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Daily Forex Commentary

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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, 06:35 GMT