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Daily Forex Commentary

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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

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Published on  Fri, Aug 29 2008, 06:28 GMT