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Daily Forex Commentary

CPI from Sweden and the UK

Tue, May 13 2008, 06:28 GMT
by Jyske Bank Team

Jyske Bank

Today’s comment

Majors & Scandies

By the Majors & Scandis Team

Monday was a positive day across the line. Financial shares gained after the large US bond insurer MBIA Inc. reported better-thanexpected results and said that business volume appears to be rising. In addition, the oil price fell from all-time high which also proved beneficial for financial markets. Overall, riskdemand was spurred and in several instances erased the gains that the funding currencies had experienced Thursday and Friday of last week. You can only say that it does not require a lot of good news to improve market sentiment at the moment…

This morning the UK housing market once again proved to be in worse condition than ever before. The RICS House Price Balance fell in April to -95.1 from -79.4 last month. The worsening housing market in the UK threatens to affect the British economy significantly and has everything else equal made a rate cut from BoE in June more likely. Our economists expect BoE will cut rates by 25bps at the June meeting. GBP weakened on the release of the data and both the currency and the short UK rates are likely to come under pressure today – especially if the CPI due 10.30 will be weaker than expected. EURGBP (GBPDKK) is a funny “size” at the moment. There is no doubt that the British economy is not doing all that well, but lately the market has begun speculating that the Eurozone economy might catch a cold from the struggling US economy. However, we do find it likely that GBP will weaken against EUR (and DKK) in the short term. Hence, we adjust our trading range upwards for EURGBP.

CPI from Sweden is due this morning and our economists expect that inflation will remain elevated (also market consensus). In the afternoon, market focus will switch to the retail sales from the US. This is probably the most important macroeconomic event from the US this week, since it will give further insight into the state of the US economy.

Emerging Markets

By the Emerging Markets Team

We still recommend to BUY EURISK (SELL ISKDKK), because problems in the Icelandic forward market are still unsolved. However EURISK is above 123 and if it trades higher we cannot rule out the Central Bank will make an extraordinary rate hike, which then will support ISK. We now take profit at 127 and stop profit at 121.

Yesterday inflation data from Czech Republic was slightly higher than expected. Inflation is now 6.8 % and is not expected to decrease dramatically during the coming months. The risk is still to the upside for the key rate. We cannot rule out a hike from 3.75 % to 4.00 %. Because of the low key rate, we do not think it is interesting to invest in CZK-bonds. On the other hand we do not recommend taking loans in CZK, because of the risk to the upside for the CZK.

We stick to our neutral recommendation in CZK, TRY and ZAR because we think it is likely we will see some weeks with a more mixed sentiment. Today we do not have any important EM-data, but a positive sentiment is likely after positive equity sessions in the USA and Japan.

Today’s Key Events

• N/A Speeches from several FED members during the day, USD

• N/A Unemployment, ISK

• 09:00 Industrial Production, CZK

• 09:30 CPI, SEK

• 10:30 CPI, GBP

• 14:30 Retail S ales, USD

• Download Full Daily Forex Commentary

Published on  Tue, May 13 2008, 06:33 GMT

Archive

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  Published On Mon, Sep 8 2008, 06:26 GMT
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  Published On Thu, Sep 4 2008, 06:44 GMT
• Focus on AUD, NZD and Turkish CPI
  Published On Wed, Sep 3 2008, 06:52 GMT
• Yen on the rise and ISM on the agenda
  Published On Tue, Sep 2 2008, 07:02 GMT

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