Forex Investment and Currency Trading

SEK and NOK are the star performers of 2008, but recommend staying short EUR/SEK and EUR/NOK.
Despite as expected Riksbank and Norges Bank outcomes this week, the risk is of significantly more tightening.
In contrast, this week’s unexpected fall in the German Ifo may well mark the watershed in ECB rates.

SEK and NOK the star performers of 2008
This week, Norges Bank delivered a 25bp hike taking rates to a five year high of 5.5%, while the Riksbank left rates at 4.25%. Both decisions were in line with expectations, but SEK and NOK are still first and second best performing G10 currencies over [...]

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Once again, the economic fortunes of the major European economies are diverging. But this time, the tables have turned. Until two years ago, Britain and Spain had outperformed their European peers, boosted by major real estate booms and the benefits of previous labour market reforms. Now, the real estate boom in Spain and – possibly – Britain threatens to turn into an almost US-style slump. Britain has also squandered some of its erstwhile structural advantages by 10 years of excessive expansion of its government sector. As a result, Spain is now on the verge of recession while the BoE is [...]

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1 – 3 Month Outlook – retest highs
EUR/USD spiked to a new all time high of 1.5904 in mid-March. Unusually, by recent standards, much of the move represented independent EUR direction, rather than EUR gaining by default as USD sold off across the board. In markets that were generally dominated by rising risk aversion, usually a fairly neutral EUR environment, EUR matched the gains seen by CHF and JPY. EUR’s gains largely reflect diminishing expectations for ECB rate cuts. At the trough of rate expectations in mid-February, EURIBOR futures fully discounted three 25bp ECB rate cuts. Currently, futures discount one [...]

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Incoming data suggest that the Eurozone is currently divided between a resilient North, with Germany and to a lesser extent France still enjoying decent cyclical conditions, and a struggling South, with Italy and Spain drifting into sub-potential growth rates. However, on balance, economic activity in the Eurozone remains sufficiently strong to help the hawks at the ECB to resist calls for rate cuts, at a moment when inflation continues to accelerate.  The probability is raised that the ECB may not cut at all this summer from 35% to 40%.
The hawks within the ECB Governing Council have spent a rewarding week: their [...]

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While the storm is raging in financial markets and the US economy teeters on the brink of recession, the European Central Bank is keeping its nerves.
Neither the further Fed rate cut to a mere 2.25% nor the surge in the euro exchange rate to a new lifetime high versus the US dollar has triggered any appreciable shift in the ECB position yet. The ECB is firmly on hold for the
foreseeable future. At least that is the clear message in almost all ECB communications at the moment.
Although a few cracks in the strong ECB posture may be starting to appear, these [...]

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