Market Drivers - Currencies

Market Drivers - Currencies


The bad PMI data from Europe and the – to say the least – dismal economic trend survey from the IFO affected the market yesterday. EUR was under pressure across the board, yet EURUSD did manage to defend 129. After the FOMC meeting yesterday, at which nothing of importance was announced, investors began to regain confidence and risk appetite has increased drastically. Particularly the commodity-related currencies and EUR appreciated. GBP appreciated on rumours that Chinese investors will buy the British airport Stansted – especially GBPUSD increased steeply. If the rumour is confirmed in the near future, there is further potential offered by GBP, otherwise we will see a drastic setback for GBP. The New Zealand central bank decided overnight to keep its interest rate unchanged. Subsequently the new central bank governor announced that the central bank foresees an increase rather than a decrease of the interest rate. On the whole, this very much supports NZD, and subsequently USDNZD appreciated by more than 1%. We reiterate our BUY recommendation for NZD.

Market sentiment: It is impressive – following the announcement of negative economic indicators – that the sentiment has turned for the better again. Since September we have been in such a phase with fast shifts in sentiment, yet we now expect it to come to a close. We think that the financial market will see the next long-lasting trend when EURUSD ends the range trading that it has been subject to since mid-September. This entails significant breaches of 127.80 and 131.80.

Today’s events: Today we will pay close attention to what the Riksbank will do and say at the interest-rate meeting at 09:30 (See Wednesday’s Market Drivers and page 2). At 10:30, GDP will be announced in the UK, and a decline of 0.4% q/q and 0.5% y/y is expected. A negative surprise may lower GBP