News
BG: Mixed – Activity indicators show diverging results in July (p2)
CZ: Neutral – 2Q GDP (final) comes in at 0.1% qoq, 2.2% yoy (p2)
HU: Positive – AKK sells HUF54bn HGBs at auctions vs. HUF45bn original offer, demand strong for the shorter papers (p2)
RO: Positive – July industrial production increases 1.7% yoy (p2)
Today’s Events
BG: July Trade balance / CZ: Aug CPI / ES: July Trade balance / HU: July Trade balance / HU: July Trade balance / KZ: July Wages / LV: July Trade balance / RO: July Trade balance / RU: July Trade balance / SK: July Ind Sales, July Wages / SL: July Trade balance, July IP / TK: July IP
EEMEA Markets
Global backdrop: equities closed a weak session with US down 1% whilst Asian markets closed 0.5% lower. Meanwhile EUR/USD finally moved below the 1.40 level breaching the 200day moving average and DXY is just flirting with this level. ECB left interest rates unchanged but the press conference was reasonably balance as opposed to hawkish in the previous meeting. The market reaction on Bernanke and Obama speeches was rather muted. Today the data calendar is light with market likely focusing on the weekend G7 meeting. We expect EUR/USD becoming the main driver of CEEMEA markets today.
Against this backdrop we recommend going long TRY/PLN at 1.72, target 1.80, stop loss 1.68. Key rationales of the trade:
(1) According to Turkish policymakers the TRY is about 5-10% undervalued. Recent actions and FX interventions suggest that they are willing to support the TRY at current levels using FX reserves. The TRY has been the worst performing EM currency this year (YTD USD/TRY is up by 11.8% vs. flat performance of an avg. EM FX basket).
(2) The trade utilizes the genuine difference between the liquidity management of the 2 central banks. Whilst the CBT is providing liquidity to the banking sector (approx. TRY 70bn at the moment) the NBP is taking out liquidity from the banking sector. We think the former allows the CBT to control the TRY much easier than the NBP in times of stress.
(3) The CBT will likely allow local banks to keep their RR obligations in FX as well. As the banking sector has around USD 17bn FX abroad the measure could shift some FX back to Turkey which in turn will increase the FX reserve of the CBT.
(4) The long TRY/PLN position has a strong negative correlation with EUR/USD which is looking to move into a new trading range below 1.40. (see chart) The carry on a 3M fwd position is about positive 230bp vs. around 270bp YTD average.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/09/EEMEA-Daily_9Sept11.pdf
Gyula Toth
UniCredit Research