FX & Money Markets Daily: Strong Tailwind For NOK Ahead

Today's Comment

Majors & Scandies

Yesterday the dollar bounced back due to a stronger than anticipated leading indicator from the US. Momentum is still downwards for the dollar and the currency cross rate is still trading is a downwards trend channel. Bank of Japan kept its main policy rate steady at the rate announcement this morning as widely expected by the market and by our economists. The minutes from the policy meeting in Reserve Bank of Australia in May showed surprisingly that the central bank considered raising rates due to an uncomfortably high inflation. Financial markets were taken by surprise and AUDUSD climbed to a new all-time high reaching almost 96.00.

EURNOK (NOKDKK) managed yesterday to break through the important technical level around 781.30 (95.50) and NOK is now heading for even higher levels. EURNOK (NOKDKK) can reach levels as low as 766.00 (97.40) if the oil price keeps the current upwards momentum. Our target is a bit more modest, since our commodity researchers find a correction in the oil price likely while acknowledging the upwards momentum. We have taken a short position in EURNOK (long NOKDKK) targeting 770.00 (96.90) while placing a stop loss at 788.00 (94.65). EURCHF (CHFDKK) has closed above (below) the resistance line at 163.40 (456.60), which are what we have been looking for before initiating a short trade on the Swiss franc. The technical case is, however, not very strong at the current stage, since the momentum indicators already have turned or are about to turn. In addition, according to risk reversals markets are attaching a higher probability that CHF will strengthen rather than weakening. Therefore, we maintain our neutral stance for the time being.

Emerging Markets

While the ISK continues to soar, benefitting from the updrafts of Friday's publication of the swap-agreement between Sedlanbanki and the Nordic central banks, we are still left with a feeling that the rest of EM lacks clear direction (even though EM has been trading with a mildly positive undertone lately). Today's calendar offers nothing more exciting than Brazilian weekly inflation data (in European time) - and it probably takes a special mindset to get too excited about that. Yesterday we had an extremely quiet start to the week, with most EM crosses sticking to a +/- 0.5 % range against the EUR, with the ISK the main exception. ISK added 1 % to Friday's gains and is now up some 6 % over the last week. While we had been contemplating going long ISK heading into the policy meeting on Thursday, such a positions looks less promising from a risk-reward perspective following the move over the latest couple of days. Hence, we adjust lower the range (assuming that the swap-agreement will cap the top-side for EUR/ISK for now) but remain neutral on direction for now. As regards EUR/TRY, there seems to be increasing speculation that a quick resolution to the AKP court case is moving closer, with expectations seeming to converge on a negative ruling for the AKP. The High Court's decision on the lifting of the head scarf ban, due any day now, will be seen as a clear indication of which way the wind blows. Also here, we await further news with bated breath. In both Poland and Czech, well-known central bank hawks aired their hawkish opinions yesterday, arguing for further hikes ahead. Our views of the two currencies differ slightly, as we think further hikes in Poland should propel the PLN higher, whereas the possible final hike in Czech should mean that EUR/CZK will move higher from here. But, alas, also here we will await clearer signals before putting action behind these expectations. Do you see a pattern emerging?

Today's key events

• 08:00 Producer Prices, DEM
• 11:00 ZEW Indicator, DEM
• 14:30 Producer Prices, USD
• 15:00 FED's Kohn speaks, 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.