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Daily Forex Commentary

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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

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Published on  Thu, Sep 4 2008, 06:55 GMT