NOK Views: weaker flows prevent further NOK strength
Today we release a new issue of our NOK Views. In the last issue of NOK Views (Scandie Views – Oct 2010) we expected the NOK to strengthen further as the flow position improved and as monetary policy was not anticipated to provide support. The reverse is now forecast as Norges Bank will continue to tighten monetary policy whilst also selling increasingly large amounts of NOK on behalf of the Government Pension Fund Global. With the trade weighted NOK close to multi-year highs we see little scope for further appreciation; should FX purchases be even larger than anticipated we would expect outright I44 gains (weaker NOK). Page 5
SLOWING GROWTH – HOW HAWKISH COULD MR. TRICHET BE?
In our previous edition of Currency Strategy last month, we concluded that changes in rate expectations govern FX markets. With yet another Greek rescue package imminent, FX markets are ignoring the huge institutional risk premiums existing within the EMU, for now at least. Still, we wonder how hawkish Mr. Trichet could be on Thursday (we expect him to signal a rate hike next month) given the on-going problems apparent in G3 economies? We assume that the ECB will hike rates in both July and October but that the third increase may well need to wait until next year. Indeed should the Fed opt to delay monetary tightening and even hint at a QE3, the ECB will be forced to postpone any further monetary tightening as the USD will come under further pressure. For now we still believe that EUR/USD will continue higher over the summer on divergent monetary policy, but that the USD will rally as European debt restructuring comes closer and as the Fed prepares to reduce liquidity and hike rates in 2012. The least ugly battle continues. Page 3
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http://www.easyforexnews.net/wp-content/uploads/2011/06/FXR20110608.pdf
Tech Team,