AUD: trade balance disappoints (September 2, 2010, 5:14 PM)
After the strong AUD rise on Wednesday as result of strong Australian GDP and risk taking, AUDUSD dropped following the release of a lower than expected Australian trade balance surplus. The decline was also driven by a one-off government purchase of six aircrafts. Later in the day a more upbeat sentiment lifted AUDUSD again, keeping it above 0.9030 support. We keep our long-term positive view on the AUD, even though short-term worries on the outlook for the global economy could hurt the AUD.

CHF: strong GDP, waiting for the SNB (September 2, 2010, 5:07 PM)
Swiss GDP for 2Q was clearly above market expectation and confirmed our view of strong performing economy. Following the release the Swiss franc was able to appreciate against the euro. Friday's CPI data will be the last important data ahead of the SNB meeting mid September. As result of the strong franc the probability that the SNB remains on hold has clearly risen. We expect the franc to stay strong against the euro over the next 12 months.

SEK: Riksbank hikes as expected (September 2, 2010, 4:59 PM)
The Swedish Riksbank hiked its policy rate from 0.5 to 0.75% as widely expected. Despite uncertainty on the global economic outlook the Riksbank signaled it sticks to its policy rate forecasts (another rate hike this year), supporting the SEK against the euro. EURSEK is trading at 2.5 year low. We expect EURSEK to stay between 9 and 9.5 over the next 12 months.

Rising US consumer confidence helps EURUSD (August 31, 2010, 5:16 PM)
A positive surprise in US consumer confidence and house prices helped EURUSD stay above the critical support of 1.2650. The downward trend, underscored last week by Fed Chairman Bernanke's gloomy outlook, was challenged when a strengthening consumer confidence lifted equities, general risk taking and consequently the euro relative to the US dollar. The next directional move within the 1.32 - 1.20 range depends however strongly on Wednesday's ISM and Friday's labor market report.

CAD: GDP growth slows further (August 31, 2010, 5:16 PM)
Canadian Q2 GDP figures came with a 2.0% rise q/q on an annualized basis, weaker than the expected 2.5%. The Q1 growth was also revised down from 6.1% to 5.8%. These lower figures raise uncertainty about rate hikes in the near future. We keep our positive stance towards the Canadian dollar, however the forecasts for USDCAD to reach parity might be delayed into 2011.

JPY: waiting for further action (August 31, 2010, 4:22 PM)
Market uncertainty supported once again the yen. The economic data out of Japan was better than the consensus, but we expect it to deteriorate going forward. Finance minister Noda continues to complain about the strong yen and its negative impact on the economy. His warning to take decisive action when necessary was once again ignored. Markets might test their willingness to do something and consequently the lower USDJPY goes, the more likely become renewed measures from BoJ or government.

NZD: weaker data (August 30, 2010, 3:00 PM)
New Zealand's trade balance and business confidence were lower than the previous month. Especially the declining confidence indicators clearly show that going forward the momentum of the economy will slow down. With higher uncertainty surrounding the global economy outlook together with weaker local data, the Reserve Bank of New Zealand might become more prudent in the near future. While we keep out long term positive view on the NZD, the upside potential for NZDUSD might be limited.

CHF: SNB board member on the wire (August 30, 2010, 2:58 PM)
Swiss National bank vice chairman Thomas Jordan said over the weekend that the bank is very closely following the exchange rate. However, he added that the SNB does not have an exchange target. The SNB keeps in our view the door open to intervene again, but probably EURCHF needs to drop more. We expect the franc to stay strong against the euro. We and markets will closely watch this week's Swiss PMI, GDP and CPI.

AUD: Markets priced in rate cuts in Australia (August 27, 2010, 1:44 PM)
With renewed fears on a sharp slowdown of the global economy, market participants have priced in rate cuts in Australia over the next 12 months. While the risk has increased that the Reserve Bank of Australia (RBA) might be on hold for longer, we see such rate cut expectations as premature. We continue to expect AUDUSD to stabilize above 0.90 in the long run, however in the short turn AUDUSD is likely to remain shaky driven by shifts in risk sentiment.

Jackson Hole is more like Davos than Bretton Woods (August 26, 2010, 5:34 PM) Investors are waiting for statements from a conference of central bankers in Jackson Hole, which is hosted by the Kansas City Fed. One should, however, not expect too much from that social gathering of central bankers. They do not gather for policy making, it is rather a place for reflection. The speech by Fed Chair Ben Bernanke on Friday can, at best, outline once more the policy options available. If anything,disappointement and risk aversion are the potential results for financial markets.

EURCHF: Hit by Hildebrand (August 24, 2010, 5:05 PM)
EURCHF took another dive after Swiss National Bank Chairman Philipp Hildebrand was rather vague concerning the SNB's intervention policy. He stated that the SNB would certainly start intervening again if there is a threat of inflation. However, right now, the risks seem to be limited. There is certainly room for the CHF to rise further, i.e. EURCHF to drop below 1.30, as the odds that the SNB will strongly defend a level of 1.30 are low.

Dollar sold on existing home sales data (August 24, 2010, 8:14 AM)
EURUSD shot up nearly a whole big figure, above 1.270, as US existing home sale were much lower than expected, with the worst read since the series began in 1999. The news and the reaction speaks to worries about a continued slow-down, and begs questions about decoupling across regions. We expect the US will muddle through and that economic risks are global. We therefore position for the dollar to remain below 1.30 this quarter, and expect that European troubles will soon be in focus.

EUR: Euro weaker on slower momentum, technicals (August 23, 2010, 5:20 PM) The euro fell against the US dollar, the Swiss franc, the pound and the yen on Monday after the flash release of the European purchasing manager indices (PMI) showed economic activity slowing somewhat from its currently high level. The disappointment led to a technical reaction, with the 55 day moving average broken to the downside. The immediate reaction to this event was quite strong as it led to a series of EUR selling - USD buying trades. The next support is at 1.2460.

CHF: intervention remain an option for the SNB (August 23, 2010, 4:07 PM)
Swiss National Bank's chairman Philipp Hildebrand made clear, that the bank is willing and able to intervene again in FX markets, but only in case of renewed deflation fears. We expect with EURCHF above 1.30 FX interventions remain unlikely. Ahead of the SNB policy meeting in September, a bunch of important Swiss data such as the KOF leading indicator, PMI, GDP Q2 and CPI will be released. We expect the CHF to remain strong against the EUR.

JPY: nothing concrete from meeting (August 23, 2010, 3:47 PM)
Prime Minister Kan and the governor of the Bank of Japan Shirakawa agreed on Monday to work more closely together on the yen. According to the government spokesman no concrete talks took place on FX interventions. Markets might try to test which level will trigger some additional measures in the next days. This could support the JPY further against the USD, especially if market uncertainty stays high.

NZD: inflation expectation more important than CPI (August 20, 2010, 5:20 PM) In November, New Zealand will increase its goods and services tax. Consequently also the annual inflation (CPI) is likely to rise in direction of 5%. RBNZ Governor Bollard signaled that the bank will not adjust policy rates as result of temporary inflation rise as long as inflation expectations remain anchored. While in the long run higher interest rates in New Zealand should keep the NZDUSD between 0.70 and 0.75, a further spike in risk aversion could push NZDUSD below 0.70.

JPY: officials continue to talk (August 20, 2010, 5:18 PM)
Japanese officials continued to talk about the yen and the impact on the economy. Finance Minister Noda said that he is in communication with G7 countries on currencies. However, we reiterate our view that unilateral Japanese action to weaken the yen might not be welcomed by Japan's trading partner at present. Should next week's meeting between Prime Minister Kan and the governor of the Bank of Japan Shirakawa result with no clear measures, than new lows in USDJPY are likely.

USDCAD: Canadian dollar takes a hit (August 20, 2010, 7:46 AM)
Friday's markets have been jittery, therefore lending no support to the risk-sensitive Canadian dollar. With the release of lower-than-expected CPI in Canada, markets are beginning to discount the possibility of a rate hike from the Bank of Canada. With the US dollar up against many currencies, USDCAD rose to nearly 1.05, still within its recent trading range. We continue to like the CAD, but see its fate tied to risk, oil prices and the US macro-outlook, all of which are looking tenuous.

EUR: Euro strong on market sentiment (August 18, 2010, 5:28 PM)
The euro looks set to remain, over the short term, just shy of EURUSD 1.30. Successful government debt auctions on Tuesday by Ireland and on Wednesday by Germany are supportive. Demand was surprisingly strong, notably for Ireland, despite the low yields globally and the still high Greece - Germany yield spread. We think the situation with these extremely low yields is fragile and any correction would shake fx markets. Initial reaction would be USD positive due to high USD short positions. 

JPY: meeting between PM and BOJ governor (August 17, 2010, 12:45 PM)
According to Nikkei, the Japanese Prime Minister Kan and the governor of the Bank of Japan Shirakawa will meet on Monday, August 23. They are supposed to discuss the strong yen. The fact that a meeting takes places clearly highlights the concern about the strong yen. Even if policymakers are willing to implement additional (stimulus) measures, we question if they might succeed in weakening the yen. In the short term we expect the yen to stay strong. 

USD: Capital flows rather bad for the US dollar (August 16, 2010, 5:34 PM)
US data was mixed with NY Fed manufacturing index at the lower side of expectations. The Treasury data on capital flows showed that the demand for Treasuries and other long term assets was quite strong. However, digging a bit deeper into the statistics shows that half of the purchases implied no direct demand for US dollar, since they were hedged with swap operations. Looking at the total, including cash, the net flow was even negative, i.e. foreigners sold and did not buy US dollars in June.

AUD: Election coming up this weekend (August 16, 2010, 4:57 PM)
On August 21 Australia will hold federal elections. The latest opinion polls suggest the outcome of the election is a very close call. There is little policy differentiation between the Labor Party and the Coalition. The only exception being the proposed mining tax. Therefore, even a change in government should have only a minor impact on the AUD. However, the close election increases the risk of a hung parliament, which would most likely hurt the AUD.

Mixed data leaves the USD a bit stronger (August 13, 2010, 4:59 PM)
US data releases were mixed on Friday. Retail sales were just slightly lower than expected even though consumer sentiment surprised with a small rise according to the Index of the University of Michigan. With this, the USD leaves the weak on a stronger footing, even though the sentiment for the US economy was hit quite strongly by the Fed's worries about a potential second dip of the economy. The odds for the EURUSD development for coming week are quite equilibrated around 1.27.

NZD: support from retail sales (August 13, 2010, 4:15 PM)
New Zealand's retail sales were clearly above market expectations and supported the NZD. Solid retail activity is likely to support Q2 GDP. However, part of the strong retail activity might be related to consumer bringing forward their purchases of big ticket items, as the goods and services tax will rise in October. As New Zealand's policy rate is still in stimulatory level, we expect further rate hikes. We continue to expect a moderate rise of NZDUSD in the long run.

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