resistance level around 146.50 (USDDKK 509) this morning. Currently, EURUSD seems to be trading with a bullish sentiment as commodities are regaining strength. We are considering buying Norwegian kroner, but because the euro seems to be rebounding this morning, we prefer to keep the trade on the shelves a bit longer. We expect EURNOK to increase slightly with an overall rebound in the euro (or at least stay around the current level) and adjust our current range.

Emerging Markets

By the Emerging Markets Team

Friday was another marginally positive day for EM, capping what was a very good week for the high-yielding currencies. Our EM carry basket (long ZAR, TRY and ISK vs EUR) yielded more than 1% for the week - which brings the totalt return on the basket to more than 6% over the last month (admittedly, we are still down some 12% for the year, mainly due to the steep drop in the ISK). The main theme playing out in EM currently was once again underlined on Friday: The central bank of Colombia kept rates unchanged, while the Mexican equivalent did hike by 25bps but signalled in no uncertain terms that "this was it" for the hiking cycle.
Both central banks signalled that the drop in commodities and the worsening growth outlook lies behind the end to the tightening and they thus follow the leads of the central banks of e.g. Turkey, the Czechs and South Africa. This leaves EM currencies without an important support - hawkish central banks - but we still think that the currencies with more solid fundamentals and sufficient carry can continue to perform. We thus still like the TRY (which offers the best carry around) - and our short EUR/TRY position is now some 4% in the money! We are, however, turning increasingly negative on the Eastern European currencies, which are most vulnerable to a Euro Area slowdown. Looking ahead to today, the calendar offers nothing much of interest - and it doesn't look much more interesting when looking ahead to the rest of the week. We could be in for a time of consolidation.

Today’s Key Events

• 09:15 Retail Sales, CHF

• 11:00 Trade Balance, EUR

• 19:00 NAHB Housing Market Index, USD

• 03:30 Minutes from RBA monetary policy meeting, AUD

• Download Full Daily Forex Commentary

Published on  Mon, Aug 18 2008, 06:33 GMT

A one−way street on the USD?

Fri, Aug 15 2008, 06:41 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday further bad news emerged from the Euro Zone. Thus data showed that that Euro Zone GDP fell by 0.2% in the second quarter of 2008 – the first contraction in the economy since the Euro was introduced almost 10 years ago. Hence speculation of a recession in the Euro Zone is gaining momentum for real and speculation of rate cuts from the ECB in the first half of ’09 is growing.
On top of that data from the other side of the Atlantic showed that US consumer prices grew at the fastest pace in 17 years in July thus putting further pressure on EURUSD. At this point the currency cross seems to be headed for a test of 146. Technically though, momentum indicators suggest that the downward move on EURUSD is loosing steam. Thus we have chosen to maintain a neutral stance until further notice.

SEK has strengthened somewhat versus EUR in the past couple of days as EURSEK has managed to break though the levels around 938.50-938.85 (corresponding to the 100- and the 200-day moving average respectively).
Thus it more and more looks like the currency pair is bound for a further slide towards 930.
However as the currency cross hasn’t managed to make a daily close below the 233-day moving average (currently at 936.15) yet, we have chosen to maintain a neutral stance for the time being.

Today doesn’t offer that much excitement from a macro economic point of view. However this afternoon the US industrial production data for July is released, and it is bound to receive a certain amount of attention as it is one of the indicators that enters into the assessment of whether the US is in a recession or not

Emerging Markets

By the Emerging Markets Team

Things move fast in the financial markets - while inflation was all the rage (and worry) a month ago, yesterday's US inflation print - the highest in 17 years - did not derail what was another fine day for EM. This trend was also evident in EM - both the South African and the Turkish central banks kept rates unchanged yesterday, looking through the current elevated inflation and focussing on slowing growth, both nationally and globally. While interest rates dropped a few bps on these decisions, both currencies ended the day stronger against the EUR. We still think the TRY is better placed in the current environment - offering better carry, more solid fundamentals and (for now) a more stable political environment. We thus stick to our long TRY position (but adjust the stop lower) and remain neutral on the ZAR. The ISK was the top performer yesterday, strengthening almost 2% against the EUR following news that the big Icelandic banks passed an FSA stress test with flying colours - with the FSA concluding that the banks are solid and that they can withstand "considerable financial shocks" (and the FSA must thus have been able to conceive of financial shocks more severe than the ones we have actually seen during the last year).
The 5-year CDS-spreads of the Icelandic banks have dropped some 250bps since the start af August which, in combination with a rise in implied yields in the forward market to 10- 15%, should leave the prerequisites for an ISKrally in place. However, due to the heavy redemption schedule of ISK-eurobonds, we choose remain neutral on EUR/ISK (but adjust lower the target range). Today, focus turns to monetary policy meetings in Latin America (Mexico and Colombia), while at the Olympics, dressage is all the rage!

Today’s Key Events

• N/A Inflation report (CZK)

• 09:00 Unemployment (TRY)

• 10:00 Trade balance (NOK)

• 14:30 Empire state index (USD)

• 15:00 TIC flows (USD)

• 15:15 Industrial production (USD)

• 16:00 Michigan consumer confidence (USD)

• 18:30 Fed’s Evans speaks (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Aug 15 2008, 06:41 GMT

The pound knocked down

Thu, Aug 14 2008, 06:31 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The pound ended up in the centre of attention after BoE made the inflation report public. The report indicates that the bank rate will be lowered further and that the inflation in the medium-term will fall back to levels below the target level at 2%. BoE lowered their growth expectations compared to the report from May and is now expecting that growth will be flat during the next year. In the short term, the BoE now expects inflation to rise to around 5%. The pound was hit heavy and weakened significantly against EUR, DKK, and USD. The UK short-term interest rates fell considerably during the day and the rate implied by the Jun09 short sterling future fell by almost 30bps. Our EURGBP range is still holding up and we do expect it to do so in the short term. The Norwegian central bank, Norges Bank, left interest rates unchanged and did not change the interest rate projections either. It was widely expected by the market and it had limited impact on Norwegian kroner. Inflation in Norway is increasing according to Norges Bank and it is mainly domestic inflation, which is causing upward pressure. The dollar seems to have gained a certain status in the FX market at present. Even though retail sales from the US were much weaker than expected (which made the dollar weaken) , the dollar managed to regain its strength and EURUSD fell back under 149 during the Asian trading session. Consumer prices from the Eurozone and the US are due today.

Emerging Markets

By the Emerging Markets Team

Renewed jitters globally following more bad news from the financial sector and a rebound in oil of almost 4 dollars/barrel dragged EM lower yesterday, in tandem with other risky assets.
While today looks like a key day for the Danish medal haul in Beijing (including Badminton, Sailing, Handball and… Dressage!), the economic calendar is also tightly packed with titbits throughout the day. Globally, US inflation will, as usual, be a key release for global risk assets, and as markets have left inflation fears behind them for now, we are hoping for a reading in line - or better than - consensus. In the Euro Area, we will receive both GDP for Q2 and inflation for July.
Normally, Euro Area data are less important on the global scale, but given the recent signs of a marked weakening in the Euro Area and with markets beginning to entertain the idea that Trichet may also be softening, today's data will be key for the outlook for Eastern European markets. In EM, the calendar includes several interesting releases, but focus will most likely centre on the two rate decisions in South Africa and Turkey. Expectations for these two meetings illustrate what has happened in EM over the last month or so: While every self-respecting central bank in EM was in the middle of a tightening cyclus just a month ago, we have seen a marked repricing of central banks around the world and markets are now looking for an end to the tightening cycles in both South Africa and Turkey. 2-year swap rates have come off by approx. 1 and 2 percentage points respectively in the two countries over the last month! While both decisions will be close, we are looking for an onhold decision in Turkey and a 50bps hike in South Africa, whereas markets are looking for no change in both instances. As we expect the central bank of Turkey to leave the door open for further rate hikes down the line (and deliver 1-2 hikes of 25bps ahead), and given the steep drop in market rates seen lately, the risk to interest rates should be on the upside in both instances, which could lend some support to both the TRY and the ZAR. We think the TRY is better placed to benefit, however, as the reduced political risk should leave the currency less vulnerable to a worsening of the global sentiment. We thus retain our long TRY position and remain neutral on the ZAR.

Today’s Key Events

• 09:00 Producer Prices, CZK
  

• 09:30 Industrial Production, SEK
  

• 10:00 ECB Monthly Report, EUR
  

• 10:00 Consumer Prices, EUR
  

• 14:30 Consumer Prices, USD
  

• 18:00 Rate Announcement, TRY
  

• 18:00 ECB’s Weber speaks, EUR
  

• 20:30 Fed’s Stern speaks, USD
  

• 00:45 Retail Sales, NZD

• Download Full Daily Forex Commentary

Published on  Thu, Aug 14 2008, 06:31 GMT

Rate announcement from Norway

Wed, Aug 13 2008, 06:13 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Stocks in the US fell yesterday as JP Morgan Chase said that it is facing another 1.5 billion USD loss for the quarter so far, as the wider credit spreads, lower levels of liquidity and the turmoil in credit and mortgage markets continue to take its toll on the bank. The sour sentiment rubbed off on markets in Asia where the Nikkei is currently down by more than 2%.
Thus the outlook for today’s European trading seems rather bleak this morning.

One of today’s main events in Scandinavia is the rate announcement from Norges Bank.
Norges Bank is still caught on the horns of the dilemma between falling growth and rising inflationary pressure. The long-term inflation expectations are, however, fairly stable at a level close to Norges Bank’s target, and as economic growth in Norway and globally is still on the decline, we expect – as does the market – that Norges Bank will choose to keep rates unchanged this time around. Since the June meeting of Norges Bank, the 2-year swap rates have fallen by 40 bps as market participant have begun speculating that Norges Bank may be done raising rates and that they will start cutting in ’09. However taking the inflationary situation into consideration we do not think that such a move in rates can be justified. Thus we believe that there is potential for slightly higher rates so that they once again reflect a certain probability of another hike around yearend. Therefor with respect to the currency we expect the NOK – which has been affected by falling oil prices and an increased focus on falling growth in the Euro Zone – will find a bit of support around the current levels.
Technically speaking EURNOK currently has decent support around the 100-day moving average. Thus we don’t believe in a significant upside potential on the NOK at this point. So far we have chosen to maintain a neutral stance on EURNOK.

Emerging Markets

By the Emerging Markets Team

Today 2 pm Poland will publish CPI data for July. The market expects inflation to increase from 4.6 % y/y in June to 4.8 % in July. We expect further rate hikes in the coming months. At the moment the market expects two hikes of 25 basis points. This will bring the key rate from 6 % to 6.50 % and will support the currency. However PLN is up with about 10 % this year and expect the markets to focus more on growth than inflation in the second half of 2008, which could put some pressure on PLN.

Yesterday CZK strengthened with 1.5 % against EUR despite some very poor current account data. The deficit totalled to 27.02 billion CZK the widest in 10 months, compared with 11.7 billion CZK in May and a 5.2 billion CZK a year ago. The market expected a deficit of 7.5 billion CZK and normally the poor data would weaken CZK. Nevertheless CZK strengthened and according to the traders in can be explained by the some stop-loss trades in CZK by a number of Czech Banks. In addition JPY (another funding currency) has strengthened, which also could be a part of the explanation. We think the strengthening could continue in the coming 2 or 3 days, and if that happens, we will strongly consider opening a long position in EURCZK. But for now we keep our recommendation.

Today’s Key Events

• N/A Unemployment (ISK)
  

• 10:00 Retail sales (NOK)
  

• 10:30 Unemployment (GBP)
  

• 11:00 Industrial production (USD)

• 11:00 Retail sales (ZAR)
  

• 11:30 Inflation report (GBP)

• 14:00 Rate announcement from Norges Bank (NOK)
  

• 14:00 CPI (PLN)
  

• 14:30 Retail sales (USD)
  

• 14:30 Import prices (USD)
  

• 14:45 Press conference at Norges Bank (NOK)

• Download Full Daily Forex Commentary

Published on  Wed, Aug 13 2008, 06:13 GMT

The Dollar Extends its rally

Tue, Aug 12 2008, 07:46 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday we saw a short rally in EURUSD early in the European trading session. However, the gains made by the euro disappeared rather quickly as the dollar rallied again and extended its gains it has made over the last few weeks late in the US trading session on further weakness in oil and commodities. There are currently two cases going on in the FX markets: the euro game and the dollar game. We are witnesses to a broad weakening (sell-off) of the euro and a broad strengthening (rally) in the dollar. As we argued yesterday, our base scenario still calls for at least a short pause in the current EURUSD sell-off. The tradeweighted euro index is currently testing 200- day moving average and should offer some support. However, even if we get a short pause in the dollar rally, then the risk remains on the downside. We have adjusted several of our short-term ranges to account for the increased volatility. As we have no current short-term recommendations on majors and scandies you might find it helpful to refer to our long-term targets.

Consumer prices from the UK are the most important macroeconomic data release today.
The inflation in the UK is at present at the highest level since 1992 (3.8%), but it is primarily driven up by food and energy prices.
Removing food and energy from the calculation leaves us at a more modest 1.6%. Our expectations of the CPI today: “It is going to be ugly”. The market is expecting a reading around 4.2%, which is considerably above Bank of England’s target of 2.0%.

Emerging Markets

By the Emerging Markets Team

Yesterday was another positive day for EM, with e.g. the TRY notching up further gains against the EUR and the CZK regaining some of what was lost over the last week or so. The biggest winner on the day was the ISK, however, as a big drop in the CDS spreads for the Icelandic banks gave the battered northatlantic currency some much needed tailwind. Despite a drop of some 100bps over the last couple of days, the 5-year CDS spreads for the two largest Icelandic banks remain around 950bps. Hence, although implied interest rates in the forward market now trade around 9-13 % and the ISK thus again offers solid carry, we will await better sentiment towards the Icelandic banks before going long the ISK.
Looking ahead to today, the global calendar is practically empty and the EM calendar offers only Hungarian inflation. With several key releases due later in the week (including rate meetings on Turkey and South Africa and inflation and retail sales from the US), we could thus be in for a quiet day on EM today.
This should leave plenty of time to watch the Olympics (not the least considering that the Indian Summer we are hoping for still has not materialised) - and Wozniacki has given Denmark a bright start to the day and a much needed success, beating the world's number 12 in straight sets!

Today’s Key Events

• 10:30 Consumer Prices, GBP

• 14:30 Trade Balance, USD

• Download Full Daily Forex Commentary

Published on  Tue, Aug 12 2008, 07:46 GMT

EURUSD Swap−spread Playing Catch−up?

Mon, Aug 11 2008, 06:47 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

What we have seen the last few days before the weekend has been a major shift in market sentiment (or beliefs) regarding USD and EUR.
Focus has shifted from inflation fears to growth fears. The dollar has made a significant rebound since mid-July, but the dollar rally has really gained speed since the beginning of last week and as Mr. Trichet expressed concerns about growth in the Eurozone. It is not just against the euro the dollar is strengthening, it is an overall dollar strengthening vs. most other currencies. It is much the same picture when it comes to the euro – but with opposite sign in front. This is evident if we look at the trade-weighted indices (TWI) where the TWI euro index lately has fallen 2.5% and the TWI dollar index has strengthened sharply more than 4%. The 2-year swap-spread has moved in favour of a stronger USD vs. EUR, but EURUSD is currently front-running, which mean that we should see either the swap-spread catching up or EURUSD rebounding. We believe that EURUSD will rebound within the next few days as the euro sell-off has gone much too fast for the swap-spread to keep up. However, we do not recommend buying EURUSD as we believe that we have entered a sell-on-rallies scenario.

Today’s most interesting macroeconomic release is the consumer prices from Norway.
We expect further increases in the consumer prices index – both in the July figure released to day and in the coming months. A high figure is expected by the market and this means that if the reading is going to be lower than expected, it will put significant pressure on NOK.

Emerging Markets

By the Emerging Markets Team

Global risk assets had a strong finish to last week as oil prices took another dip, reducing downward pressures on the consumer and upward pressures on central bank rates. Hence, while the Danish weather leaves us praying for an Indian Summer, the question is whether we can hope for one in the financial markets. While the steep drop in the price of oil and the reduced fears for a financial meltdown seen over the last month or so are clearly positive, the increasing signs of a global growth slowdown is likely to weigh on EM ahead - not the least on Eastern Europe, with the slowdown now clearly visible in the Euro Area data, and this to an extent that has even caught the attention of Mr. Trichet. Hence, we retain a neutral stance on most of our crosses and recognise that headwinds are increasing in Eastern Europe (and this is not even counting any possible knock-on effects from the Russia- Georgia conflict). We do stick to our short EUR/TRY position, however, as we expect the TRY to further benefit from the normalisation of the political situation in Turkey but adjust the stop lower to limit potential downside.
Today's calendar in EM offers Romanian inflation as the key release, but things heat up later in the week, with both the Turkish and South African central banks delivering rate decisions. We would also play close attention to the US retail sales and inflation figures for a reading on the growth/inflation mix in the US.

Today’s Key Events

• 10:00 Consumer Prices, NOK

• 10:30 Producer Prices, GBP

• 01:01 RICS Housing Data, GBP

• 07:00 Consumer Confidence, JPY

• Download Full Daily Forex Commentary

Published on  Mon, Aug 11 2008, 06:47 GMT

USD stronger on comments from Trichet

Fri, Aug 8 2008, 06:20 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The EUR slumped to a six month low versus the USD in the wake of Trichet’s comments following the monetary policy meeting in the European Central Bank where rates were left unchanged at 4.25%. Although the ECB president stressed that the central bank’s primary mandate is inflation targeting he did paint a rather discouraging picture of prospects for economic growth and did seem a bit more concerned in this respect than previously. Thus market participants virtually erased all expectations of rate hikes in the Euro Zone and are now speculating that the ECB will start cutting rates during the summer of 2009. As rates dropped EURUSD tumbled through the important levels around 153 corresponding to the May and June lows. Thus technically the currency cross is currently testing the 200-day moving average (152.24) but as we feel that yesterday’s market move may be somewhat overdone we have chosen to remain sidelined for now.

The dramatic move on EURUSD gave rise to large moves on several of the currency crosses we monitor. Thus both NZDUSD and USDCAD broke out of the trading intervals we have set while AUDUSD reached target on our selling recommendation. As mentioned above we tend to think that yesterday’s move following the ECB statement is a bit overdone. Thus we have chosen to take profit on our short position in AUDUSD and obtain a neutral stance on both AUDUSD, NZDUSD and USDCAD until further notice.

Yesterday data showed that underlying inflationary pressure in Swedish consumer prices was lower than expected. However as the EUR weakened EURSEK dropped thus challenging the 200 day moving average (938.57). So far the currency cross has managed to hold on but momentum indicators point towards further downside potential. As the 200-day moving average in our view is key to developments on EURSEK in the short term we have chosen to maintain a neutral stance until we get a clearer indication of direction.

   

Emerging Markets

By the Emerging Markets Team

The Czech central bank (CNB) became the next in line (after New Zealand) to cut the key rate, as the rate was cut by 25 bps to 3.50 % yesterday. Consensus was for the rate on hold and the currency ended the day down 1 % against EUR. In spite of very dovish comments from CNB members the past weeks we had expected that the central bank would wait a little longer before cutting the key rate as they already had managed to put a stop to the sharp appreciation of the currency, eliminate market expectations of future hikes in the key rate, and because of the fact that inflation is still fairly high at 6.7 %. The decision was unanimously and the CNB said that the possibility of further cuts this year can not be eliminated. The choice to start loosening the monetary policy now is a clear signal that the CNB now has focus on growth and wants to avoid further appreciation of the currency.
Focus on CZK will continue today with July CPI this morning.

In coming days the risk to EURISK will be on the upside. A sizeable amount of Eurobonds will mature and in the absence of alternative placement opportunities a portion of this capital might leave ISK in favour of other currencies and this will put pressure on ISK.

Today’s Key Events

• N/A Bank Lending Survey from the ECB (EUR)

• 09:00 Consumer prices (CZK)

• 09:00 Industrial production (CZK)

• 09:00 Unemployment (CZK)

• 09:00 Industrial production (TRY)

• 13:00 Unemployment (CAD)

• 16:00 Wholesale inventories (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Aug 8 2008, 06:20 GMT

Announcement Day in the ECB and BoE

Thu, Aug 7 2008, 06:44 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Overall, we were yesterday witnesses to a session where the commodity currencies (AUD, NZD, and CAD) and the yen were sold. The short term rates fell in the Eurozone as the market is beginning to expect a more dovish statement from Trichet than what has been the case a few weeks back.
Swedish krona strengthened as an Australian bank was mentioned as seller of a large AUDSEK order. Today is the day we have all been waiting for. Trichet (ECB) and King (BoE) are announcing the future key policy rates from the ECB and the BoE respectfully. The ECB is widely expected to hold rates steady as the central bank is trying to balance through the high inflation/lower growth game. The market is pricing in less than 10% likelihood of a hike from the ECB today. The statement 45 minutes after the rate decision announcement will be followed closely in search for clues to the rate decision next month. Our economists expect that Trichet will be signalling unchanged rates next month, but concerns about the high inflation are likely to be expressed. Bank of England (BoE) is like the ECB also expected to hold rates steady. The market is pricing in slightly above 10% likelihood of a hike from the BoE, but no one really expects that the central bank will adjust rates at today’s meeting in the MPC.
Usually no statement is given together with the rate decision, which means that we will have to wait for the inflation report (released August 13) for the arguments behind the rate decision. We do expect that the dollar will stay steady at these levels against the euro and the yen. This is why we prefer to keep a neutral stance on USDJPY even though the yen is trading with a bearish bias. Hence, our range has been adjusted.

Emerging Markets

By the Emerging Markets Team

Yesterday high yielders ZAR and TRY came under selling pressure but both currencies managed to close only slightly weaker against EUR. In South Africa politics are on the agenda again as Zuma (expected coming president) will have to wait until September to know whether the corruption case against him will come to court. In Turkey political noise also came up to the surface again as a local newspaper reported that the prosecutor might start a new case against the governing AK Party. This time the prosecutor would supposedly request the constitutional court to ban the politicians who made the statements leading the court to decide that the AK Party have been engaged in anti-secular activities. Remember that even though the outcome of the case against the party was very positive, it was still found to have engaged in anti-secular activities – hence the economic fine. A new case against the AK Party is still very far from being a reality and the constitutional court has claimed that it intents to avoid a political disaster. But comments like these are likely to be seen in the time to come as the secular establishment is clearly dissatisfied with the outcome. Today there is interest rate announcement from the Czech central bank. Last month central bank governor Tuma said that the choice no longer was between ‘hiking or keeping the rate on hold’ but rather between ‘the rate on hold or cutting’.
Following this statement other members of the central bank stated that a cut in the key rate would be possible at the August meeting. We still expect the rate on hold at 3.75 % at this meeting.
With these comments the central bank has now succeeded in putting a stop to the sharp appreciation of CZK and the market no longer expects hikes in the key rate. But inflation is still too high and we do not think that the central bank will turn to cuts in the key rate yet.
Consensus is also on hold. If the central bank should choose to cut the key rate now it will be negative for CZK.

Today’s Key Events

• N/A Rate Announcement from Czech National Bank, CZK
  

• 09:30 CPI, SEK
  

• 10:00 Industrial Production, NOK
  

• 12:00 Industrial Production, DEM
  

• 13:00 Rate Announcement from the BoE, GBP
  

• 13:45 Rate Announcement from the ECB, EUR
  

• 14:30 ECB Press Conference, EUR
  

• 16:00 Pending Home Sales, USD

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Published on  Thu, Aug 7 2008, 06:44 GMT

Trichet in focus after balanced Fed statement

Wed, Aug 6 2008, 06:52 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday’s main event was the FOMC rate announcement from the Fed and the accompanying statement in particular. The motion to leave rates unchanged at 2 % was passed as all but one member (who preferred an increase in rates) voted in favour. Thus the rate announcement itself didn’t give rise to any drastic market reactions as this outcome was expected by the vast majority of market participants.
The statement published immediately after the rate announcement was made, seemed to be somewhat similar to the July 22nd statement.
However there were a few changes in yesterday’s statement. Thus this time around the phrase “allthough downside risks to growth remain they appear to have diminished somewhat” was left out. Furthermore allthough the Fed continues to express concern regarding the outlook for inflation the phrase “upside risks to inflation and inflation expectations have increased” was omitted from yesterday’s statement.
All in all the statement seemed fairly balanced as the Fed said that “although downside risks to growth remain, the upside risks to inflation are also of significant concern”. Hence Trichet’s statement following the ECB rate announcement on Thursday remains key for developments on EURUSD.

Both the NZD and the AUD weakened massively versus the USD in yesterday’s trade. Thus we reached targets on our selling recommendations on NZDUSD and AUDUSD. At this point we have chosen to take profit on NZDUSD as technical analysis suggests that momentum on the downward move is wearing off. On AUDUSD howver there seems to be further downward potential and as the falling prices on commodities seem to do little to aid the troubled AUD we have chosen to extend our selling recommendation on AUDUSD targeting 90.00 with stop loss placed at 93.15

Emerging Markets

By the Emerging Markets Team

Yet another very calm day on Emerging Markets. The main activity could be traced in stock markets which gained roughly 2-3 % on lower oil prices.

All EM-currencies versus the EUR where slightly under pressure due to the downward movement of EURUSD. The Rand, however, came under some additional selling pressure versus the EUR without particular news – perhaps some profit taking on recent gains.

Today none of the relevant/heavy weighting key figures are being published. Expect another calm but positive EM-FX trading session.

Today’s Key Events

• N/A monetary policy meeting in the BoE begins (GBP)
  

• 11:00 Trade balance (ISK)
  

• 12:00 Industrial orders (DEM)
  

• 13:00 MBA mortgage applications (USD)
  

• 00:45 Unemployment (NZD)
  

• 03:30 Unemployment (AUD)

• Download Full Daily Forex Commentary

Published on  Wed, Aug 6 2008, 06:52 GMT

Rate Decision from FOMC Tonight

Tue, Aug 5 2008, 07:25 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Reserve Bank of Australia (RBA) kept its policy interest rate, the cash rate, unchanged.
Governor Stevens mentioned short term risks for high inflation due to the high global oil prices, but also that demand has been restrained due to tighter financial conditions, increasing fuel costs, and lower asset values. The Board - largely dovish - concludes in the final sentence of the statement that “… with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy is the period ahead is increasing”. AUD fell versus USD and EUR on back of the statement and the market is already pricing in almost a full 25bps rate cut from RBA at the September 2 meeting.

CAD plunged yesterday in a relatively thin market as the Canadians were offline due to a Canadian holiday and due to a 4 dollar fall in the oil price. USDCAD is currently trading just around a resistance line and if it breaks lose of the resistance then we see more upside potential.

Tonight at 8.15 pm CET the Federal Open Market Committee is announcing the future fed funds rate and we are expecting an unchanged rate decision. Lately, there has been a lot of speculation that the Fed might be considering hiking rates to dampen inflation (and inflation expectations). However, the market has most recently moderated its expectations for coming hikes and is currently pricing in less than 10% probability for at hike a today’s announcement. There is still priced in approximately 3x 25bps hikes over the next 12 months where our house view calls for 2x 25bps rate cuts by year-end.

Emerging Markets

By the Emerging Markets Team

Yesterday turned out to be a very quiet start to this week. The past months focus on emerging markets has mainly been on inflation. But as inflation numbers in June came out either as expected or actually surprised on the downside and the oil priced reached lower levels, focus now seems to be shifting slightly towards growth as well. This doesn’t mean that inflation has been forgotten for now, but rather that the fight against it looks a little less gloomy now than it did before. And inflation is also the theme on EM this week, starting yesterday with July numbers from Turkey, where focus has now shifted away from the political situation. The number came out higher than expected (12.1 % y/y vs. 11.8 %), and the immediate reaction was a weakening of TRY but the currency came back later and ended the day marginally firmer against EUR. We still see room for limited hikes in the key rate in coming months.

The slightly better prospects for inflation are also what have been driving ZAR lately. The currency is up almost 11 % since mid June, but the economic activity looks strained and we prefer to maintain a neutral stance on the currency.

Today’s Key Events

• 10:00 PMI Service, EUR

• 10:30 PMI Service, GBP

• 11:00 Retail Sales, EUR

• 16:00 ISM Service, USD

• 20:15 Rate Announcement, USD

• 07:00 Leading Indicator, JPY

• Download Full Daily Forex Commentary

Published on  Tue, Aug 5 2008, 07:25 GMT

All eyes on non farm payrolls

Fri, Aug 1 2008, 07:02 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The USD weakened yesterday touching 157 versus EUR as data showed that the growth in the US economy fell short of expectations in the 2nd quarter and the number of initial jobless claims surpassed economists’ estimates.
However as oil prices receded from yesterday’s highs EURUSD dropped thus ending the day little changed.

The Australian story of high interest rates seems to be fading into the background. Thus several bad news have emerged from the continent “down under”, including a story in a local newspaper today, which suggests that the Reserve Bank of Australia is considering cutting rates at the upcoming monetary policy meeting. Technically AUDUSD has been trading within a rising trend channel since New Year’s. However the bottom of the channel has been broken as a consequence of the recent slide in the currency cross. Furthermore, although AUDUSD has already dropped significantly momentum indicators suggest that there is room for further AUD weakening. Thus we recommend selling the currency cross.

The SEK has made a bit of a come back in the past two days as sentiment has supported the Swedish currency. Hence EURSEK has broken through the lower boundary on our interval. However yesterday stock markets in the US ended the day in negative territory and the trend continued in the Asian session. Thus it looks like markets will be off to a poor start today. As risk aversion is normally unkind to the SEK we believe that risks are mainly on the upside on EURSEK today. However with the release of 2nd quarter GDP at 9:30 am the currency cross is likely to be subject to increased volatility. We prefer to maintain a neutral stance at this point and have adjusted our interval slightly.

Today focus will be on the all-important Nonfarm payrolls data from the US. Wednesday’s ADP figures signalled a slight increase in employment in the private sector. Thus the release has planted seeds of optimism regarding today’s release. However the correlation between ADP and Non-farm payrolls has been far from convincing for a considerable period. Thus we do not attach much importance to the signals inferred from the ADP data. Our house call is for a change in non-farm payrolls of -90K

Emerging Markets

By the Emerging Markets Team

Sentiment started out fairly positive but turned negative on disappointing growth numbers from the US and most EM currencies ended the day almost unchanged against EUR. The outperformers were ISK and TRY. ISK enjoyed the non-disappointing Q2 numbers from the financial sector, which continues today with numbers from Glitnir, while TRY rallied on the Constitutional Court’s decision not to ban the AK Party. In Romania the central bank defied market consensus and hiked the key rate by 25 bps to 10.25 %. This was a positive decision as the Romanian economy is clearly overheated and the central bank has seemed a little reluctant to hike rates further.

All in all July has been a long awaited positive month on EM and all currencies, except from CZK, are firmer against EUR since the beginning of the months. The main cause of this positive development this is the declining oil price making the outlook for inflation in EM countries a little less gloomy. Today CPI from Indonesia will be released but focus will most likely be on the job report from the US.

Today’s Key Events

• 09:30 GDP (SEK)

• 10:00 PMI manufacturing, revised (EUR)

• 10:00 Unemployment (NOK)

• 10:30 PMI manufacturing (GBP)

• 14:30 Non-farm payrolls (USD)

• 16:00 ISM manufacturing (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Aug 1 2008, 07:02 GMT

EUR/USD in Play…

Thu, Jul 31 2008, 06:18 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

EURNOK took a nosedive late in the European trading session as stops went through and further selling was rumoured to be related to a large fix order. In addition, the oil price jumped $4 as the latest US weekly inventory report showed a larger than expect fall in gasoline.
Unemployment from Norway is due today, but besides that the macroeconomic calendar is relatively empty until CPI data is released August 11 and Norges Bank is announcing rates August 13. Australian dollar has been under severe pressure lately as commodities have been making a downwards correction. This morning retail sales fell the most in six years and ignited fears that the economy is losing pace faster than the Australian policy makers had expected. For the time being AUDUSD is resting just above the bottom of an increasing 7-month trend channel. The future direction is highly dependent on the path of the commodities and the US dollar. The US dollar is in general the big issue at the moment. It has been stuck in range trading between 153 (487.60) and 160 (466.30) for quite some time and it is unlikely to go anywhere outside this range as long as: 1) Trichet & Co. does not change their attitude and become dovish, or 2) Bernanke & Co. start talking hikes on the other side of the Atlantic Ocean. It will be a couple of interesting days for both the euro and the US dollar as consumer prices from the Eurozone are due shortly before noon today and non-farm payrolls and ISM Manufacturing from the US are due tomorrow - to mention a few macroeconomic releases. Eurozone consumer prices are expected to be at least the same as last time (4%) or possibly slightly higher. Our main scenario for the US calls for recession with higher unemployment and a lower Fed funds rate as consequences. Our economists are forecasting a fall in non-farm payrolls of 80,000. Both Eurozone CPI and non-farm payrolls should offer some support to the euro if they will be as expected.

Emerging Markets

By the Emerging Markets Team

Turkish assets rose late afternoon on rumours that a (market positive) court decision might come later in the evening. The rumours proved to be right. AKP survived the feared close down of the party and was able to get away with a slap on the wrist. The constitutional court rejected demands to close AKP but penalized the party by cutting 50 % of their government funding. TRY traded with a strong tone throughout the day and gained momentum after the announcement. Further FX gains are likely in coming days. 1,79 level in EURTRY as the next point of resistance.
The polish central bank kept rates unchanged at 6 % as expected by most market participants – a non-event. EURPLN rose slightly but absolutely in line with its Eastern European peers. On a more negative note: South Africas inflation data revealed again uneased pressure and stopped the Rands stellar performance from yesterday. The ZAR has lost roughly 13 % of its value versus the EUR this year. This comes on the back of heightened risk aversion, fast increasing inflation pressures and a widening current account deficit. The future for the ZAR does not seem much brighter. We, however, do not see the same extent of losses and stay sidelined until inflation is under control. We expect a 25bp hike (to 10,25 %) at the central bank meeting in Romania.
Consensus is for “unchanged”. Despite the country’s imbalances the RON has proved pretty resilient to heightened risk aversion – it moved within a 6,5% band versus the EUR since start of 2008. From that point of view RON has been a good diversification trade. The central bank decision will probably not change that picture much, regardless of a hike or unchanged rates today. On the longer term, however, we favour hikes as inflationary pressures are unabated and we are concerned that tightened monetary policies might come too late. Hence, our “neutral stance” towards the RON.

Today’s Key Events

• 08:00 Nationwide House Prices, GBP

• 09:15 Consumer Confidence, SEK

• 10:00 Unemployment, NOK

• 11:00 Unemployment, EUR

• 11:00 Consumer Prices, EUR

• 11:30 Producer Prices, ZAR

• 14:30 GDP, USD

• 14:30 Employment Cost Index, USD

• 15:45 Chicago PMI,USD

• Download Full Daily Forex Commentary

Published on  Thu, Jul 31 2008, 06:18 GMT

The USD jumped on US consumer confidence

Wed, Jul 30 2008, 06:23 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday sentiment in the European trading session was mainly on the negative side and stock markets were in the red most of the day. However as US consumer confidence data showed a slight improvement from last month stock markets in Europe and in the US rallied and the USD rose to a 1-month high versus the EUR. Thus at this point technical analysis suggests that EURUSD is headed for a test of the bottom of the long term trading interval on the currency cross (around 153). However as the remainder of the week offers plenty of opportunity for volatility on the USD (linked to the release of the ISM indices and the non-farm payrolls report among other things) we prefer to maintain a neutral stance on EURUSD for the time being.

The AUD dropped overnight as macro economic data showed that building approvals dropped more than expected. Thus AUDUSD broke through the lower boundary of our interval on the currency cross. Short term AUDUSD is likely to find support around the 100-day moving average (currently at 94.47). Thus we prefer to maintain a neutral stance for the time being and have adjusted our interval on the currency cross slightly.

With stock markets in Asia all up this morning it looks like market participants can look forward to a somewhat gentle start to the day. However with consumer confidence data from the Euro Zone and ADP employment data from the US in the pipeline later today there is a risk of a rise in volatility. Investors will pay particularly close attention to the ADP employment numbers as it may give a hint regarding developments in the change in nonfarm payrolls

Emerging Markets

By the Emerging Markets Team

Following positive equity markets and a further decline in the oil price sentiment on EM was rather positive yesterday, and most currencies closed firmer against EUR. ISK was the top performer up 3.9 % as the market was relieved after 2Q earnings announcements from Landsbanki came out fairly sound. Earnings announcements from the Icelandic financial sector continue today with numbers from Straumur. It seems that the market is taking yesterdays’ numbers as a sign that other numbers will come out sound as well, but one should remain cautious as the risk of disappointing numbers still persists. ZAR has done pretty well lately on no particular news and gained 3.3 % against EUR yesterday. Hence the currency broke through the lower range of our interval. We adjust the interval and maintain a neutral stance on the currency.

We expect the Polish central bank to adopt a wait and see stance and keep rates on hold at 6 % at the meeting today and the market agrees with this view. A hike at this point of time will come as a huge surprise, but looking a bit further ahead most market participants still expect at least a 25 bps hike within the coming months. Today also has June CPIX from South Africa on the agenda which is expected to increase further to 11.3 % y/y. This will support our view that one more hike in the key rate is necessary.

Today’s Key Events

• N/A Rate announcement from National Bank of Poland (PLN)

• 11:00 Consumer confidence (EUR)

• 11:30 KOF leading indicator (CHF)

• 11:30 CPI (ZAR)

• 13:00 MBA Mortgage applications (USD)

• 14:15 ADP employment (USD)

• 01:01: Gfk Consumer confidence (GBP)

• 03:30 Trade balance (AUD)

• 03:30 Retail sales (AUD)

• 01:15 Nomura PMI (JPY)

• 07:45 CPI (CHF)

• Download Full Daily Forex Commentary

Published on  Wed, Jul 30 2008, 06:23 GMT

IMF Posts a Dark Picture

Tue, Jul 29 2008, 06:38 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Overall, currencies traded in narrow ranges during yesterday’s trading. The New York and Asian session did not change this picture drastically, which mean that since we went home yesterday, we have not missed out on any action. The International Monetary Fund (IMF) published yesterday their Global Financial Stability Report with three main points: Banks under renewed stress, making raising capital hard; increased likelihood of spillovers into real economy, and; resilience of emerging markets now being tested. In addition, the IMF is warning that the worsening credit conditions may prolong the economic slowdown. The dark pictures posted by the IMF called on the market pessimists and short term interest rates fell in the Eurozone, the US, and in the UK. The 90-day Eurodollar futures contracts rallied the most, but longer term rates fell in the US as well.

Today can very well be a day with a slightly negative undertone due to the messages from the IMF yesterday. The CaseShiller Home Prices Index is due this afternoon and it is measuring the house prices in the major cities. Our economists are forecasting a renew fall in the index, which is due 4 pm. Consumer confidence from Conference Board in the US is also due in the afternoon and this is probably where the market will have its focus today. Our economists are also forecasting a slight fall in the consumer confidence for July.

Emerging Markets

By the Emerging Markets Team

An uneventful day lead to most EM currencies trading almost flat against the EUR yesterday. The exception was once again ISK down 1.3 % against EUR. The currency is clearly affected by the market being nervous up to 2Q earnings announcements from the Icelandic financial sector this week starting today with Landsbanki. Yesterday also saw the beginning of the final hearings in the case against the AK Party in Turkey but TRY managed to close marginally firmer against EUR. A date for the verdict has not been set, and any day during this or next week seems possible.

Once again there are no important events on the EM agenda, and it seems we could be up for another quiet day.

Today’s Key Events

• 09:30 Retail Sales, SEK
  

• 10:00 Consumer Prices, DEM
  

• 12:00 CBI Retail Sector, GBP
  

• 15:00 CaseShiller Home Price Index, USD
  

• 01:50 Industrial Production, JPY

• Download Full Daily Forex Commentary

Published on  Tue, Jul 29 2008, 06:38 GMT

A slow start to a busy week

Mon, Jul 28 2008, 06:44 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Markets were off to a bad start on Friday however sentiment improved in the afternoon as macro economic data showed that the number of new home sold and the number of incoming orders on durable goods were higher than expected in June. Thus the USD found a bit of support and ended the day a bit off Friday’s lows versus EUR.

It looks like it is going to be a very quiet start to the week as the macro economic calendar is empty. Later this week however there is plenty of opportunity for volatility on the USD as macro economic data (including consumer confidence, ISM indices and the all important Non-farm payrolls report) is pouring in from the US. Technically speaking EURUSD seems well supported around the 100-day moving average (currently at 156.57) and with momentum indicators starting to point towards the upside we expect the currency cross to remain supported in the short term. However as the prospects of elevated volatility lurks ahead we maintain a neutral stance on the currency cross for now.

USDCAD has risen in the past week on the back of a stronger USD and falling oil prices. From a technical point of view momentum on the upward move on the currency cross is staring to wear off. As we expect USDCAD to find resistance around 102.50-103 corresponding to previous highs we have chosen to maintain a neutral stance at this point and have chosen to adjust our interval on the currency cross slightly. However a break above this level will pave the way for a further rise on USDCAD towards 105.00

Emerging Markets

By the Emerging Markets Team

Friday was once again a positive day on EM and most currencies ended the day up against EUR. The underperformer was once again ISK down 1.1 %. July inflation came out higher than expected and this should have provided support for the currency through expectations of further hikes in the key rate. But this was not the case and it clearly illustrates that focus in Iceland is not on CPI numbers and the key rate at the moment, but rather on 2Q earnings announcements from the financial sector coming out this week. This focus is also illustrated by CDS spreads on the Iceland banks increasing. Disappointing earnings numbers will leave ISK very vulnerable. The target on our short ISK recommendation was reached and we choose to remain on the sideline for now.

In Colombia the key rate was hiked with 25 bps to 10 %. We had expected rates to be left on hold, but acknowledged that it was going to be a close call. The decisive factor was the strong increase in both actual and expected inflation. We expect rates to be left on hold in the months to come. There are no important events on EM today.

Today’s Key Events

• 18:30 Fed’s Mishkin speaks (USD)

• 01:30 Unemployment (JPY)

• 01:50 Retail sales (JPY)

• Download Full Daily Forex Commentary

Published on  Mon, Jul 28 2008, 06:44 GMT

Markets slid along with US home sales

Fri, Jul 25 2008, 07:13 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday US stock markets and financial shares in particular dropped as data showed that sales of existing homes in the US dropped more than forecast in June thus hitting a 10- year low. The poor sentiment rubbed off on markets in Asia where the major stock indices are all posting losses this morning. Thus it looks like European markets will be off to a bad start ahead of the weekend.

The USD has gained a bit of foothold in the past couple of days as the Q2 earnings announcements from the large US banks have turned out to be less gloomy than feared and investors have regained a bit of risk appetite. Thus focus on the EUR is growing and in the light of light of economic fundamentals the European currency seems overvalued.
Yesterday the EUR dropped versus USD as the German IFO index was released. The index fell from 101.2 in June to 97.5 this month whereas analysts had expected a more modest drop to 100.1. Thus it seems that the downturn in the global economy has started in earnest to spread to Germany.
Although the EUR has recovered somewhat from yesterday’s lows versus USD, the move was just enough to trigger stop loss on our buying recommendation on EURUSD.
Technically speaking the currency cross seems supported around the 100-day moving average (currently at 156.53). However for the time being we prefer to obtain a neutral stance.

USDCAD has risen somewhat in the past two weeks as the USD has regained a bit of the territory lost and the CAD has weakened in the wake of falling oil prices. Currently USDCAD is testing the upper boundary of a falling trend channel and as technical indicators suggest that momentum on the upward move is wearing off we have chosen to stay neutral and adjust our interval on the currency cross slightly.

Emerging Markets

By the Emerging Markets Team

Most EM currencies ended the day with small gains. Central- and Eastern European currencies recovered some of the lost territory as markets seem to be shifting focus away from Czech central banker Tuma’s comments. ISK lost 1.4 % and we hold on to our long EURISK position but chose to lock in more profit and adjust the stop to 125.

Today offers CPI from Iceland where large deviations on the upside from the 13.2 % y/y consensus estimate will add fuel to expectations of further hikes in the key rate, whereas a small surprise on the downside could bring cuts in the key rate closer. For now focus on Iceland is on the financial sector where earnings reports are due during next week. Disappointing numbers will leave ISK very vulnerable. Tonight the Colombian central bank, BanRep, announces its key rate. We expect the rate to be left on hold at 9.75 %, but it is a close call with market participants split between rates being left on hold and a 25 bps hike.

Today’s Key Events

• 09:30 Trade balance (SEK)

• 10:00 Euro Zone M3 (EUR)
  

• 10:30 GDP, preliminary (GBP)
  

• 11:00 Consumer prices (ISK)

• 14:30 Durable goods orders (USD)

• 16:00 Michigan consumer confidence, revised (USD)
  

• 16:00 New home sales (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Jul 25 2008, 07:13 GMT

NZD weakens as the RBNZ cut rates

Thu, Jul 24 2008, 06:18 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Overnight the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate by 25 bps to 8.00% after having kept rates unchanged for a year. Market participants had been split on the outcome of the monetary policy meeting as the central bank faces the difficult dilemma of an economy headed towards recession and rapidly rising inflation. However in a statement the central bank said that it expects the downturn in activity to gradually dampen the inflationary pressure and that rates are likely to be lowered further. Thus NZDUSD dropped and broke through the June lows around 75.00. Short term we expect that the (somewhat surprisingly) dovish statement from the RBZ will put the distressed NZD under further pressure. Thus we recommend selling NZDUSD targeting 72.40 with a stop loss placed at 75.50.

Yesterday minutes from the July monetary policy meeting in the BoE were released. The minutes showed that 7 members of the Monetary Policy Committee had voted in favour of keeping rates unchanged at 5% while one member wanted a rate cut to support growth and another wanted a rate hike in order to curb inflation. The minutes showed that the decision had been difficult for all of the MPC members and that the majority of the members felt that keeping rates unchanged at 5% in the current environment would send a sufficiently strong signal of the BoE’s determination to put a lid on inflation. Furthermore the MPC said that a change in rates this month would be a surprise at a time when markets remain fragile and that a rate hike under the current circumstances would add to the downward momentum in the economy. However market participants seemed to take special notice of the phrase “any changes in rates would be better communicated alongside the Bank’s August inflation report”. This phrase was obviously interpreted in the sense that the MPC doesn’t rule out further rate hikes in the future and the GBP strengthened substantially versus EUR. For the time being though, we expect EURGBP to find support around 78.00 and from a macro economic point of view we still expect that the next move in rates will be down. Thus we prefer to maintain a neutral stance on the GBP for now.

Emerging Markets

By the Emerging Markets Team

Yesterday was a positive day on EM mainly attributed to further declines in the oil price. Most currencies ended the day marginally up against EUR. The exceptions were the Easternand Central European currencies CZK, HUF, RON, and PLN. On Tuesday Czech central bank Governor Tuma made some rather dovish comments and CZK continued its new declining path yesterday. CZK has now lost 3.8 % since Tuesday and seems to be dragging PLN, HUF, and RON along with it on concerns that the tightening path in these countries will be over earlier than previously expected. Looking forward CZK could go either way – the currency could turn around again after recovering from the ‘shock’ or it could continue weakening from long CZK positions being closed - hence we maintain a neutral stance for now. The stop on our long PLN position was hit and we close the position with a comfortable profit.

In Brazil the SELIC rate was hiked with 75 bps to 13 %. Consensus was 50 bps, in line with our expectations, but a still larger group of analysts were expecting 75 bps. The wording following the announcement also changed from ‘continues the process of adjustment of the base rate’ to ‘promote the timely convergence of inflations to the targets’.
Hence the central bank has turned more aggressive in its fight against inflation, and this could provide support for BRL. Today there are no important events on EM.

Today’s Key Events

• 09:30 Producer prices (SEK)

• 09:30 Unemployment (SEK)

• 10:00 Ifo (DEM)

• 10:00 PMI service (DEM)

• 10:00 PMI manufacturing (DEM)

• 10:30 Retail sales (GBP)

• 14:30 Jobless claims (USD)

• 16:00 Existing home sales (USD)

• 01:30 CPI (JPY)

• Download Full Daily Forex Commentary

Published on  Thu, Jul 24 2008, 06:18 GMT

USD strengthens on hawkish Fed comments

Wed, Jul 23 2008, 06:37 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

European stock markets got off to a bad start yesterday however sentiment improved somewhat in the course of the day and the cautious optimism rubbed off on the US trading session. Thus the major US stock indices made decent gains supported by a further drop in oil prices among other things.

Yesterday FOMC member Charles Plosser said that the Fed should raise rates “sooner rather than later” to dampen inflationary pressures. The president of the Philadelphia Federal Reserve Bank acknowledged that the Fed is caught in a very tough spot between rapidly rising inflation and a slump in economic growth. However he stressed that it is important that the public knows that the Fed is serious on the battle against inflation and that policy makers shouldn’t wait for an economic turnaround to raise rates. In the FX markets the USD rallied in the wake of Plosser’s remarks sending EURUSD sharply lower towards 157.60. This morning the USD has receded somewhat from yesterday’s highs and as technical indicators suggest that momentum on the downward move on EURUSD is starting to wear off we have chosen to stay long EURUSD for the time being.

The NZD has weakened quite substantially versus the USD in the course of the past week in the wake of speculation of impending rate cuts from the Reserve Bank of New Zealand (RBNZ). We expect the RBNZ to leave the Official Cash Rate unchanged at 8.25% when interest rates are announced at 11:00 pm today. However as economic growth is slowing there is no doubt that it will be a close race between an unchanged interest rate and a cut. Technically we expect NZDUSD to find support around 74.95 (corresponding to the June lows) in the short term but we will consider going short in case the currency cross manages to break this level.

Emerging Markets

By the Emerging Markets Team

Yesterday CZK weakened with about 2.5 % against EUR and DKK. However CZK is still up with about 12 % in 2008. The weakening came on the back of some dovish comments from central bank governor Zdenek Tuma. The Czech koruna's rally in the past year may push inflation below the central bank's 3 percent target as soon as in 2009 the governor said. From his point of view the debate on the last meeting whether to keep or raise the key rate is over. Now he thinks there will be a debate whether to leave or to lower the key rate.
Market yields dropped and the CZK weakened following the comments.

It is a very large movement in one day and we see a possibility for CZK to strengthen in the coming days. On the other hand it is also possible we will see the euphoria to continue and thus CZK continue to weaken further.
Therefore we keep our neutral recommendation. Regarding our long term recommendation, we still do not recommend taking loans in CZK. Clients with existing loans could use it as an opportunity to close down the loans.

Yesterday the Constitutional Court said that it would start deliberating the AKP closure case on July 28 and would try and reach a verdict as soon as possible. We expect a decision during next week. It is difficult predicting the result – best guess is 50-50 for closing AKP. Therefore we keep our neutral recommendation until the final verdict is made.

Today we look forward to interest rate decisions from Brazil and New Zealand. Both decisions are due at 11 pm.

Today’s Key Events

• 10:30 BoE minutes (GBP)
  

• 11:00 Industrial orders (EUR)
  

• 12:00 CBI industrial trends (GBP)
  

• 13:00 MBA mortgage applications (USD)
  

• 13:00 Consumer prices (CAD)
  

• 15:00 Fed’s Mishkin speaks (USD)
  

• 17:15 Fed’s Kohn speaks (USD)
  

• 20:00 Fed’s Beige Book (USD)
  

• 23:00 Rate announcement from Reserve Bank of New Zealand (NZD)

• Download Full Daily Forex Commentary

Published on  Wed, Jul 23 2008, 06:37 GMT

Earnings Announcements are Still a Theme

Tue, Jul 22 2008, 06:31 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday was overall a fairly quiet session without much action in the FX market. Bank of America’s earnings were better than expected and had limited impact on our market. American Express announced their earnings in the after-market and they were worse than expected putting pressure on the US dollar once again. Last week we initiated a long EUR/USD strategy and the result from yesterday’s earnings announcement was right up our alley. We are sticking to the current recommendation as the risk on rates is on the upside in the Eurozone and clearly on the downside in the US according to our economists. Today’s most important earnings announcements are Wachovia Corp. and more importantly Countrywide Financial Corp., which is one of the largest home mortgage lenders in the US. Inflation data from Australia is due tonight and a lot is pointing towards further increases in the index. In the meantime, the growth has begun to point downwards and this will pull inflation down, which is incorporated in Reserve Bank of Australia’s estimates. There is a risk, however, that the high inflation will increase inflation expectations and thereby wage demands and this could lead to yet another hike from the central bank. This is not in the card at present and we do not expect further rate hike from RBA this time around. As long as commodity prices remain elevated and the dollar suppressed, then the Australian dollar will stay strong. Wearing our macroeconomic and risk-aversion goggles make us more bearish on AUD in the longer term.

Emerging Markets

By the Emerging Markets Team

Most emerging markets currencies have done reasonable well this month. At the same time yields have dropped in most emerging markets. So far so good and we can conclude: July has been a very good month. Locally inflation data has been lower than expected in July in a number of countries. At the same time we have seen a drop in the oil price from 144 dollar per barrel to 132 dollar per barrel, which has been greeted by emerging markets in general. As you perhaps know we expect oil to drop further to 120 dollar per barrel during late summer. This will support emerging markets even more and we are positive about the short term outlook. Yesterday the Hungarian Central Bank kept the key rate unchanged at 8.50 %. This was in line with expectations. We are neutral about HUF, but most admit the currency has done well this year. HUF has increased more than 10 % against EUR and DKK. However PLN has done even better and we still like the Polish story better than the Hungarian one, because the growth prospects are much weaker in Hungary than in Poland. Today the Turkish constitutional court will publish a decision date for AK Party. On this date the court will decide if the ruling AK Party is legal or not. We expect a quick process and expect a decision in mid-August. The likelihood of a closure of AKP has decreased lately. If AKP is closed it would be negative for TRY-assets and Turkey will be in a situation with political chaos. On the other hand it would be very positive if the party is not closed.

Today’s Key Events

• 14:00 Net Core Infation, PLN

• 14:30 Fed’s Plosser speaks, USD

• 14:30 Retail Sales, CAD

• 16:00 OFHEO House Prices, USD

• 03:30 Consumer Prices Index,AUD

• Download Full Daily Forex Commentary

Published on  Tue, Jul 22 2008, 06:31 GMT

The Pound in Heat

Mon, Jul 21 2008, 07:23 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The British pound traded weaker in the beginning of the European session as the headlines made the market concerned with the fact that the UK Treasury was considering breaking the key fiscal rule about keeping government borrowing below 40% of GDP. This morning BoE’s David Blanchflower, the wellknown arch-dove, said that the British economy is going into recession and that the interest rates would fall well below the current 5%. Rightmove’s nationwide house prices supported this with yet another fall this morning. Short term we are quite bearish on the pound, but we are still waiting for the timing to be right for a short GBP strategy. The BoE/MPC minutes are due Wednesday and will show the distribution of votes.

Short term rates were once again quite volatile going up in the Eurozone, the US, and in the UK. The Euribor contracts expiring a year from now fell about 17 ticks, whereas the Eurodollar contracts fell about 10 ticks. The short sterling futures ended down a number of ticks somewhere between the Euribor and Eurodollar contracts.

It is going to be a relatively interesting week with durable goods due Friday and Fed’s Beige book and BoE/MPC minutes due Wednesday.
As the macroeconomic calendar is quite empty today, the focus will as last week remain at the earnings announcement from the financial industry. Bank of America is due this afternoon.

Emerging Markets

By the Emerging Markets Team

Friday was a mixed day for the EM currencies. TRY closed the day about 1 % stronger against EUR and DKK. This was probably on the back of last weeks significant drop in the oil price from 144 $ per barrel to 131 $. ZAR was performing during the European session, but lost momentum because of declining equity markets in the US. COP was the looser of the day (-2.5%).

A third currency under pressure was ISK. A local market maker sold ISK to the other market makers from opening of the market.
There was no local news explaining the drop in ISK. We move our take profit in EURISK to 128 (ISKDKK: 5.83). At the same time we move our stop profit from 122 to 124 (ISKDKK: 6.02).

Today we look forward to the interest rate meeting in Hungary. Decision is due 2 pm. We expect unchanged key rate at 8.50 % as the rest of the market.

Today’s Key Events

• 09:15 Producer and Import Prices, CHF

• 14:00 Rate Announcement, HUF
  

• 16:00 Leading Indicators, USD

• Download Full Daily Forex Commentary

Published on  Mon, Jul 21 2008, 07:23 GMT

Financial shares remain in focus

Fri, Jul 18 2008, 06:45 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Volatility has been elevated for quite a while and yesterday was no exception. Thus stock markets rose rapidly in the in the European trading session and the trend continued in the US session. However as Google, Microsoft and Merrill Lynch in particular announced disappointing 2nd quarter results immediately after the closing bell rang on Wall Street futures on US stock indices turned red and interest rates on US treasuries pared some of the gains made earlier in the day. The Rating agency Moody’s subsequently downgraded both Merrill Lynch’s and Lehman’s ratings to A1 and put the latter on negative watch.
Today the macro economic calendar is far from exciting and focus is likely to remain on the financial sector as Citigroup Inc is announcing their 2nd quarter results at 12:30 pm.

The JPY took another ride on the carrousel yesterday thus erasing another chunk of the gains made earlier this week. As sentiment seems to have turned for the worse in the Asian trading session we expect the JPY to regain a bit of foothold this morning. At this point though, we prefer to maintain a neutral stance on the JPY until we get a clearer indication of direction. Thus we have chosen to adjust our interval on EURJPY for the time being.

Emerging Markets

By the Emerging Markets Team

Yesterday Turkey hiked the key rate with 50 basis points to 16.75 %. This was expected by half of the economists surveyed by Bloomberg – and also by Jyske Bank. This was the third hike of 50 basis points in three months. The central bank will release minutes from the meeting within eight working days. It is hard to predict the banks next move. The tightening bias is still there but yesterday’s statement was a little less hawkish. Thus it is likely the central bank will stay unchanged in the coming months or only hike in steps of 25 basis points. TRY was unchanged after the decision. Further hikes will support the currency, but as always the global sentiment is also an important factor. We stay neutral.

Today we look forward to polish industrial production and polish producer prices. We are still positive on PLN and do not expect today’s data to change the positive PLN-sentiment. We also look forward to the interest rate meeting in Mexico. We expect a hike of 25 basis points from 7.75 % to 8.00 %. A rate hike is also expected by 20 out of 28 economists surveyed by Bloomberg and would therefore not be a big surprise for the market.

We expect a quiet day on Emerging Markets, because the data calendar does not contain any important data from the USA or Europe.

Today’s Key Events

• 11:00 Trade balance (EUR)

• 14:00 Producer prices (PLN)

• 14:00 Industrial production (PLN)

• 14:30 Leading indicators (CAD)

• Download Full Daily Forex Commentary

Published on  Fri, Jul 18 2008, 06:45 GMT

Markets made a u−turn…

Thu, Jul 17 2008, 06:51 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Sentiment turned sour again yesterday where stock markets dropped and the JPY and the CHF strengthened dramatically for the second day in a row. However markets made a U-turn as Wells Fargo (a large US bank) reported on higher than expected profits in the second quarter. Thus the major US stock indices (i.e. Dow Jones, S&P 500 and Nasdaq) all ended the day more than 2.5% higher and the battered Fannie Mae and Freddie Mac shares rose by a stunning 30% each thereby erasing Tuesday’s losses.
There are a few interesting events in the macroeconomic calendar today, however focus will remain on the financial sector as JP Morgan and Merrill Lynch among others will be reporting on their 2nd quarter results today.

Yesterday the SEK dropped as minutes from the recent monetary policy meeting in Riksbanken were released. The minutes showed that the members of the Executive Board were unanimous in raising rates by 25 bps. However the Executive Board members had been split in the decision to raise the repo rate path. Thus three members found that raising the repo rate path by a total of 40 bps was excessive under the current circumstances and one member argued that the repo rate path should be much lower reflecting a probability of less than 50% of one more rate hike during the fall. Market participants were clearly surprised by the contents of the minutes and in the light of the harsh statement following the rate announcement earlier this month we are equally surprised. This morning the SEK is benefitting from the improvement in sentiment in the markets however looking further ahead the Swedish currency will remain vulnerable to risk aversion. However we have chosen to maintain a neutral stance on EURSEK until further notice.

Emerging Markets

By the Emerging Markets Team

With markets worrying on several fronts (oil, inflation, growth and financials), any good news on one issue has had a tendency to be overshadowed by bad news on one or more of the others. But yesterday, the good news finally managed to gang up on the bed news, leaving us with a very good day for risky assets in general and EM in particular. After the higher than expected inflation print in the US had cancelled out the good news from Wells Fargo (one of the US's largest banks, reducing fears on the health of the US banking sector), a large drop in the price of oil following better than expected stock data left the good mood firmly in control. EM both enjoyed stronger currencies (EUR/TRY e.g. dropped almost 2 %) and lower interest rates (following the two-day drop in oil, two year swap rates are down 30-50bps over the last week in e.g. Turkey, Colombia, Brazil and Romania). Our short EUR/PLN reached our target yesterday but as indicated previously, we move the stop and profit levels lower. We also adjust higher the stop on our long EUR/ISK position to lock in some more profit. Today, we look for a positive start - but as uncertainties remain many, we think it is too early to bet on a sustained rise in risky assets. Today's main event in EM is the Turkish rate meeting, where we (and the market) expect +50bps - but perhaps with a slightly softer tone from the central bank than the market expects. This could in isolation put some pressure on the TRY, but the positive global mood in combination with by far the best carry on offer should cushion the blow. Also keep an eye on news from the ongoing court case - unconfirmed reports indicate that the top advisor to the constitutional court has recommended that AKP should NOT be closed. This is unconfirmed and in any case not binding but leaves some hope of a benign outcome of the court case, something which seemed highly unlikely before yesterday.
Elsewhere, the reporting season continues with JP Morgan, Bank of New York and Merill Lynch on tap today, followed by Citigroup and Wachovia tomorrow. More volatility lies ahead!

Today’s Key Events

• 14:30 Housing starts (USD)

• 14:30 Jobless claims (USD)

• 14:30 Philadelphia Fed (USD)

• 16:30 Monetary policy report from Bank of Canada (CAD)

• 18:00 Rate announcement from Central Bank of the Republic of Turkey (TRY)

• 01:50 Minutes from BoJ (JPY)

• Download Full Daily Forex Commentary

Published on  Thu, Jul 17 2008, 06:51 GMT

Low liquidity equals high volatility

Wed, Jul 16 2008, 08:07 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday risk aversion was riding high as investors remain concerned about the health of the financial sector. Thus interest rates dropped and the USD sank to new all time lows at 160.38 versus the EUR. However the greenback recovered somewhat as Fed chairman Bernanke gave his semi annual testimony on monetary policy at the Senate. Although Bernanke expressed concern regarding growth and the situation in the housing market in particular the Fed has raised its projection for growth in 2008 from 0.3-1.2 percent to 1.0-1.6 percent. However the USD remains weak and short term we cannot reject a further slide in the USD towards 163 versus EUR as bad news regarding the financial sector or the economy in general seems to hit the USD hard these days. However as liquidity is limited at this point we expect volatility to remain high.

The JPY seemed to be making up for the past two weeks’ losses in one day as the Japanese currency strengthened by around 1.25% versus EUR in yesterdays trading. The move was to some extent brought about by the rise in risk aversion but the magnitude of the drop in EURJPY can primarily be attributed to the lack of liquidity. As sentiment seems a little less downbeat this morning we expect moves in the JPY to be a bit more modest today. Thus we expect EURJPY to find support around 165.50.

Yesterday the combined effects of further USD weakness and a rise in the NZD in the wake of higher than expected inflation in the second quarter of 2008 caused NZDUSD to rise rapidly thus hitting stop loss on our selling recommendation. We expect the currency cross to find resistance around 77.80 but have chosen to obtain a neutral stance at this point.

The AUD rose further yesterday in spite of statements from the Reserve Bank of Australia indicating that rates will be left on hold for now. Although momentum on the upward move on AUDUSD seems to be wearing off risks on the currency cross are on the upside for the time being as the currency remains supported by fairly high commodity prices. However if risk aversion in the markets fail to recede the AUD is bound to be affected at some point. Thus at this point we prefer to maintain a neutral stance and have adjusted our interval slightly.

Emerging Markets

By the Emerging Markets Team

Yesterday Polish June CPI was published. It was slightly higher than expected. Inflation was 4.6 % y/y in June versus an expectation of 4.5 % and an inflation of 4.4 % in May. The higher than expected inflation supported PLN. We keep our positive view on PLN. We expect the central bank to hike at least with 25 basis points this year. The key rate is 6.00 % right now. Rate hikes will support PLN.

There will not be published any important EM data today. Global market sentiment will decide the direction. Asian equity markets have gained during their session, thus we expect a positive start for the EM currencies.

Only change in our recommendations is a small change in the stop loss in EURISK (from 119 to 121).

Today’s Key Events

• 09:00 Retail sales (CZK)

• 09:30 Minutes from Riksbanken (SEK)
  

• 10:30 Unemployment (GBP)
  

• 11:00 Consumer prices (EUR)
  

• 11:00 Unemployment (ISK)
  

• 11:00 Retail sales (ZAR)
  

• 13:00 MBA mortgage applications (USD)
  

• 14:30 Consumer prices (USD)
  

• 15:00 TIC flows (USD)
  

• 15:15 Industrial production (USD)
  

• 16:00 Bernanke gives semi annual testimony at House (USD)

• 19:00 NAHB housing market index (USD)
  

• 20:00 FOMC minutes (USD)
  

• 20:00 Fed’s Hoening speaks (USD)

• Download Full Daily Forex Commentary

Published on  Wed, Jul 16 2008, 08:07 GMT

When Backwards and Forwards….

Tue, Jul 15 2008, 06:28 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday was a relatively quiet day in the FX market. The dollar was in focus mainly due to the Fannie Mae/Freddie Mac news, but Mr. Paulson succeeded in dampening the masses before the European and US sessions opened. AUD gained some support from the increasing gold prices and CAD benefitted from the ever increasing oil prices. Bank of Canada is announcing their rate decision and is widely expected to keep rates unchanged. USDCAD has fallen during the last few weeks on the back of the oil price and the weaker USD and is now trading just above par. Technically, the case is not very strong for initiating a sold position and having in mind we favour a stronger USD, we do not like to play the downside. We are currently looking for a buying opportunity, but the timing is not right. Hence, still no recommendation. This morning consumer prices from New Zealand accelerated to the highest level in two years causing the kiwi to strengthen. If NZDUSD continues up, we might be forced to close down our short position, but for the time being, we chose to remain short. Yesterday morning the SEK benefitted from the improved sentiment among market participants. However, overnight the Swedish currency has taken another beating as jitteriness has reemerged. Thus EURSEK has risen and is currently trading above the upper level of our trading interval. Yesterday, however, the currency cross closed just below 948.80 (corresponding to the early July highs) and technical indicators suggest that momentum on the upward move on EURSEK is fading. That being said SEK remains very sensitive to market sentiment and a poor day for the stock markets could very well be synonymous with further SEK weakening. So far we believe that the 948.80 level will be crucial to the Swedish Krona's destiny in the short term: A break above this level would indicate a further rise in EURSEK towards 952.40 while a close below would increase the possibility of a short term correction lower towards 944.50. Thus short term we prefer to stay neutral and have chosen to adjust our interval slightly.

Emerging Markets

By the Emerging Markets Team

EM got off to a flying start yesterday, as markets initially responded positively to the prospect of a helping hand from the authorities to the two beleaguered mortgage lenders, Freddie Mac and Fannie Mae. But the mood turned progressively more sour as the day progressed, and US stocks ended firmly in red, although they started off in positive territory (and even the two FM's ended down 5-8 % despite initially rallying 26-32 %). For EM, this meant another day in the rollercoaster, as e.g. the ZAR, TRY and ISK nothced up solid gains against the EUR early on, only to shed those gains again later in the day. Although most EM currencies ended more or less flat against the EUR (which, again, is quite impressive considering the global backdrop), yesterday still leaves us somewhat worried over the near-term outlook: the fact that general worries over the state of the banking sector could overshadow the positive news (and here we mean positive relative to the alternative, not positive in an absolute sense) on the FM's does not bode well for risky assets. We thus stick to our long EUR/ISK position, as the cross should be well supported by financial jitters. The 5-year CDSspreads of the Icelandic banks jumped another 20-25bps yesterday, which should add to the ISK's vulnerability. Elsewhere, Eastern European currencies continue to perform strongly, with both EUR/CZK and EUR/PLN touching new alltime lows yesterday. Today offers a host of data from Poland, including inflation data, which should confirm that the central bank is likely to tighten again. We stick to our sold EUR/PLN position and will continue to adjust the profit/stop levels lower should the cross continue its slow descent, as we expect.

Today’s Key Events

• 08:00 BoJ Monthly Report, JPY

• 10:00 Trade Balance, NOK

• 10:30 CPI, GBP

• 11:00 ZEW Indicator, DEM

• 14:30 Retail Sales, USD

• 14:30 Producer Prices, USD

• 15:00 Rate Announcement from Band of Canada, CAD

• 16:00 Bernanke speaks to Congress, USD

• Download Full Daily Forex Commentary

Published on  Tue, Jul 15 2008, 06:28 GMT

EURUSD – New All−time High Ahead?

Mon, Jul 14 2008, 08:17 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The dollar was almost panic sold Friday as the market feared that the financial crisis would escalate as the two giant mortgage lenders, Freddie Mac and Fannie Mae, might have to be taken over by the US government. Government officials including US Treasury Secretary Paulson tried to calm the market and succeeded to a certain extent. Widespread press reports have indicated that the US government would do whatever it takes to keep Freddie Mac and Fannie Mae floating. This morning Mr. Paulson took a head start on the week and announced steps to support the two mortgage lenders including borrowing from the discount window rate if necessary, increased temporary line of credit with the US Treasury, and even a temporary authority for the US Treasury to buy stakes in Freddie Mac and Fannie Mae. The dollar was boosted by the steps announced to bolster the two mortgage lenders. Nevertheless, the rally in EURUSD Friday has meant that we were pulled out of our short position. Technically, EURUSD have succeeded in making a higher high and breached the range it has traded within the last two months on the upside. Basically, this means that path has been cleared for a renewed test of the old all-time high (160.18). It is, however, a big week for the dollar as the macroeconomic calendar is filled with US data releases. A new all-time high will largely be dependent on the data releases later this week. For now we remain neutral adjusting our trading range upwards. AUDUSD has once again reached a new high as a result of a weaker USD. Technically, the arrow points up, but with the fragile sentiment in the market in mind, we choose to remain neutral adjusting our range for now. The steps taken to support Freddie Mac and Fannie Mae have also proven disadvantageous for CHF and JPY. It is a bit surprising that the outburst of risk-aversion Friday did not support the two funding currencies to a greater extent, but it does apparently take a lot to make investors funded in CHF and JPY close down their positions. Hence, our EURJPY range has been adjusted upwards. NOK has gained some support on back of statements from Mr. Paulson, which is likely to be persistent in the very short term. Looking a bit further ahead the broader trend is down for NOK and we are looking for a target around 813-814 a month from now. It is a question about timing and we remain neutral for the time being.

Emerging Markets

By the Emerging Markets Team

Following a period of impressive resilience under increasing global headwinds, EM currencies finally buckled under pressure on Friday as continued financial jitters and a renewed rise in the price of oil left risky assets reeling. Most EM currencies thus ended the day (and the week) weaker against the EUR. The ISK lost almost 3 % against the EUR, leaving our long EUR/ISK position firmly in profit. With continued worries over the state of the financial sector in general (and here we are thinking primarily of the US one - the Danish banking woes probably count for less, despite what national pride may tell us) and Fannie Mae and Freddie Mac in particular, we think the ISK will remain vulnerable in the near future. The CDS-spreads on the big Icelandic banks are now approaching 900 again, and unless the US government steps in to once again save the day (and investors), the financial sector's huge importance on Iceland should leave further upside for EUR/ISK, as financial jitters continue to haunt markets. It should also be noted, however, that the ISK swap markets has continued its normalisation, with implied yields now at some 10-16%. This should in our view leave the ISK better positioned to benefit from an improvement in global sentiment, compared to the situation back in March. But we're not there yet, and we thus retain the position - but adjust the stop to 119 to minimise the potential loss. Elsewhere, the PLN continues its steady climb, and we once again adjust lower the stop and profit on our short EUR/PLN position, locking in further profit. The day ahead promises nothing much on the agenda front, and our focus will thus be on the price of oil - and on any signs that the US authorities once again act to save the day. The latter seems to hold the promise of a turn in financial markets, as was the case back in March following the Bear Stearns debacle. And for those so inclined, there should be plenty of time to follow the first real test of this year's Tour de France...

Today’s Key Events

• 09:00 Producer Prices, CZK

• 10:30 Producer Prices, GBP

• 11:00 Industrial Production, EUR

• 00:45 CPI, NZD

• 01:01 RICS, GBP

• Download Full Daily Forex Commentary

Published on  Mon, Jul 14 2008, 08:17 GMT

The crisis is hitting close to home…

Fri, Jul 11 2008, 07:58 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday stock markets in Europe slid further on a continued concern regarding the health of the financial sector however markets got a bit of breathing space as the American retail chain Wal-Mart adjusted expectations of 2nd quarter earnings upwards. However this morning the crisis in the financial sector seems to be hitting close to home. Thus the Danish Roskilde Bank has announced that it will be having a press conference at 10 am regarding larger than expected write downs in the 2nd quarter – primarily related to activity in the real estate market. Danmarks Nationalbank has pledged to help the distressed bank but has in return demanded that the bank will be put up for sale

Yesterday the release of the Norwegian CPI data sent EURNOK flying. Headline CPI came out as expected but core inflation was somewhat lower than analysts had anticipated Thus EURNOK rose rapidly but this morning the currency cross has receded somewhat from yesterday’s highs. From a technical point of view EURNOK is likely to find support around the current levels (ie. 805.45) but a daily close below this level will make room for a further slide towards 803.35. According to our main scenario risk aversion is likely to weigh on the Norwegian currency but for today EURNOK seems to be the subject of a modest downward pressure. Thus although we expect a further rise towards 810 in the currency cross the timing for a buying recommendation seems off for the time being. Thus we prefer to maintain a neutral stance for the time being.

Emerging Markets

By the Emerging Markets Team

After a positive start to the day EM lost some steam again after a $5 increase in oil prices. Hence EM was once again without clear direction and most currencies ended the day almost unchanged against EUR. The underperformer of the day was COP down 1.5 % against EUR. On the data front CPI from Romania and Brazil both came out as expected and the following market reactions were very limited.

This week continues the theme of inflation numbers today with CPI from Hungary. Taking an overall perspective on the inflation numbers this week they have all come out fairly as expected – and most importantly none of them has surprised on the upside. In a market with focus on inflation this could be viewed as positive, but one should remember that inflation still is a problem for most EM countries. Market consensus is for Hungarian June inflation to come out at 7.0 % y/y (same as in May). The recent sharp appreciation of HUF was the argument from the central bank to keep rates on hold at 8.50 % on the June meeting. Following the appreciation of the currency the expectations of future hikes in the official interest rate have been reduced, but a higher than expected CPI number will heighten these expectations again and hence have a positive effect on the currency. We still see the need for further hikes of 50 bps this year.

Today’s Key Events

• N/A Unemployment (ISK)

• 13:00 Unemployment (CAD)

• 14:30 Trade balance (USD)

• 14:30 Import prices (USD)

• 14:30 House prices (CAD)

• 16:00 Michigan consumer confidence (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Jul 11 2008, 07:58 GMT

CPI from Norway and Sweden

Thu, Jul 10 2008, 06:24 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

US stock markets tumbled yesterday on a growing concern that Fannie Mae and Freddie Mac (the two largest mortgage finance companies in the US) may not be able to withstand the pressure brought about by slump in the US housing market Although stock markets in Asia haven’t done quite as bad as their American counterparts, odds are that the negative sentiment will rub off on today’s European trading session.

Contrary to the past couple days there are a few interesting events on today’s macro economic calendar.
In Scandinavia we can look forward to CPI data from both Sweden and Norway. In the light of the rather hawkish stance displayed by both Riksbanken and Norges Bank there is no doubt that market participants will be looking for strong numbers in both countries. We believe that risks on both EURNOK and EURSEK are mainly on the downside today. Thus on EURNOK number above consensus estimates may push the currency cross lower towards 801.35 or maybe even as far as 799. On EURSEK we expect support around 942.30 in case the CPI data comes out strong. However if the data turns out to be in lie with consensus estimates we find that a further climb on EURSEK towards 948.75 is the most likely scenario. For now we have chosen to adjust our interval on EURSEK slightly.

In the UK the BoE is announcing interest rates at 1 pm. Neither we nor the market expect any move in interest rates. Furthermore as the BoE only rarely comments on their decision immediately after the rate announcement we don’t expect any drastic market moves in the wake of the announcement. Hence we expect EURGBP to remain in a deadlock between 78.50 and 80.15

Emerging Markets

By the Emerging Markets Team

After a positive start to the day markets where once again hit by concerns over the health of the US financial sector. EM started out in positive territory but then had to give in to the renewed concerns. Central- and Eastern European currencies PLN, CZK and even RON continued strengthening and ended the day up ~0.5 %, and once again ISK was the outlier up 1.0 % against EUR. CPI from Mexico came out in line with consensus and the following market reaction was limited.

PLN has shown impressive strength lately and is up 2.4 % against EUR just this month. Part of this move may be caused by speculation up to the determination of the conversion rate for Slovakia (was made on Tuesday) when the country adopts the EUR on January 1st 2009. We still think that the main driver of PLN appreciation is the convergence story. Poland is most likely to be the next country to adopt the EUR but this is not likely to happen before 2011. We lock in some profit on our short EURPLN position and move the stop to 3.30.

Today inflation will be on the agenda once again with CPI from Brazil, Romania, Slovakia, and Egypt where there former is likely to draw most attention. Brazilian CPI is expected to increase further in June to 6.12 % y/y from 5.58 % in May, and the central bank is widely expected to hike the Selic rate at the next meeting on July 23rd. We expect further hikes of four times 50 bps with the rate reaching 14.25 % by the end of the year.

Today’s Key Events

• 09:00 Industrial production (CZK)
  

• 09:30 Consumer prices (SEK)
  

• 10:00 Consumer prices (NOK)
  

• 10:00 Producer prices (NOK)
  

• 10:00 Monthly bulletin from the ECB (EUR)

• 13:00 Rate announcement from BoE (GBP)
  

• 13:00 Manufacturing production (ZAR)
  

• 14:30 Jobless claims (USD)
  

• 16:00 Fed’s Bernanke testifies on markets before House Committee (USD)
  

• 19:45 ECB’s Trichet speaks (EUR)
  

• 21:30 Fed’s Yellen speaks (USD)
  

• 06:30 Consumer confidence (JPY)

• Download Full Daily Forex Commentary

Published on  Thu, Jul 10 2008, 06:24 GMT

Sentiment improved as oil prices dropped

Wed, Jul 9 2008, 06:58 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The AUD remains under pressure and the pressure increased overnight as data showed that the number of loans granted to build homes dropped by 7.9% in May and consumer confidence fell to a 16-year low in July. AUDUSD fell as far as 94.77 but but has since pared losses as the USD has withdrawn from yesterdays highs. Technically AUDUSD seems fairly well supported around 94.90 – 95.20 but a break below this level will pave the way for a further drop towards 93.90. For today however we believe that the slight improvement in global sentiment will buoy AUDUSD. Thus we stick to our neutral stance for the time being.

The CHF weakened a bit yesterday as sentiment in the financial markets turned for the better. Technically EURCHF is trading within a slightly falling trend channel but if sentiment stays on the slightly positive side a further correction towards 162.45 in the days to come cannot be ruled out. However looking a bit further ahead we expect the CHF to resume its upward trend towards 160 on EURCHF. For now though we maintain a neutral stance.

Speculation surrounding next week’s avalanche of 2nd quarter earnings for the major US banks seem to haunt market participants at the moment. However falling oil prices provided the struggling stock markets with a much needed support on Tuesday afternoon. The macro economic calendar doesn’t offer much excitement today but as volatility in oil prices remain elevated a somewhat dull calendar isn’t necessarily tantamount to a quiet day.

Emerging Markets

By the Emerging Markets Team

Yesterday started out marginally negative, but following the decline in the oil price and US stocks showing gains sentiment turned more positive. Hence most EM currencies showed small gains against EUR, and COP was the best performer up 1.2 %. The exception was once again ISK which ended the day 0.6 % down against EUR. On the data front June CPI from the Czech Republic surprised on the downside coming out at 6.7 % y/y against the expected 7.0 %. Combined with the recent strong appreciation of CZK this increases the likelihood that the interest rate will be kept on hold at 3.75 % the rest of the year. CZK lost 0.5 % against EUR and market rates fell 10 bps. In Slovakia the conversion rate was set at the central parity of EURSKK 30.126. There had been speculations that the convergence rate would be set lower (a stronger SKK), but that did not materialize. Slovakia adopts the Euro from January 1st 2009.

Today inflation will be on the agenda once again with June CPI from Mexico which is released at 4 pm. The number is expected to increase further from 4.95 % y/y in May. Banxico hiked by 25 bps to 7.75 % in June but we do not see this as the start of a hike cycle. We expect rates to be left on hold the coming months, but it is likely that Banxico will hike by another 25 bps later this year in order to keep inflation expectations down.

Today’s Key Events

• N/A Monetary policy meeting in BoE begins (GBP)

• 09:00 ECB’s Trichet speaks (EUR)

• 09:30 Industrial production (SEK)

• 10:30 Trade balance (GBP)

• 11:00 GDP, revised (EUR)

• 16:00 MBA mortgage applications (USD)

• 03:30 Unemployment (AUD)

• Download Full Daily Forex Commentary

Published on  Wed, Jul 9 2008, 06:58 GMT

Markets slid on funding concern

Tue, Jul 8 2008, 06:31 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Risk aversion weighed heavily on the Asian stock markets following slides in the major US stock indices. It was the financial shares in particular that took the hardest blow, as funding concerns kicked in once again after a Lehman Brothers research report said that a pending accounting change could force Fannie Mae and Freddie Mac (the two largest mortgage lenders in the US) to raise a total of 75 billion USD in capital.

In the FX markets the JPY strengthened somewhat thus causing EURJPY to recede from recent highs. However for the time being we the technical case isn’t quite in place for a selling recommendation on the currency cross. Thus we prefer to maintain a neutral stance for the time being.

Yesterday the SEK weakened after having strengthened quite dramatically following the surprisingly hawkish statement made by Riksbanken after the monetary policy meeting on Thursday. Thus it seems like investors are awaiting macro economic data that shows whether the hawkish stance can indeed be justified or not. Hence the CPI data which is due for release on Thursday morning will be crucial for the short term trend in EURSEK. At this point we don’t believe that inflation in Sweden has peaked as food- and energy prices keep rising. Thus we also believe that short term risks on SEK are on the upside following the CPI data. For now however technical indicators suggest that there is a bit further to go on the upside on EURSEK (resistance around 942.50 – 943.00). With the current risk aversion in mind we prefer to maintain a neutral stance for the time being but will consider going short on the currency cross on a further correction higher towards the 943.00- area. More on this subject later.

Emerging Markets

By the Emerging Markets Team

Yesterday the markets were still celebrating that Thursdays ECB rate hike seems like being a “one off event”. And it is now likely ECB will stay unchanged at 4.25 % for the rest of 2008. However the party stopped when the US market opened and during the US trading session the local currencies lost what was gained during the European session. In general EM currencies have still performed well since the ECB meeting. As an example TRY has gained 3.4 % since the ECB meeting Thursday.

We will not get carried away by the gains we have seen since Thursday. We therefore maintain a defensive view on the emerging markets and stay neutral in most of our currencies. However we have two important changes today:

1) We almost reached our target in PLN yesterday. We move our take profit in EURPLN to 3.25 (PLNDKK 229.45) and have a tight stop profit at 3.32 (PLNDKK 224.61). Background: We think Poland will continue to perform in nervous markets.

2) In EURISK we open a new position. We buy EURISK at 119.2160 (selling ISKDKK at 6.26). We take profit at 126.00 and stop loss at 116.00 (take profit placed at 5.92 and stop loss at 6.43 in ISKDKK). Background: ISK has done very well lately – it is time for a correction.

Today’s Key Events

• 09:00 Consumer prices (CZK)

• 09:00 Unemployment (CZK)

• 09:00 Industrial production (TRY)

• 14:00 Fed’s Bernanke speaks (USD)

• 16:00 Pending home sales (USD)

• 18:30 Fed’s Lacker speaks on economic outlook (USD)

• 21:00 Consumer credit (USD)

• Download Full Daily Forex Commentary

Published on  Tue, Jul 8 2008, 06:31 GMT

Entering the Holiday Season

Mon, Jul 7 2008, 07:29 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The dollar gained further Friday as short term interest rates fell more in the Eurozone than in the US. We initiated a short EURUSD strategy targeting 155.00 Friday on the back of the ECB press conference and the US job report. The Japanese yen and the British pound were little changed at the end of the day. The EURCHF is currently testing an upside resistance, which it has been unable to breach through last week. Hence, we are still looking for a stronger Swiss franc in the short term (EURCHF ~160).

This week we are entering the holiday season and we are likely facing a period of poor liquidity in the FX and interest rate markets. The macroeconomic calendar is also relatively empty the next few weeks, which means that we will not see much action from the side either. This does not mean that the market will not move - quite the contrary actually. In times of poor liquidity it does not take much to move the market, but the fluctuations can very well be random in nature and thus impossible to forecast.

The schedule today does seemingly not bring much action to the financial markets. Industrial production is due from Norway, the UK, and Germany, but besides that the calendar is practically empty. The week does, however, offer a few interesting events including CPI data from Sweden and Norway Tuesday, rate announcement from Bank of England Thursday, and import prices from the US Friday.

Emerging Markets

By the Emerging Markets Team

Local currencies had a perfect day Friday as all currencies gained against EUR and DKK. US were closed so we think the positive day was a sign of market continuing celebrating ECB’s comments following the rate hike Thursday.

The comments were not as hawkish as expected and it seems likely the key rate will stay unchanged at 4.25 for the rest of 2008, which is positive for Emerging Markets.

As all the other currencies we follow, CZK also had another positive day and unfortunately we hit our stop loss. We now stay neutral.

Over night Asian equities have done well and we expect this to trigger a positive day on Emerging Markets as well. Today we do not have any important data from Emerging Markets, USA or Europe. Thus, we expect a day with tiny liquidity in the market.

Today’s Key Events

• 10:00 Industrial Production, NOK

• 10:30 Industrial Production, GBP

• 12:00 Industrial Production, DEM

• 17:00 Fed’s Yellen speaks, USD

• 07:00 ECO Watchers Consumer Confidence, JPY

• Download Full Daily Forex Commentary

Published on  Mon, Jul 7 2008, 07:29 GMT

Trichet plays down risks of further hikes

Fri, Jul 4 2008, 06:27 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday all eyes were on the ECB and president Trichet as the central bank were to announce interest rates. The ECB delivered the expected 25 bps rate hike but at the usual press conference in Frankfurt he seemed surprisingly dovish. Thus he said that from now on he had no bias on rates. In the FX markets EURUSD dropped like a stone and interest rates on the September ’09 3M Euribor future dropped by 20 bps in the course of the day. We do however find that it is worth noticing that Trichet repeated his mantra on inflation several times at yesterday’s press conference as he repeated that inflation targeting is the ECB’s primary mandate. Although the ECB regards inflation expectations as being anchored a number of elements remain which pose an upside risk (including rising food- and oil prices, wage negotiations etc.) Thus although further rate hikes are in no way part of our main scenario risks on the upside remain and at this point. That being said short term there could be a bit further to go on the downside on short term EUR rates but we don’t expect market participants to completely erase expectations of future rate hikes. FX wise we believe that risks on EURUSD remain slightly on the downside and the 155-area seems within reach. More on this subject later today.

Yesterday Riksbanken raised rates by 25 bps to 4.50% as expected by the majority of market participants. However at the same time Riksbanken raised projections for the key rate (4.8% in Q4 2008 and 4.9% Q1 2009) in such a way that that the door is open for further hikes later this year. Hence we now expect Riksbanken to raise rates by another 25 bps some time during the fall but we stick to the view that rate cuts will be on the agenda in H2 2009. To sum up the combined effects of a hawkish Swedish central bank and a surprisingly dovish ECB governor caused EURSEK to drop markedly. Although risks remain on the downside on the currency cross yesterday’s move was quite dramatic. Furthermore as the US is closed we expect moves today to be rather modest. Thus at this point we have chosen to maintain a neutral stance to examine the situation a bit further. We will follow up on the subject shortly.

Emerging Markets

By the Emerging Markets Team

We must admit to not being Mr. Trichet's sternest fans - not necessarily on account of the actual monetary policy (which, however, could also be debated) but just as much as a result of his rhetoric: he always manages to come over as some sort of preacher, railing against the devil (inflation) and all of his works. Yesterday was thus a highly pleasant surprise. Trichet sounded genuinely worried over the growth outlook, and although he did enter into one of his sermons against those asking for a pay rise, it seemed as if his heart wasn't really in it. Thus, following another grim start to the day, Trichet managed to turn around the fortunes for risky assets everywhere: European yields dropped as did EUR/USD, oil followed and EM rallied. Most EM currencies not only regained what was lost in the morning but ended the day up solidly against the EUR. The ZAR, TRY and ISK, e.g., all gained 1.5 - 2% on the day! Elsehwere, the Sedlabanki as expected left rates unchanged but did signal that further rate hikes could come into play - and that the first cut in any event is some time away. The ISK remains locked in a battle between a deteriorating risk environment and a whiff of credit crisis which has once again sent the CDs spreads on the Icelandic banks soaring and, on the other hand, the slow but sure improvement in the swap markets, with implied yields climbing steadily higher (now some 7-10%). We thus remain neutral on EUR/ISK and still await action from the Sedlabanki to resolve the deadlock. In Turkey, inflation came in lower than expected but all eyes are on the ongoing court case. Yesterday, the AKP presented its defence which was not so much a defence as an all-out attack. Hence, the chances of a peaceful solution remain slim and we would use a further rebound in the TRY to sell the currency. Today, with the US closed and the EM calendar offering all the excitement of two Eastern European trade balances, we would expect a quiet winddown ahead of the weekend.

Today’s Key Events

• N/A Independence Day (USD)

• 09:00 Trade balance (CZK)
  

• 10:00 ECB’s Liebscher speaks (EUR)

• 12:00 Industrial orders (DEM)
  

• 12:00 ECB’s Gonzales-Paramo speaks (EUR)

• Download Full Daily Forex Commentary

Published on  Fri, Jul 4 2008, 06:27 GMT

Fasten Your Seatbelt…

Thu, Jul 3 2008, 06:55 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

This is the day we have all be waiting for… First a few facts: retail sales from the Eurozone this morning, rate announcement from the ECB in the afternoon, the ECB press conference AND non-farm payrolls are scheduled at the same time. Spicing up this with a rate announcement from the central bank of Sweden (the Riksbank) we have one toxic cocktail today.

The market has already priced in a hike from the ECB later today and this is in line with our economists’ expectations. Our economists are in addition expecting that Mr. Trichet will be relatively hawkish in his following statement to anchor inflation expectations. Non-farm payrolls from the US are due at the same time as Mr. Trichet starts the press conference at 2.30 pm. Our house view calls for a figure around -80k versus a market expectation around -60k (Bloomberg survey). Our economists expect that the unemployment in the US will continue to increase and that the FED on that account will have to lower rates by additional 2x 25bps by year-end. Combining a hawkish Mr. Trichet and a worse than expected non-farm payrolls will most likely put further pressure on the dollar and we expect EURUSD reaching higher levels around 159-159.50. The dollar is, however, highly undervalued (more than 35% according to the purchasing power parity) and as we see it, the dollar is in the course of finalizing a bottom. This essentially means that we prefer to be buyers of the dollar when EURUSD reaches the above mentioned range. The Riksbank is also widely expected to raise rates this morning (also our house view. SEK has been under some pressure for some weeks by now, which fits the scenario that the currency weakens when the stocks are having a bad time. Overall, we do not think that a hike in Sweden will have a great deal of impact since it is already priced in. Swedish krona is from our view expected to depreciate over the next few weeks as the turmoil continues in the financial markets.

Emerging Markets

By the Emerging Markets Team

Yesterday EM had adopted a wait and see stance with most currencies showing little movement or posting small losses. The day's biggest performer was COP ending the day up with 4.5 % against EUR - but remember that the currency has lost around 17 % since mid June. Today EM will of course be affected by NFP from the US and the rate announcement from ECB, but EM also has its own aganda. In Indonesia the central bank is expected to hike by 25 bps to 8.75 % after inflation increased further in June to 11.03 % y/y. There is more uncertainty surrounding the Icelandic interest rate announcement today. Sedlabanki has signalled that it is reluctant to tighten monetary policy further, but the weak ISK and increasing inflation might force the central bank to hike. We expect that Sedlabanki will keep the rate unchanged at 15.50 %, but a hike would be postive, since it would send a signal Sedlabanki regards the weak currency as a serious point of concern. In Turkey June inflation will be released, and the number is widely expected to increase further from 10.7 % y/y in May. Also AKP will present its verbal defence, and the political noise is expected to stay on the agenda for quite some time posting downside risks to the currency.

Today’s Key Events

• N/A Monetary Bulletin 2008:1, ISK

• 07:45 CPI, CHF

• 10:00 PMI Service (final), EUR

• 10:30 PMI Service, GBP

• 11:00 Retail Sales, EUR

• 11:00 Rate Announcement, ISK

• 13:45 Rate Announcement, EUR

• 14:30 ECB Press Conference, EUR

• 14:30 Non-farm Payrolls, USD

• 16:00 ISM Service, USD

• Download Full Daily Forex Commentary

Published on  Thu, Jul 3 2008, 06:55 GMT

Waiting for Trichet…

Wed, Jul 2 2008, 06:36 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

It was a rather downbeat beginning to the month yesterday as stock markets tumbled (again…) and risk aversion weighed heavily on both EURCHF and EURJPY. However sentiment improved a little as the US ISM index for the manufacturing sector was released. For the first time since January the index rose above the magic 50 (50.2 to be exact) which points towards an expansion in the sector.

The improvement in sentiment caused EURJPY and EURCHF to rise from recent lows but the rest of the week offers plenty of opportunity for volatility as the monetary policy meeting in the European Central Bank and the release of the all important job report from the US awaits on Thursday. Thus so far we think it is too early to rejoice and for the time being we maintain that risiks are primarily on the downside on the currency crosses in question.

Overnight retail sales data from Australia was released. The number showed that the Australian consumers had spent a bit more than anticipated in May. The AUD jumped as the data was released and thus 96.50 on AUDUSD remains within reach. Currently we expect this level to provide a fair amount of resistance and looking at market sentiment in general we do not find that a buying recommendation can be justified at this point.

On the macro economic front today doesn’t offer too much excitement compared to the events that are on the agenda tomorrow. However Trichet is bound to receive a certain amount as he takes stage this morning. Overall though, we expect a slightly negative day where market participants will start preparing themselves for the busy day that lies ahead.

Emerging Markets

By the Emerging Markets Team

TRY fell to the lowest level against EUR since mid-June and Turkish stocks dropped the most since March after police yesterday arrested 24 people suspected links to a group allegedly plotting a coup. TRY decreased more than 2 % against EUR after the news came out. The arrests heighten concern about the political situation. Yesterday was also the day when prosecutors presented an indictment to the Constitutional Court to close down the Justice and development party (AK Party). There is a mounting uncertainty and the tensions between the secular and the religious seems to increase day by day. However we expect a day where markets in general will adopt a waitand- see attitude before ECB meeting and US job data tomorrow and have chosen to stick to our recommendations.

Today’s Key Events

• N/A Monetary policy meeting in Riksbanken (SEK)
  

• N/A Fed’s Mishkin speaks (USD)
  

• 09:15 ECB’s Trichet speaks (EUR)
  

• 11:00 Producer prices (EUR)
  

• 13:00 MBA Mortgage applications (USD)
  

• 14:15 ADP Employment (USD)
  

• 16:00 Factory orders (USD)
  

• 03:30 Trade balance

• Download Full Daily Forex Commentary

Published on  Wed, Jul 2 2008, 06:36 GMT

The Waiting Game Has Begun

Tue, Jul 1 2008, 06:31 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The European short term interest rates took another round in the carousel as the Eurozone CPI flash estimate beat analysts’ expectations. The red Euribor contracts (Sep09 – Jun10) fell around 20 ticks whereas the short sterling futures contracts fell by “just” 9 - 10 ticks. The short term US rates traded more calmly as the market is awaiting ISM manufacturing today and non-farm payrolls Thursday. With the inflation data from Germany in the end of last week and the CPI flash estimate from yesterday, it will surprise a lot of people if the European Central Bank is not raising rates this Thursday. We are in addition to a hike from the ECB expecting a somewhat hawkish Trichet at the following press conference. The market has currently priced in 23-25 bps for a hike this Thursday, which essentially means that the hike is fully priced in. The short term interest rates are indicated slightly up in both the Eurozone and the US.

Reserve Bank of Australia, RBA, kept the main policy interest rate at 7.25%. Governor Stevens said in his statement that inflation in Australia has been high in the past year, spare capacity has been limited, and that growth in demand has been strong. The tightening financial conditions are on the other hand working to restrain demand and the outlook for demand and inflation is uncertain due to these opposing forces. The Australian dollar fell versus the US dollar after hitting a new high of 96.68 yesterday.

This Tuesday offers ISM manufacturing and domestic vehicle sales from the US in addition to PMI manufacturing from both the Eurozone and the UK, and unemployment from the Eurozone. The waiting game for Thursday has begun……

Emerging Markets

By the Emerging Markets Team

Most of June was terrible for Emerging Markets. However the last day of June was positive and ISK and ZAR were the winners on a day when the markets were characterised by low activity. ISK was gaining almost 2 percent against EUR and ZAR ended the day 1.4 % stronger against EUR. TRY, HUF and BRL also performed, although in more moderate tempo. Maybe it was a bit surprising TRY could only gain 0.5 % when you take the positive GDP-data in consideration. GDP-growth was 6.6 % y/y in 1st quarter versus an expectation of only 5.0 % and the 3.4 % growth in 4th quarter of 2008. It is probably a sign of nervousness before the CPI-data on Thursday and we still have a lot of political risk in Turkey. Today the prosecutor will present the indictment to the constitutional court.

We stick to our recommendations to day. We expect another quite day. The markets are looking forward to Thursday’s interest meeting in ECB and unemployment data from the USA.

Today’s Key Events

• 08:00 Nationwide House Prices, GBP
  

• 08:00 ILO Unemployment, DEM
  

• 10:00 PMI Manufacturing, EUR

• 10:30 PMI Manufacturing, GBP
  

• 11:00 Unemployment, EUR
  

• 16:00 ISM Manufacturing, USD
  

• 03:30 Retail Sales, AUD

• Download Full Daily Forex Commentary

Published on  Tue, Jul 1 2008, 06:31 GMT

A slow start to a busy week

Mon, Jun 30 2008, 06:27 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Risk aversion was riding high in Friday’s European trading session as concern over rapidly rising oil prices and jitteriness regarding upcoming 2nd quarter results and this week’s flood of macro economic news including the monetary policy meeting in the ECB, the release of the ISM indices from the US and the all important Non-farm payrolls on Thursday. The jitteriness took its toll on EURJPY and EURCHF and as the Russian central bank stated that it doesn’t rule out increasing their share of Swiss Francs in Russia’s forex reserves pressure on EURCHF build. Sentiment does seem to have improved somewhat in the course of Friday’s American trading session. With the Nikkei only slightly down this morning and a macro economic calendar without any significant news it looks like we are in for a relatively easy start to the week. Although we don’t expect any drastic moves today we expect pressure on EURCHF and EUR JPY to persist. Thus looking a bit further ahead we continue to see risks mainly to the upside on the JPY and the CHF.

Tomorrow morning the Reserve Bank of Australia announces interest rates and we expect that rates will be left unchanged at 8.25%. Furthermore as the tendency towards weaker macro economic data has continued since the last meeting we believe that the RBA is done raising rates this time around. The AUD has shown a remarkable strength lately and currently AUDUSD is headed for a test of the 96.50-area. Looking a bit further ahead though we believe in a correction lower on the currency cross but as the timing for a selling recommendation seems off for the time being we prefer to maintain a neutral stance.

Emerging Markets

By the Emerging Markets Team

Although markets calmed down somewhat on Friday, it was still a sour end to a rotten week and June has proven to be the worst month for EM since the credit crisis erupted last Summer, barring March. Hence, on the brink of the second half of the year, there seems to be plenty to worry about for financial markets: oil, oil and oil (now topping 142 USD/barrel), rising inflation, softening growth, rising interest rates, central banks in a tight corner (having to choose between risking credibility or kicking growth while its lying down) etc etc etc. Oh, and did we mention oil? Hence, we enter the second half of the year on a rather downbeat note and continue to look for a significant drop in the price of oil as the best hope for a short-term turnaround. And oil cannot climb forever - can it…? The week ahead looks quite interesting, both in EM (including an Icelandic rate meeting and Turkish inflation) and globally (including Trichet's chance to put his money where his mouth is and the US jobs report), but we're off to a slow start today, which mainly offers trade and current account balances aplenty but only Turkish GDP that looks likely to interest markets. We still see risks mainly to the downside for the ISK, TRY and ZAR given current market sentiment and expect PLN to continue to perform. The CZK has surprised us once again and EUR/CZK is slowly inching towards our stop loss at 23.7 - but we still think that divergent monetary policy paths will propel the cross higher and stick to our bought position for now.

Today’s Key Events

• 09:00 GDP (TRY)
  

• 10:00 Retail sales (NOK)

• 10:30 M4 Money supply (GBP)
  

• 11:00 Euro Zone CPI Estimate (EUR)
  

• 11:00 Trade balance, final (ISK)
  

• 13:00 Tradebalance (ZAR)
  

• 14:00 Trade balance (PLN)
  

• 14:30 GDP (CAD)
  

• 15:45 Chicago PMI (USD)
  

• 16:00 Trade balance (TRY)
  

• 01:50 Tankan (JPY)
  

• 06:30 RBA Rate announcement (AUD)

• Download Full Daily Forex Commentary

Published on  Mon, Jun 30 2008, 06:27 GMT

Sentiment remains sour…

Fri, Jun 27 2008, 06:34 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Risk aversion seems to be finding its way back to the financial markets. It is hard to pin point the exact reason why the mood turned sour other than the continued tightness in money markets and nervousness regarding upcoming income statements for the 2nd quarter. Contributing to the jitteriness was an analysis from Goldman Sachs which argued that Citigroup and Merrill Lynch may face further losses in the billion-dollar category. Furthermore Fitch Ratings said that GM and Chrysler may face a squeeze in cash in ’09 as the slowing economy and higher gasoline prices is likely to dampen sales from pickups The negative sentiment rubbed off on stock markets in the US and in Asia and with futures on the major European stock market indices in the red this morning and oil prices hovering just below 140 USD it looks like markets are picking up where they left off yesterday.

In the FX markets the JPY remains under pressure. Thus yesterday EURJPY tested the important 169.00 level (corresponding to the July ’07 highs) but so far the currency cross hasn’t managed to close above the mark. Short term risks remain on the upside on EURJPY but looking further ahead we still believe in a stronger JPY. For the time being though we maintain a neutral stance.

Overnight GDP data from New Zealand were released and numbers showed that the economy contracted in the first quarter of 2008. The NZD fell immediately after the numbers were released but NZDUSD managed to recover somewhat. With a large number of market participants being short and the stop loss orders being executed NZDUSD rose quite dramatically. Fundamentally we still believe that speculation of rate cuts from the Reserve Bank of New Zealand and risk aversion in general will weigh on the NZD. Thus we stick to our selling recommendation on NZDUSD for now.

Emerging Markets

By the Emerging Markets Team

Yesterday was a rather eventful day with data on EM. In the Czech Republic the key rate was kept unchanged at 3.75 %. At the following press conference Governor Tuma said that the currency appreciation was a strong factor in the decision, but there still existed both upside and downside risks to their inflation projection. Tuma added that the economy cannot live with the recent kind of appreciation of CZK. The currency didn’t react to neither the rate announcement nor the following press conference, but we still see a weaker CZK in the shorter term. We expect rates to be left on hold the coming months after which cuts in the key rate are possible. In Romania the key rate was hiked with 25 bps to 10 %. The central bank emphasized that it is prepared to use all means in order to assure that inflation will decline towards the target again. We maintain our view of further 50 bps hikes in the key rate. Iceland inflation increased further to 12.7 % y/y in June, and South African producer prices surprised on the upside with an increase to 16.4 % y/y against the expected 12.4 %. Hence, once again inflation was on the agenda. Today the calendar is less packed posting only a rate announcement from Egypt.

Today’s Key Events

• N/A CPI (DEM)

• 09:30 Retail sales (SEK)

• 10:00 Bloomberg retail PMI (DEM)

• 10:00 Bloomberg retail PMI (EUR)

• 10:00 Current account (EUR)

• 10:30 GDP, revised (GBP)

• 11:30 KOF leading indicator (CHF)

• 14:30 Personal consumption (USD)

• 14:30 PCE deflator (USD)

• 14:30 Producer prices (CAD)

• 16:00 Michigan consumer confidence (USD)

• 18:30 ECB’s Trichet speaks (EUR)

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Published on  Fri, Jun 27 2008, 06:34 GMT

Norwegian hike sends NOK higher

Thu, Jun 26 2008, 06:59 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday’s rate announcement from Norges Bank took many market participants (us included) by surprise as the key policy rate was raised by a quarter percentage point to 5.75%. At the same time the projected interest rate path was adjusted so that interest rates are expected to peak at 5.88% in March 2009.Furthermore Norges Bank said that inflation in Norway is likely to rise further and from Monetary Policy Report 2/08 (which was released in continuation of the rate announcement) it appeared that projections for inflation has been revised markedly upwards. Thus to sum up it seems that further hikes in Norway cannot be excluded although this is not our main scenario at the moment.
In the FX markets the NOK jumped as the rate announcement was made. Technically momentum indicators suggest that downward pressure on EURNOK may persist in the short term however we expect the currency cross to find support around the 233-day moving average (currently at 792.30). A close below the moving average opens for a further drop towards 786.60 however for the time being we prefer to maintain a neutral stance.

On the other side of the Atlantic the Federal Reserve left rates unchanged at 2% which was expected by most market participants. However the Fed gave no indication that rate hikes are impending as it said that although the outlook regarding inflation is uncertain the FOMC expect inflation to moderate later this year. Thus short term interest rates dropped and the USD weakened the most against the EUR in more than two weeks. Hence it currently seems that EURUSD is headed for a test of the 158.00-area.

Apparently there is nothing stopping the JPY at the moment. Thus the Japanese currency weakened further versus EUR in yesterday’s trade thus hitting stop loss on our selling recommendation. We close the recommendation and obtain a neutral stance for now.

Emerging Markets

By the Emerging Markets Team

Yesterday was a great day for EM currencies, with the ISK, ZAR and TRY among the main beneficiaries. But let's face it - we really needed a good day as well! Luckily, Bernanke did not spoil the party as the FED kept rates on hold and signalled the expected concern on inflation and less concern on growth but, most importantly, did not sound like a central bank about to hike rates in the near future. It thus mattered less that Trichet delivered the expected rhetoric in his statement to the EU parliament, sounding as if inflation expectations are a foul beast, just waiting to devour any unsuspecting central bank which lets down its guard for a fraction of a second. In EM, the central bank of Poland delivered the expected 25bps hike and left the door open for further tightening down the road. We stick to our short EUR/PLN position which slowly but surely is edging further into the money. In Iceland, we do not really know what hit us - following the 3.5 % weakening on Monday, we are now at stronger levels for the ISK than where we started the week. We can find no compelling reasons for neither the weakening nor the strengthening. Yesterday, PM Haarde said that he expeced the ISK to strengthen and that the USD may be the obvious alternative rather than the EUR, should Iceland decide to join a monetary union. We never knew that joining the USD was an option but thus enlightened, we are left to conclude that the ISK remains vulnerable until the authorities deliver on their promises. Today, the Czech central bank is expected to keep rates on hold and thus reinforce our view that this channel of support for the CZK (shrinking rate differential to the EUR) has no more to offer. We still see EUR/CZK heading north from here.

Today’s Key Events

• N/A Rate announcement from the Czech National Bank (CZK)

• 09:30 Producer Prices (SEK)

• 10:00 Unemployment (NOK)

• 10:00 M3 (EUR)

• 11:00 Consumer Prices (ISK)

• 11:30 Producer prices (ZAR)

• 13:30 Fed’s Kohn speaks (USD)

• 14:30 GDP, final (USD)

• 16:00 Existing home sales (USD)

• 00:45 GDP (NZD)

• 01:50 Industrial production (JPY)

• 01:50 Retail sales (JPY)

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Published on  Thu, Jun 26 2008, 06:59 GMT

Announcement day

Wed, Jun 25 2008, 06:37 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Today all eyes will be on the Fed who will be announcing interest rates at 8:15 pm today. The Fed is widely expected to leave rates unchanged this time around. Lately however several Fed members have been expressing concern regarding the outlook for inflation and Chairman Bernanke has stated that the risk of a deep and prolonged slump in the economy is reduced. Thus rates in the US have risen and markets currently discount at least two rate hikes of a quarter percentage point each before year end. As rates imply that investors speculate that the first rate hike may be enacted as soon as August and there is indeed a chance that the Fed will tighten rhetorics regarding inflation. Overall however our economists don’t expect that the economy has bottomed out yet. Thus our central projection calls for another 25bps rate cuts at the end of the year and then again in the spring of 2009. As we find that there is a risk that the Fed will deliver a somewhat hawkish statement in continuation of the rate announcement upward pressure on interest rates may persist in the short term. Looking further ahead however we believe that market participants will have to reevaluate their expectations regarding future Fed action.

Today investors can also look forward to the rate announcement from Norges Bank. Like many of their colleagues around the world, Gjedrem and the other members of the Norwegian Central Bank face a difficult dilemma of rising inflation and a slowdown in growth. Our economist expect Norges Bank to leave rates unchanged at today’s monetary policy meeting However there is a risk of further rate hikes in the future and we do in fact expect that Norges Bank will revise their projection for the key policy rate upwards. Thus downward pressure on EURNOK may persist in the short term. Looking a bit further ahead however, we still prefer to sell NOK on short lived appreciations. At this point however we prefer to maintain a neutral stance until the end of the monetary policy meeting.

Emerging Markets

By the Emerging Markets Team

A monetary-policy meeting will be held in Poland today. Inflation is still high (4.4 % y/y in May), and there is a risk that it may not come within target (2.5 % +/- 1 %) in the course of the next 2 or 3 years. Moreover, growth has been (surprisingly) strong (6.1 % y/y in 1st quarter). This indicates that rates will have to be raised further; presumably already at today’s meeting when also a report with new estimates of inflation and growth will be published. As we see it, rates will be raised by 25 basis points to 6.0% at today’s meeting. We keep our short-term buy recommendation on PLN because we expect a hawkish central bank comment today.

In South Africa we look forward to May inflation data. Inflation is expected to increase further from 10.4 % y/y in April to 10.8 % y/y in May. Risk is to the upside and a surprise could support ZAR today. However investors must keep an eye on the global sentiment and in our view there is still a risk of setbacks. Thus we keep our neutral recommendation.

In Iceland we had a quite day after ISK was under heavy pressure Monday (-2.7 % against EUR). A rate hike could strengthen ISK. If ISK come under new pressure we will not bet against an extraordinary hike this week. However if global sentiment is good, we think the central bank will wait until 3 July, when next ordinary meeting is planned.

Today’s Key Events

• N/A Rate announcement from National Bank of Poland (PLN)

• N/A Inflation report (PLN)

• 09:15 Consumer Confidence (SEK)

• 09:30 Trade balance (SEK)

• 10:00 Unemployment (NOK)

• 10:30 Consumer prices (ZAR)

• 11:30 ECB’s Trichet speaks (EUR)

• 14:00 Rate announcement from Norges Bank

• 16:00 Existing home sales (USD)

• 20:15 FOMC rate announcement (USD)

• 00:45 Balance of payments (NZD)

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Published on  Wed, Jun 25 2008, 06:37 GMT

ISK under Pressure

Tue, Jun 24 2008, 08:48 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday, the short term interest rates traded with a bullish sentiment all morning until the German business confidence, IFO, disappointed the market. It was the lowest reading since 2005 and it made the European short term rates turn around. The rates in the US continued up during the day while European rates fell and this made the euro drop against the dollar. Overall, the short term European rates fell by 5-6 bps while the US rates increased by 14-15 bps. The largest fluctuations were in the short end of the interest rate curve ( < 2 years). Norwegian kroner strengthened as the market priced in a larger probability of a hawkish statement from the Norges Bank at the monetary policy meeting tomorrow. The 1-month interest rate increased by approximately 20 bps during the day. EURNOK fell (NOKDKK increased) from approximately 805 (92.65) to just below 800 (93.25). Our Norwegian economist expects that the Norges Bank will most likely increase the projected key policy rate. From this point of view, we prefer to stay neutral during the meeting as we do expect NOK will strengthen on top of such a statement. We prefer a buy on dips strategy and to initiate a bought EURNOK position when the dust settles if and when the projected key policy rate is lifted. Hence, we are adjusting our trading range to account for such fluctuations. On the Swiss franc, we cannot rule out that EURCHF, currently trading with a bullish momentum, is going to test the resistance level around 162.80 (233-day MA and 458.15 CHFDKK) and perhaps even reach as far as 164 (454.75). Overall, we expect a trading range between 160 (466.15) and 164 (454.75).

Emerging Markets

By the Emerging Markets Team

Yesterday ISK came under pressure once again and we hit our stop loss. ISK weakened with about 2.7 % against EUR and DKK. Now the market speculates in extraordinary rate hike this week despite next ordinary meeting is already next week. We think it is possible this week and it will help ISK short term if the central bank hikes significantly with about 50 – 100 basis points. It would be a strong message. However long term we need a solution on the problems in the forward market. Another problem is when Eurobonds are maturing. There is no new issuance because the issuer cannot hedge the currency risk in a forward market, which does not run perfectly right now. The central bank has declared that it intends to issue 75 billion ISK in the government bond market. This is of course positive, but the problem is that the government bonds settle domestic and only a small group of international investors have access domestic settlement (Jyske Bank has!). If they can change to Euroclear settlement it would be very positive, because a lot of new investors would get access to the government market. Such a change would definitely help ISK. We go neutral in ISK for the time being.

Today’s Key Events

• N/A ECB’s Trichet speaks, EUR
  

• N/A ECB’s Smaghi speaks, EUR
  

• 08:10 GFK Consumer Confidence, DEM
  

• 10:00 Retail Sales & Unemployment, PLN
  

• 14:30 Greenspan speaks, USD
  

• 15:00 CaseShiller House Prices, USD
  

• 16:00 OFHEO House Prices, USD

• Download Full Daily Forex Commentary

Published on  Tue, Jun 24 2008, 08:48 GMT

A Busy Week for the US

Mon, Jun 23 2008, 08:36 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

The dollar still seems range bound between 153.50 (485.80) and 158.50 (450.50), but is currently trading with a soft undertone. We are not likely to see any action on the dollar until Wednesday when the FOMC is announcing the future key policy rate. At present the market is assigning a 10% probability for a hike by 25bps this Wednesday according to Fed Funds futures. The short term US interest rates fell 7- 10 bps Friday finishing the week with an overall fall around 40 bps. The interest rate curve in the Eurozone flattened in the short end. The front Euribor contract closed almost unchanged while the red contracts (Sep 09 – Jun 10) fell 10-11 ticks. We are interpreting this as the market is further adjusting to the statements from the ECB that the market should not expect a series of rate hike in spite of the hawkish statements given by the ECB. This morning, both the short term US and European rates are indicated up by 3-7 bps.

Our recommendation on the Japanese yen is still in play and the EURJPY cross looks heavier for each day that passes. This is also the case for USDJPY. The Swiss franc is harder to grasp. If it had not been for the market reaction Thursday last week and a weaker franc as the consequence of the rate decision, then the picture would be much clearer. The EURCHF cross does, however, currently look a bit heavy for the moment.

It will be a busy week for the US since the macroeconomic calendar is almost full. Tomorrow offers economic indicators for house prices and consumer confidence. Wednesday offers durable goods orders and the FOMC rate decision as earlier mentioned. Existing home sales are due Thursday and personal consumption is due Friday. Don’t forget that the Norges Bank is also announcing their rate decision Wednesday.

Emerging Markets

By the Emerging Markets Team

Any relief following the drop in oil on Thursday quickly proved premature and high oil prices (back above 136 USD/barrel) and bad news on financials continues to weigh on global sentiment, with struggling EM currencies as a logical consequence. We desperately need some good news to lift the spirits! In Iceland, relief also proved short-lived following Thursday's news that authorities will be issuing ISK 75bn of government bonds and roll over ISK 75bn of CDs. Following a brief dip in EUR/ISK below 124, markets seemed to decide that this was another instance of "too little, too late" and sent the cross back above 127. We have not yet reached the stop on our short EUR/ISK position and we stick to the position but must admit that we're hardly on to a winner here. The ISK will remain vulnerable until the authorities succeed in surprising markets in the positive sense by doing more rather than less than expected. For now, we are left with the feeling that the Icelandic authorities remain one step behind events. Elsewhere, the week is dominated by policy meetings in Eastern Europe, kicking off with Hungary today, where we (and markets) are looking for a 25bps hike, followed by Poland, Czech and Romania. Market reaction will most likely depend on a. Whether the central bank sticks to the narrow path of inflation fighting and b. Whether the country in question has solid enough growth to withstand any tightening of policy. On that background, we still like PLN and still look for further strength ahead. For global sentiment, the huge event of the week will of course be the FED meeting - we are hoping for a soft tone from Mr. Bernanke.

Today’s Key Events

• 10:00 IFO, DEM

• 10:00 PMI Manufacturing, EUR

• 10:00 PMI Service, EUR

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Published on  Mon, Jun 23 2008, 08:36 GMT

Short term support for ISK

Fri, Jun 20 2008, 10:37 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday UK retail sales figures for May were released. Figures showed that sales rose the most since records began two decades ago as Britons bought seasonal food and clothing. The retail sales data were released only less than 24 hours after Bank of England governor Mervyn King delivered a rather gloomy speech in which he addressed the problems in the British economy. In the speech he said that families will see their standard of living stagnate this year as a consequence of rising food and energy prices and a further slide in house prices. Thus the optimism depicted in the Retail sales figure sent a sight of relief through the markets where the short sterling futures dropped and the GBP strengthened firmly against the EUR. However EURGBP remains trapped within a rather tight trading range and with housing market data due from the UK next week there is a significant risk of renewed GBP weakening. Thus we maintain a neutral stance on EURGBP for now.

Yesterday the SNB left rates unchanged at 2,75%. With a hike from the ECB on the cards in three weeks there is a potential for further CHF weakness in the short term. Technically however we expect that EURCHF will find resistance around 164.00 and against this background we have chosen to maintain a neutral stance until further notice.

There isn’t much on the macro economic calendar today. Thus in the absence of any significant news stories this could prove to be a slow end to the week where investors will start preparing themselves for next week’s events including the monetary policy meeting in the Fed

Emerging Markets

By the Emerging Markets Team

Yesterday, EM currencies benefitted from global tailwinds as news that China will be cutting energy subsidies contributed to a drop in the price of oil - and subsequently positive sentiment in financial markets. The ISK, ZAR and TRY thus all posted healthy gains against the EUR. After the close of the Icelandic markets, we finally had a response from the Icelandic authorities. The government will be issuing ISK 75bn of t-bills, while the central bank announced that CDs maturing during the autumn will be rolled over. While this is certainly a somewhat less dramatic announcement than what could have been hoped, we think markets will respond positively to the fact that the authorities are at least aware of and can respond to market developments (although a bit late). We thus sell EUR/ISK for a short-term move lower - but acknowledge that this announcement may offer short-term support but is unlikely to be enough to turn around the fortunes of the ISK. And the risk that markets are slightly disappointed by the lack of decisive action obviously leaves this position somewhat risky. Elsewhere, today's calendar offers a couple of rate decisions in Latin America (Mexico, Colombia), but perhaps more importantly, the weekend finally beckons, with 3 more thrilling EC quarter-finals on tap - starting with an allemerging markets clash tonight.

Today’s Key Events

• N/A Monetary policy meeting in BanRep (COP)
  

• N/A Inflation expectations (TRY)
  

• 14:00 Core Inflation (PLN)
  

• 14:30 Retail sales (CAD)
  

• 16:00 Rate announcement from Bank of Mexico (MXN)
  

• 18:45 ECB’s Trichet speaks (EUR)
  

• 19:30 ECB’s Stark speaks (EUR)

• Download Full Daily Forex Commentary

Published on  Fri, Jun 20 2008, 10:37 GMT

What A Market….

Tue, Jun 10 2008, 06:25 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

One thing is for sure at the moment – the interest rate market is not boring! Four numbers: 55, 45, 38, and 20 – that are approximately the number of basis points the 2-year US Treasury rate, and the implied rates by the Eurodollar June 09 future, the Short Sterling June 09 future, and the Euribor June 09 future respectfully went up yesterday! How often does that come along? The Fed’s Bernanke spoke yesterday about inflation and the central bank’s inflation focus. Bernanke stressed that the latest round of increasing energy prices have added to inflation and inflation risks on the upside. Anchoring inflation expectations has become a more dominant theme in the FOMC policy and Bernanke almost sounded “Trichet-ish” at the Boston Fed conference yesterday. At the same time Bernanke said that the risks that the US economy will be hit by a substantial downturn have diminished during the last month. Overall, the statement from Bernanke yesterday and the events Thursday and Friday have introduced an enormous amount of volatility in the interest rate market.

With the current inflation focus in the market and with the CPI release from Norway today, there is a high risk that in the case of an upside surprise in the inflation data from Norway, EURNOK (NOKDKK) will come under significant pressure. We therefore recommend taking profit on bought EURNOK (sold NOKDKK) positions.

Emerging Markets

By the Emerging Markets Team

Following a stormy end to last week, Monday was somewhat calmer (at least for currencies and stocks) and most EM currencies took advantage of the calm to rebound. The TRY in particular managed to stage an impressive comeback, although this was partly driven by the drop in EUR/USD. But once again, the TRY proves to be remarkably resillient to bad news, and our long EUR/TRY recommendation proved to be a short-lived joy. While it could be argued that we were too late coming to that party, this does not alter our view on the vulnerability of the TRY at the current juncture. While positive (or at least non-negative) financial markets and a bit of calm on the domestic front obviously provided a solid background for a TRY rebound following a 5 % decline Thursday-Friday, the risk of more bad news - be it economic, financial or political - remains highly elevated, and going long the TRY at the current juncture does not seem to offer good risk reward. Looking ahead, the day does not offer much by the way of promising data releases in EM or elsewhere, and markets are left to contemplate what exactly has happened to interest rates since yesterday morning, with EM rates following a 50bps surge in the 2-year treasury note - and perhaps take a closer look at what Bernanke actually said overnight.

Today’s Key Events

• N/A Several speeches from Fed members during the day

• 09:30 Consumer Prices, SEK

• 09:30 Consumer Prices, DKK

• 10:00 Consumer Prices, NOK

• 10:30 Industrial Production, GBP

• 14:30 Trade Balance, USD

• 15:00 Rate Announcement from Bank of Canada, CAD

• Download Full Daily Forex Commentary

Published on  Tue, Jun 10 2008, 06:25 GMT

US data spooked markets

Mon, Jun 9 2008, 07:16 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Friday was a dramatic end to the week in the financial markets. The surprise jump in the US jobless rate to 5,5 % , highest since October 2004 , send both the USD and US stock markets tumbling. A record jump in oil prices and talks that Israel is planning a strike on Iran nuclear facilities only made things worse. US stocks were down around 3 % at the end of the day while EUR/USD closed around 157,7 (USDDKK at 473) having rallied from below the 156 lvl (USDDKK at 478) before the release of the US job data.
US interest rates fell significantly in response to the weak data and falling equities. Rates were down around 10 bp across the curve. In Europe focus remained on Thursday’s tough talk from ECB. Rates continued to climb Friday morning with short forward rates rising as much as 25-30 bp at one stage fuelled by speculation that the ECB will embark on a series of interest rate hikes in the time to come. Rates came back down somewhat during the day but are up again in the short end this morning and by now markets see a 75-80 % chance that the ECB will hike with 25 bp as soon as July.

Emerging Markets

By the Emerging Markets Team

We recommend selling TRY and ISK.

We have changed our recommendation in TRY. We recommend buying EURTRY. Currently underway is a case to consider whether prime AKP members should be banned from politics. The outcome from the constitutional court about the headscarf reform (ruled against AKP’s head scarf reform last week) has made it more likely that AKP also will loose the case against it self. Another defeat will result in political chaos in Turkey, which will be negative for TRY. The case is likely to take months. However until we have a solution, we think investors will keep their money and the case creates questions about the likely outcome of reform efforts and the impact on privatisations. Among other arguments for our recommendation is of course the increasing inflation and decreasing believe in the central bank after it revised its inflation targets upwards.

We have also changed our recommendation in ISK. We recommend buying EURISK. Global sentiment is likely to be against a currency like ISK in the coming month and unfortunately we do not see any local actions to help the situation short term.
HUF was Friday’s worst performer loosing about 2 % against EUR. The reason was comments from Finance Minister Janos Veres, who said Hungary's 3 percent medium-term inflation target is “completely unrealistic”. Political comments and political pressure on central banks are very likely from other countries given the high global inflation right now. The risk for many currencies is therefore to the downside.

Today’s most important data is CPI from Czech Republic, which will be released at 9 am.

Today’s Key Events

• 10:30 UK PPI

• 14:30 ECB’s Quaden speaks

• 16:00 US pending home sales

• 18:30 ECB’s Trichet speaks

• Download Full Daily Forex Commentary

Published on  Mon, Jun 9 2008, 07:16 GMT

Trichet hinted at hikes

Fri, Jun 6 2008, 07:27 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday’s main event was the monetary policy meeting in the European Central Bank. Rates were left unchanged at 4% as expected by the majority of market participants however the comments made by ECB president Trichet at the press conference were unexpectedly hawkish. Thus Trichet said that “risks to price stability have increased further” and that there is a good chance that inflation rates will remain elevated. Furthermore he said that the ECB is in a state of “heightened alertness” and reiterated that anchoring of inflation is of the essence. Furthermore Trichet revealed that some members of the Governing Council had opted for a rate hike this month and he stressed that it cannot be excluded that the ECB could raise rates next month.
Euribor futures dropped (the December ’08 contract dropped by a stunning 34 ticks) and in the FX market the EUR jumped from around 154 USD to 155.50 on the statement. In other words Trichet managed to put an effective stop to the strengthening of USD versus EUR that has been gaining momentum earlier this week. We prefer to maintain a neutral stance on EURUSD for now as the currency cross is likely to be the subject of a tug-of-war between the prospects of higher rates in the Euro Zone and the the wish for a Stronger USD on the other side of the Atlantic further potentially explosive events await this afternoon as the all important US non-farm payrolls data will be released.

The NZD tumbled in the wake Wednesday’s rate announcement from the Reserve Bank of New Zealand. Rates were left unchanged at 8.25% but the central bank said that it sees a fair chance of rates being lowered later this year. Furthermore it said that the economy has weakened more than expected and that it cannot rule out a technical recession. As a result of the massive NZD weakening we have reached the target on our selling recommendation on NZDUSD. As the currency cross has managed to break through the long term moving average and momentum indicators suggest that there is further room on the downside we have chosen to extend our selling recommendation targeting 75.40. Momentum on EURJPY and EURCHF has turned bullish in the wake of the massive EUR strengthening that was initiated yesterday. Although we haven’t reached stop loss on our selling recommendations we have chosen to recommend closing down short positions at this point

Emerging Markets

By the Emerging Markets Team

Yesterday the Constitutional Court of Turkey cancelled AKP's decision to allow headscarfs at universities. The decision has not been released yet so it is not possible to assess, what the implications of this decision will be for the pending AKP closure case. It is however one of the more negative outcomes, and the market seemed to think so as well and TRY lost 2.1 % against EUR after the announcement. This adds to the current political risks in Turkey, but it is not clear how must political instability has already been priced in, and hence if there is further downside in the currency. In Brazil the Selic rate was hiked with 50 bps to 12,25 % and the following statements indicated that there are more hikes to come in the future. Indonesia and the Philippines hiked with 25 bps to 8,50 % and 5,25% respectively.

There are no important events on EM today. Instead we will – together with the rest of the financial markets – await NFP from the US. Lately, EM has mostly been guided by general market sentiment. Hence the numbers from the US could be an important indicator of EM performance in the near future. For now we maintain our neutral stance on the currencies.

Today’s Key Events

• 09:00 Trade balance (CZK)

• 09:15 ECB’s Stark speaks on subprime and monetary policy (EUR)

• 10:00 Industrial production (NOK)

• 12:00 Industrial production (DEM)

• 13:00 Unemployment rate (CAD)

• 14:30 Change in non-farm payrolls (USD)

• 14:45 Fed’s Kroszner speaks on financial markets (USD)

• 16:00 Wholesale Inventories (USD)

• Download Full Daily Forex Commentary

Published on  Fri, Jun 6 2008, 07:27 GMT

Bernanke supported the USD

Wed, Jun 4 2008, 06:42 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday the USD strengthened to a two-week high versus EUR after comments made by Fed chairman Ben Bernanke. Bernanke said that the Fed is “attentive to the currency and will guard against inflation expectations”. Thus he seemed to hint that the Fed is done cutting rates this time around thereby supporting comments made by Treasury Secretary Paulson who said that he “very strongly” favours a “strong” dollar. Thus it seems that the foundation for the USD is slowly building. However these are uncertain times and there are still some potentially explosive topics on the agenda this week including the monetary policy meeting in the ECB tomorrow and the US non-farm payrolls report on Friday. Our economists expect that the ECB will leave rates unchanged at 4% The European Central Bank has on several occasions stressed that the fight against inflation is their primary mandate and with inflation on the rise and the danger of rising inflation expectations lurking on the horizon it seems unlikely that ECB president Trichet will start paving the way for upcoming rate cuts. On the contrary we expect Trichet’s comments to remain rather hawkish thus nourishing market speculation that the next move from the ECB will be a hike.
Hence the risk of a renewed upward pressure on EURUSD is present and against this background we recommend taking profit on short EURUSD positions for now.

The SEK strengthened yesterday versus EUR thus triggering stop loss on our long position in EURSEK. There is a great deal of uncertainty surrounding the outcome of the next monetary policy meeting in Riksbanken. On the one hand evidence is building that growth is slowing but on the other hand inflation is on the rise. Thus like many other central banks around the Globe, Riksbanken is facing a difficult dilemma. With inflation data coming up on Tuesday EURSEK seems like a risky bet. Hence we have chosen to obtain a neutral stance at this point.

Emerging Markets

By the Emerging Markets Team

Following Monday's almost panic-like scenes as markets contemplated the possibility that the credit crisis would return to haunt us again, markets calmed down somewhat yesterday, and EM managed to recover its composure. Running the risk of delivering a candidate for "Famous last words", we would say that Monday's news mostly related to previous sins - and that the downgrades in the US is another example of how rating agencies tend to be slightly behind events. As such, there are other things we would fear more than a return of the credit crisis - and we find it highly unlikely that we will experience anything like what we saw in the spring again soon. Yesterday's main news in EM was another upward surprise in Turkish inflation, now running at 10.7% y/y (10.3% was expected). It seems that markets agreed with us that it is unclear whether high inflation was actually a positive or a negative for the TRY as we saw no noticeable reaction on the currency. Later in the day, the central bank published news that it has revised higher its inflation targets for 2009-2011 by quite a margin (and, with impeccable logic, the target for 2008 was left unchanged on the clear understanding that it will not be reached). While a discussion of pursuing an inflation target in the face of external price shocks and a weakening economy is far beyond the scope of this paper, it seems clear that the central bank runs the risk of losing some of its hard-earned inflation-fighting credibility. It remains to be seen whether they can pull this off without loss of credibility. The next couple of days offer plenty of data from EM, starting with today's monetary policy meeting in Brazil - but with market focus probably mainly turning towards Friday's NFP from the US. As for market direction, well, who knows at the moment?

Today’s Key Events

• 09:30 ECB’s Trichet speaks (EUR)

• 10:00 PMI services, final (EUR)

• 10:30 PMI services (GBP)

• 11:00 Retail sales (EUR)

• 11:00 Trade balance, preliminary (ISK)

• 14:15 ADP employment (USD)

• 16:00 ISM services (USD)

• 18:00 Current account balance (ISK)

• 20:00 Fed’s Bernanke speaks (USD)

• 23:00 Rate announcement from RBNZ (NZD)

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Published on  Wed, Jun 4 2008, 06:42 GMT

Another ride on the carousel…

Tue, Jun 3 2008, 06:26 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday risk aversion reared its ugly face once again as ratings on three of the largest US securities firms (Morgan Stanley, Merrill Lynch and Lehman Brothers) were cut by Standard & Poor’s who said that the firms in question may have to book further writedowns. Furthermore the announcement that Wachovia CEO Kennedy Thompson is stepping down fuelled speculation that Wachovia also faces further losses. Stock markets tumbled on Wall Street and in Asia and this morning futures on the major European indices indicate that we are in for a bumpy ride today.
In the FX markets jitteriness has taken its toll on the JPY and the CHF which both strengthened dramatically versus EUR in yesterday’s trading. Thus EURCHF closed below the lower boundary of the interval it has been trading within for several weeks now. Technical indicators suggest that there is potential for a further drop towards 158.50 on the currency cross. Thus we have chosen to recommend selling EURCHF.
The SEK has suffered lately from disappointing macroeconomic indicators and risk aversion in general. Thus EURSEK has broken through the upper boundary of the falling trend channel it has been trading within for the past couple of months. As credit fear and market jitteriness seem likely to weigh further on the SEK in the short term we have decided to recommend buying EURSEK targeting 942.50.

Emerging Markets

By the Emerging Markets Team

Just when markets had turned focus squarely elsewhere (do we hear oil and inflation, anyone?), the credit crisis once again rears its ugly head (from beyond the grave, it would almost seem). A veritable avalanche of bad news centred on financial institutions hit the market in a brief time period. S&P downgraded 3 US brokers, citing potential further losses. Bradford & Bingley (UK mortgage lender) is experiencing problems raising capital. Wachovia (4th largest US bank) fires CEO, citing losses. Not a nice cocktail, and as expected, global risk assets sold off. EM followed these lower, with the TRY, ZAR and ISK not surprisingly among the main casualties. Hence, following a strong performance last week, we are reminded that all is not well and we are still somewhat cautious on global sentiment going forward - which is also why we have resisted temptation to go long the likes of TRY and ZAR last week, despite seemingly positive markets. Today's main event in EM-land is Turkish inflation data, which is expected to show a marked worsening of the inflation picture (10.3% y/y expected, 9.7% last time round) and increasing underlying price pressures (producer prices expected at 15.8% y/y). While a high inflation print could in itself support the TRY (through expectations of further hikes ahead), it certainly would not improve the TRY's longterm fundamental backdrop. As the last couple of days have shown, however, the TRY seems to be mainly driven by global sentiment these days - and if the local story should take on a more meaningful role, this is more likely to come from renewed focus on the AKP court case than from anything else. We thus do not see much downside for EUR/TRY from here.

Today’s Key Events

• 09:00 PMI (NOK)

• 09:30 ECB’s Trichet speaks (EUR)

• 11:00 Producer prices (EUR)

• 11:00 GDP, preliminary (EUR)

• 15:00 Fed’s Bernanke speaks (USD)

• 16:00 ECB’s Trichet speaks (EUR)

• 16:00 Consumer Prices (TRY)

• 16:00 Producer Prices (TRY)

• 16:00 Factory orders (USD)

• 03:30 GDP (AUD)

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Published on  Tue, Jun 3 2008, 06:26 GMT

An exciting week ahead

Mon, Jun 2 2008, 07:33 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Investors are in for an exiting week as the macro economic calendar heats up. On this side of the Atlantic rate announcements from BoE and ECB are due and as the European Central Bank keeps reiterating that inflation is a major concern investors will be paying close attention to the statement made at the press conference on Thursday. From the US we can look forward to the release of the ISM indices for the manufacturing and service sectors and on Friday market participants will be holding their breath as the all important Non-farm payrolls data is released. In other words there is potential for some volatility this week – thus investors will have to watch their step.

In the FX markets the NOK begins to look a bit soft. At last week’s monetary policy meeting in Norges Bank market participants were looking for signs that the Norwegian central bank would accede to the rising inflation pressure and raise rates in June. The central bank did express concern over the rapidly climbing inflation however at the same time it said that there are signs of a softening in housing markets and that prospects for growth has deteriorated. In other words Norges Bank didn’t offer any clear cut signals of further hikes and that has made investors wonder whether the tightening cycle has come to an end. Technically EURNOK has broken through the upper boundary of the falling trend channel it has been trading within for the past two months and with momentum indicators pointing towards further upside potential on the currency cross we have decided to recommend buying EURNOK. .

Emerging Markets

By the Emerging Markets Team

While Friday was a marginally negative day for EM, this did not alter the fact that EM currencies had a very good week, led by the TRY which ended up 4.4 % against the EUR. As we enter June, we are one step closer to that period of Summer Doldrums, where financial markets slow down and enjoy the (hopefully) warm weather - but we're not quite there yet, and we are actually entering what promises to be a quite interesting week. The EM calendar offers plenty of opportunity for some action, while the global calendar offers the ISM (today), ISM Service and, as the icing on the cake, the US job report on Friday. Our main focus continues to be on the potentially unhappy cocktail of a global growth slowdown showing up more clearly in the data at the same time as markets are spooked by inflation in general - and by oil in particular. We are thus still somewhat cautious on EM looking forward and fear that it is too early to expect a prolonged EM rally. EUR/ISK briefly traded above our stop-loss on Friday and we turn neutral on the cross for now - with bad fundamentals and the expectation of further central bank initiatives still engaged in a tugof- war. In Turkey, the TRY has benefitted from recent risk seeking as focus on domestic stories has decreased. It is expected that the High Court will look at the Head Scarf ban this week, however, which could bring the AKP court case back in play. Adding to this our not too positive expectations for global sentiment and we resisted the temptation to go long the TRY last week - a decision which so far seems to have been wise.

Today’s Key Events

• 08:30 PMI Manufacturing (SEK)

• 10:00 PMI Manufacturing, final (EUR)

• 10:30 PMI Manufacturing (GBP)

• 15:30 ECB’s Trichet speaks (EUR)

• 16:00 ISM Manufacturing (USD)

• 18:20 Fed’s Lockhart speaks on the economy (USD)

• 06:00 Vehicle sales (USD)

• 03:30 Current Account Balance (AUD)

• 06:30 Rate Announcement from RBA (AUD)

• Download Full Daily Forex Commentary

Published on  Mon, Jun 2 2008, 07:33 GMT

Is Direction Back…?

Thu, May 29 2008, 06:20 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Yesterday durable goods orders from the US lifted the dollar in spite of relatively high inflation data from the Eurozone. Norges Bank kept its main deposit rate at 5.50% at the rate announcement in the afternoon as we expected. There was given no clear indications of the future rate policy. It was highlighted that inflation has increased more than expected, but also that Norges Bank acknowledges that growth is decreasing. A hike was not discussed as an option at yesterday’s meeting. If it had been the case, it would have been a strong signal of a coming hike in June.

We have been a lot on the side lately as the market has lacked clear direction as our friends in the EM Team have pointed out. Too many contradicting signals have led us to believe that we could just as flip a coin in search for direction. However, several crosses have now begun to look relatively interesting (we have attached a few charts on pg. 3). EURUSD (USDDKK) has formed a top (bottom) during the last few days and is technically set for a