[achiever]

USD: The underlying asset market backdrop appears to have tilted decisively against the USD in light of technical breaks higher in the major equity indices and the recovery in the oil price. Safe-haven demand for USD denominated assets seems set to be limited over the near term as stronger data encourage markets to focus on the potential for a strong cyclical recovery. The risks associated with US policy settings may come into focus in this environment.

EUR: Reserve accumulation and subsequent “flow” diversification demand for EUR appears to be rebuilding on the back of strong capital inflows to emerging markets. This order flow is likely to sustain a positive correlation between risk appetite and EUR-USD over the near term. This correlation will break down over the medium term as EM FX becomes more flexible and trade and capital flow related inflows to EM abate.

JPY: The recent JPY rebound along with risk asset corrections should give way to renewed improvements in risk appetite on optimism about the global economic outlook. Japan’s current account surplus has probably stabilized, but the recycling of the surplus with capital outflows should be easy in a favorable risk sentiment environment. Even in case of a government party change, Japan’s FX policy should be intact in the foreseeable future.

GBP: EUR-GBP is expected to trend lower over the course of 2009 and into 2010, but GBP faces the near-term risk of the BoE meeting on Thursday. The central bank could request an increase from the Chancellor to the size of its quantitative easing program beyond the GBP150bn already approved. This would likely be sterling negative. Indeed, sterling has lagged the rally of the other peripheral currencies of developed Europe such as NOK and SEK. Trend-line support (0.8518) from the October 2008 low at EUR-GBP continues to hold.

CHF: EUR-CHF has benefited from the recent increase in risk appetite. However, a move above the 24 June high of 1.5380 would be needed to signal a break out of the broad range that has characterized the pair’s price action since early March. Declines to the 100-day moving average, currently at 1.5167, should be bought with the level providing solid support as long as the SNB remains on the bid.

SEK: EUR-SEK is making a significant break lower, having dropped below support formed by the 19 May low of 10.3752 on Friday. This opens the way for a decline to 9.9233, the 76.4% retracement of the surge from the August 2008 lows to the March 2009 highs.

NOK: Last week EUR-NOK mimicked the move recently made by its Scandinavian cousin, EUR-SEK, and broke below trend-line support from the 28 August 2008 low. The principal driver of the EUR-NOK price action appears to be "risk", broadly speaking.

CAD: The medium-term view is that the CAD (along with other dollar bloc currencies) should continue to benefit over the USD on the back of an EM-led recovery, as these currencies stand to gain from the heavy reliance on their exports and stronger commodity prices. Data in Canada for the upcoming week is moderately heavy, with May GDP, June building permits, as well as Employment and Ivey (7 August).

AUD: In the statement accompanying the recent RBA decision (rates kept on hold at 3.00%), the bank dropped their easing bias which had been prevalent up to this point. Important will be Friday’s Monetary Policy statement, with current market expectations for inflation projections to be revised up. Employment (6 August) as well as House Price Index (4 August) will also be key.

NZD: Similar to CAD and AUD, NZD is expected to strengthen against the USD in the near term. Domestic data is a key difference between Australia and New Zealand.