Forex Investment and Currency Trading

Eurozone Wednesday’s data releases confirmed that April has seen a significant decline in business and consumer confidence, while inflation surprised on the downside compared to initial expectations. According to the European Commission index, the business climate index declined to 0.44 in April from a downward revised 0.79 in March. Consumer confidence was unchanged at -12. The overall economic confidence index fell to 97.1 from 99.6. As for inflation, the Euro area HICP inflation rate was 3.3% yoy, down from 3.6% in March. Country-specific data show that inflation fell most sharply in Germany, but it also declined in Spain, Belgium and [...]

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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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The SEK outlook is clouded by Sweden’s position as a small open economy. Domestic demand is still reasonably strong and this will provide some insulation. So too the country’s solid current account surplus position, though judging by the performance of the NOK during the current bout of risk aversion, support from this source may be meagre. SEK remains too rich to the NOK. That has been the case for some months. A corrective rally in NOK/SEK looms.
That EUR/SEK has drifted to the top end of its twelve month trading range largely reflects EUR strength rather than SEK weakness. SEK has [...]

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Rather improbably, global risk aversion has hurt the NOK due to its new found ‘status’ as a high yielder. A binary focus on yield ignores the currency’s obvious safe haven characteristics and won’t last.
Trading the NOK/oil correlation has also been popular. Again, the market’s view has been one dimensional as even a $30pb oil price decline would still leave NOK fundamentals rock solid.
Despite a poor start to 2008, the outlook for the NOK is positive. The last Monetary Policy Report is consistent with the policy rate rising further into summer. The Executive Board anticipates rates in the interval 5 – [...]

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