News
KZ: Neutral – Minfin sells KZT11bn (EUR 53.5mn) 5y bonds (p2)
PL: Positive – June CPI decelerates to 4.2% yoy (p2)
RU: Neutral – Finance Ministry sells the lowest amount of OFZ at yesterday auction since Jan 2010 (p2)
Today’s Events
BG: July Unemployment rate / CZ: CZK 7bn 91d t-bill auction / CR: June CPI, May Retail trade / HU: May IP, HUF 20bn 2014, HUF 15bn 2017, HUF 10bn 2022 HUNGB auctions / LV: May C/A / RO: RON 0.5bn 2016 RONGB auction / RU: Budget YTD / SRB: RSD 2bn 3M t-bill auction / SK: June CPI
EEMEA Markets
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 effect of the EUR/USD impact. The correlation is relatively strong at 0.7, which suggests so far it was about positioning in EEMEA.
On balance, currencies that appreciated the most in 1H11 have 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 1H. 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 also appreciated a similar amount versus the EUR/USD basket in 1H, followed by CEE currencies but they so far have failed to sell-off to the same 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. 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).
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/07/eed_fi_140711_0000.pdf
Gyula Toth
UniCredit Research