*Sharp rally in NOKSEK is set to continue. We target 1.17.
Our long NOKSEK recommendation is showing some signs of life with a large move higher to break above its 55 dma (1.1449). A sustained close above that level today would target a move to its 200 dma (1.1639) – well on its way to our target at 1.17. NOKSEK’s strong performance has largely been on the on the back of weak Swedish data, but this was further augmented by the Norges Bank’s policy statement, which struck a hawkish tone regarding domestic economic conditions. We forecast a Norges Bank rate hike in Q1 2013. Today’s Norwegian unemployment rate, which is expected to decline, should keep the positive NOK momentum on track. Wednesday’s range bound trend should continue until there is further clarity on the FOMC’s policy intentions.
* Today’s eurozone data may stall EUR rise, but headlines remain key
On the eurozone data front, eurozone sentiment and German employment data may stall the rise of the EUR. Economic sentiment is expected to deteriorate for the fifth straight month, and the manufacturing sector may be the key laggard. As for German employment, growth is set to slow and unemployment to increase, but the labour market remains tight. The impact on the EUR on the back of these data is likely to be short-lived, given that the underlying weakness in the eurozone economy persists, and is unlikely to resurrect any time soon. The main focus for the EUR will remain on the policymakers’ and ECB meetings next week. German Chancellor Merkel reiterated her opposition to allowing the ESM a banking license. But essentially, the markets will wait for further information from the ECB on what their plan is for supporting the sovereign bond markets. We continue to believe that sovereign risk premia remains the driver for the EUR; as such, the risks are to the upside. We reiterate our long EURUSD and EURJPY positions.
* Positive New Zealand data provides some relief to NZD. Further gains ahead
The NZD has struggled over the last few sessions, as the market turned increasingly bearish on the Chinese economy. However, today’s rise in both August’s RBNZ activity outlook (24.0 to 26.4) and RBNZ business confidence (15.1 to 19.5) has bolstered the NZDUSD and could sustain further gains especially if Bernanke signals further easing on Friday as we believe. We target 0.84 by end of Q3. The economic performance of New Zealand coupled with the relatively high yield attracts those investors who are seeking yield. Non-resident bond holdings continue to rise.
* While US data may improve, the outlook on the US is unlikely to change
While yesterday’s second advance estimate of US GDP reaffirmed that economic growth remains sub-trend at 1.7%q/q saar, today’s nominal personal spending should see the biggest monthly increase since February, rising by 0.4%m/m. This is likley to be due to a healthy increase in core retail sales in the month and strong services spending. Personal income is forecast to increase 0.3% in July, after rising 0.5% in June. Income is growing slower than spending, which means that the personal savings rate is likely to decline. Also, the initial jobless claims number is expected to drop slightly. Despite the positive data, we continue to expect Chairman Bernanke to signal another round of quantitative easing, substantiating the most recent and very dovish FOMC minutes. We remain bearish on the USD, and expect commodity currencies and the EUR to benefit on the back of this. After being stopped out of our discretionary long AUDUSD trade, we established a long AUDUSD trade, targeting 1.0545, based on the BNP STEER model. The model
showed that the recent decline in AUDUSD is not justified by underlying fundamentals.
BNP Paribas