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Daily Forex Commentary

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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.

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Published on  Thu, Sep 11 2008, 07:18 GMT