FX & Money Markets Daily: Markets Are Waiting For The Fed

Today's Comment

Majors & Scandies

Yesterday EURJPY dropped through important short term support levels thus hitting target on our selling recommendation. Before markets closed the currency cross rate managed to recover somewhat but short term momentum still seems to speak in favour of further downside potential. Thus we have chosen to extend our selling recommendation targeting 159.85 with stop loss placed at 162.45.

In the past couple of days we have argued that today's rate announcement from the Fed and the press release in particular is likely to push EURUSD higher. Market participants basically expect that the ongoing monetary policy meeting in the Fed will result in a 25 bps rate cut. From then on however rates are expected to be left unchanged and maybe even raised in the beginning of 2009. This is way to aggressive in our view as we still expect the Fed to cut rates in June and August.

To sum up we stick to our buying recommenddation on EURUSD for now. Furthermore as momentum on USDJPY seems to be tilting towards the downside we have chosen to recommend selling the currency cross rate with a target placed at 101.00 and stop loss placed at 104.85

Fundamentally we have been negative on the GBP for quite some time and as technical indicators suggest that momentum is building on the upside. With weak housing market data out this morning we expect the pressure on the GBP to build again. Thus we have chosen to recommend buying EURGBP.

Emerging Markets

As we had expected, the EM currencies ran out of steam yesterday following a mini rally over the last couple of weeks, and we closed our short EUR/UISK and EUR/TRY positions following healthy gains. Financial markets have been trading in relief mode during April but as the coming days offer more or less every US data release you may care to mention, the reality of the economic situation is back in focus for now. In general, we fear that markets may have gotten slightly ahead of themselves and e.g. expect the FED to crush any expectations of imminent rate hikes when they cut rates by 25bps tonight. In any event, the next few days should be crucial to the mood of the financial markets in the coming weeks and much may happen before our next morning briefing on Monday (we are off due to Ascension Day). We thus turn neutral on the EM crosses for now. In Iceland, today offers Kaupthing's Q1 results, and although focus on the Icelandic banks has waned recently, surprises certainly offers the possibility of EUR/ISK moves. In Turkey, markets are still awaiting the AKP's defence against the charges made against it, and Prime Minister Erdogan yesterday suggested that the AKP may ask for more time to prepare its defence - primarily, probably, to hear the Constitutional Courts decision on whether the lifting of the headscarf ban was contrary to the secular constitution. Should this decision go against the AKP, it would be seen as a broad hint that the AKP will fare poorly in the court case and the AKP may then decide to escalate matters outside court - the worst possible outcome. We continue to hold our breaths and continue to look for a peaceful solution to the situation, which should be in everybody's interest.

Today's key events

• N/A Rate announcement, Poland (PLN)
• N/A Inflation report from Central Bank of Turkey (TRY)
• 09:55 Unemployment (DEM)
• 10:00 Retail sales (NOK)
• 11:00 Consumer Prices (EUR)
• 11:00 Economic sentiment (EUR)
• 11:00 Trade balance, final (ISK)
• 11:30 Gfk Consumer confidence (GBP)
• 11:30 KOF leading indicator (CHF)
• 13:00 Trade Balance (ZAR)
• 14:15 ADP employment (USD)
• 14:30 GDP, annualized (USD)
• 14:30 GDP (CAD)
• 15:45 Chicago PMI (USD)
• 16:00 Trade balance (TRY)
• 20:15 FOMC rate announcement (USD)

Jyske Core Positions - Recommendations

Jyske Markets - FX Research
http://www.jyskebank.dk/finansnyt

The analysis is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the analysis. The estimates and recommendation of the analysis may be changed without notice. The analysis is for personal use of Jyske Bank's customers and may not be copied.