- Our chart shows FX performance between January and June 2011 versus FX performance in the July 2011 sell-off period. The performance of all currencies is shown versus a 50/50 EUR/USD basket in order to make EUR referenced and USD or basket referenced currencies comparable and to filter out the impact of the EUR/USD impact. The correlation is relatively strong at 0.7 which suggest so far it was about positioning in EEMEA.
- On balance currencies which appreciated the most in H1 2011 has sold off the most in the recent risk aversion phase. The main underperformers were the CEE currencies whilst the main outperformers were TRY and ZAR which is in line with their performances in H1. This suggests that the recent sell-off phase was mostly driven by positioning. The correlation between the two periods is relatively strong with R^2 at around 0.5 and correlation at 0.7. This also shows that proximity to Greece (either via the banking sector or trade channel) did not play a significant role in the current EEMEA FX sell-off phase.
- The main outlier was the RUB which has also appreciated similar amount versus the EUR/USD basket in H1 than CEE currencies but so far failed to sell-off in a similar extent. This suggests that the RUB might be vulnerable if the risk off environment continues.
- More broadly if fundamentals move into the driving seat on a multi week horizon TRY should also catch up (i.e. to weaken) given it has the widest current account deficit among all countries (3M annualized current account deficit has reached 12%/GDP with heavy reliance on short term inflows).
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http://www.easyforexnews.net/wp-content/uploads/2011/07/EEMEAFX.pdf
Gyula Toth
UniCredit Research