Daily Currency Briefing

July 13, 2011

Event risk remains high

G10 Currencies
EUR-USD: The euros nose dive came to a temporary halt yesterday and now the currency is struggling with the 1.40 mark against USD. Attention continues to focus on Italy. As speculation emerged that the ECB had purchased Italian bonds, the spreads narrowed considerably and EUR-USD appreciated notably. However, the situation remains fragile as Moodys downgrade of Ireland to junk status demonstrates. Moreover Italian bond auctions are on the agenda for Thursday with the European banking stress test due for publication on Friday. There are also continued reports that the heads of government and state will convene at an extraordinary summit on Friday. As a result the event risk in EUR-USD remains high. It will be Monday next week when we will find out whether the ECB really did purchase Italian bonds, when the central bank publishes the corresponding records. But in general markets have realised where aid payments might come from in this difficult situation. Following recent ECB comments there is however reason for concern whether it really would be prepared to buy large amounts of Italian bonds. By taking these measures it would improve the budget situation in Italy thus mixing monetary and fiscal policy, which is exactly what the ECB is trying to avoid. The current protracted negotiations of the European Ministers of Finance (which have so far failed to produce a result) signals that rapid aid (and that is exactly what the markets want to see) could probably only be provided by the ECB. JPY: Having traded in a narrow range between 80 and 81.50 for a long time USD-JPY breached the range to the downside yesterday. Investors had recently become sceptical regarding Japan as the natural disaster not only led to a deterioration of the economic outlook but is also putting increasing pressure on the already difficult national finances. But the yen seems to have regained its role as a safe haven, and it even appreciated against the Swiss franc yesterday. So far Tokyo is likely to have been quite pleased about the fact that the yen was unable to benefit from the rise in risk aversion. As we can already observe a move of production abroad due to the energy shortages a loss of price competitiveness due to a short term appreciation is unlikely to be welcome. It is therefore hardly surprising that with the governor of the BoJ Masaaki Shirakawa and Secretary of State Yukio Edano two officials have intervened verbally by stressing that the development of exchange rates would be observed very closely. Shirakawa gives priority to the fight of deflation. Last night USD-JPY temporarily eased as far as 78.50 and thus the lowest level since the interventions in March. The following rapid recovery demonstrates that the market is already expecting a BoJ intervention should USD-JPY come under stronger pressure. Should the exchange rate developments become too erratic the BoJ might take rapid action. GBP: Yesterdays CPI and trade balance data confirmed the worst fears about the UK economy. CPI data printed -0.1% against expectations of a +0.2% increase, meaning that inflationary pressures moderated in the UK, at least in the very short term. However this could change over the summer once the effects of energy price increases begin to be seen in domestic utility bills. Core CPI printed at 2.8%, which is the lowest core reading since August 2010. The fact that core CPI is much lower will give further ammunition to the doves on the MPC. The total trade deficit for May also registered at -4.06 billion pounds against expectations of -2.7 billion pounds. Based on these data releases it seems that the BoE will be in no hurry to raise rates any time soon. However markets are not trading on data releases at the moment and trade instead as a function of risk sentiment, primarily in relation to the ongoing problems in the eurozone. Although there are few reasons to buy GBP except for medium term valuation concerns, investors should expect GBP to remain well bid against the euro until more clarity is
Lutz Karpowitz +49 69 136 42152 lutz.karpowitz@commerzbank.com Lutz Karpowitz +49 69 136 42152 lutz.karpowitz@commerzbank.com

Peter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com

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Daily Currency Briefing

given regarding possible solutions to the eurozone dilemma. Levels to watch are 0.8740 in EUR-GBP and the 55 week moving average in GBP-USD around 1.5920. SEK: As expected by us EUR-SEK tested the upper end yesterday and rose to 9.2660 following the publication of the Swedish inflation data for June. The data came in below expectations at -0.2% mom and 3.1% yoy, this coincided with the bad market sentiment yesterday morning and therefore had a turbo effect on EUR-SEK. During the course of the day the situation on the financial markets calmed down causing EUR-SEK to ease back below 9.20. While the uncertainty about the development in the Eurozone continues on the markets gains in SEK are likely to be limited and sudden rises in risk aversion will continue to put renewed pressure on the SEK. We therefore see the risk that EUR-SEK might once again test the upper end around 9.27. From a fundamental point of view these levels remain unjustified as the Swedish economy is humming, the Riksbank will continue to raise rates and national debt levels are limited. As a result levels of 9.25 or above in EUR-SEK remain selling levels for us. Courageous market participants active in EUR-SEK will however have to be prepared for quick changes of direction and generally increased levels of volatility.
Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com

Emerging Market Currencies

CNY: Todays Chinese macro data surprised positively. Q2 GDP came in at 9.5% yoy (consensus estimate: 9.3%) and with growth rates of 15.1% yoy industrial production in particular signalled that concerns about a hard landing in China were unfounded. Growth has however weakened slightly compared with the previous quarter suggesting that the PBoCs rate hikes are beginning to have an effect and that inflation might ease off somewhat in the second half. According to Prime Minister Wen Jiabao controlling inflation remains the governments most important task. The data was received positively by the markets: stocks and high yielding currencies appreciated. It will have to be seen whether this improved sentiment will continue during European trade. HUF: Even though at 3.5% yoy the June rate of inflation remained well below the expectations of 3.8% the effect on the forint remained marginal. Central bank president Andras Simor had hinted recently that in case of a continued fall in inflation rate cuts might be considered. A glance at core inflation suggests that any plans of this nature will be far off: since the beginning of the year the core rate has been rising continuously and at 3.0% has now reached almost twice the level seen in January. Moreover the deterioration of the all-encompassing debt crisis in Europe makes a rate cut unlikely. The Swiss franc has appreciated on a broad basis over the past few weeks due to its role as a safe haven also against the forint. Since the beginning of July CHF-HUF has risen by more than 7% and is therefore putting pressure on the sensitive market for foreign currency denominated loans. The majority of debtors took out the loans at CHF-HUF levels below 175 and is therefore getting under increased pressure. A rate cut which would put additional pressure on the forint in the current environment would therefore be fatal from this point of view. All in all the risks in EUR-HUF and USD-HUF in the current risk-off mode remain clearly on the upside. PLN: The zloty remains completely in the grip of the Eurozone debt crisis. The data on the development of consumer prices in June is unlikely to provide any support either. On the contrary: it is expected that inflation will ease to 4.8% yoy as opposed to 5.0% yoy. The central bank is therefore likely to feel confirmed in its current rate break. Should the rate of inflation come in well below expectations the zloty will come under additional pressure in the currently unfavourable market environment. The next important resistance area in EUR-PLN is located at 4.0730/61, which might quickly be tackled should there be a renewed rise in risk aversion at the same time.
Lutz Karpowitz +49 69 136 42152 lutz.karpowitz@commerzbank.com

Carolin Hecht +49 69 136 41505 carolin.hecht@commerzbank.com

Thu Lan Nguyen +49 69 136 82878 thulan.nguyen@commerzbank.com

13 July 2011

Daily Currency Briefing

Todays Events
Time 03:00 05:30 08:15 09:30 10:00 Region Indicator
CNY GDP Industrial production

Period
Q2 Jun. yoy yoy

Actual
+9,5 +15,1 +6,2 -5,5

Our Forecast
+9,0 +13,1

Survey
+9,3 +13,1

Last
+9,7 +13,3 +5,7 -5,9

Direction

Cross

JPY CHF GBP EUR RUB USA PLN USA

Industrial production Producer and import prices Unemployment rate Industrial production CPI weekly year to date MBA Mortgage Applications Consumer prices Import Prices

12:00 13:00 13:30

Jun Jun Jun Jun May May May Jul Jul Jun Jun Jun Jun

mom yoy mom yoy % mom yoy % % mom yoy mom yoy

7,7 +0,2 +5,7

-0,3 -0,3 7,7 +0,4 +4,8

+0,1 +4,8 -0,6 +13,2

-0,2 -0,4 7,7 +0,2 +5,3 +5,1 -5,20 +0,6 +5,0 +0,2 +12,5

Important Market Data

FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low Forwards / Options EUR-USD 3M Money Market Rate (%) Bonds / Bond Futures Yield (%), Price Equity Indices Closing Change Change (%) Oil / Prec.Metals $ per unit EUR-USD 1,3988 -0,42 1,4062 1,3838 EUR-SEK 9,2080 +0,27 9,2661 9,1658 EUR-AUD 1,3166 -0,03 1,3217 1,3125 EUR-RUB 39,6026 -0,07 39,6938 39,3671 Fwd 3M -36,3200 EURIBOR 1,60 10Y Bund 2,71 EuroStoxx50 2693,53 -15,61 -0,58 Oil, Brent 117,09 EUR-JPY 111,27 -1,39 112,95 109,59 EUR-NOK 7,8186 +1,08 7,8195 7,7264 EUR-NZD 1,7024 +0,56 1,7145 1,6895 EUR-RON 4,2829 +0,73 4,2953 4,2471 Fwd 6M -67,8200 $ LIBOR 0,25 10Y T-Note 2,90 DAX 7174,14 -56,11 -0,78 Oil, Nymex 97,16 EUR-GBP 0,8786 -0,42 0,8839 0,8749 EUR-DKK 7,4578 -0,01 7,4595 7,4532 EUR-BRL 2,2090 -0,63 2,2232 2,1827 EUR-CNY 9,0522 -0,34 9,0930 8,9586 Fwd 12M -128,8700 LIBOR 0,20 10Y JGB 1,11 Dow Jones 12446,88 -58,88 -0,47 Gold 1566,58 EUR-CHF 1,1638 -0,83 1,1753 1,1553 EUR-HUF 268,93 +0,76 270,10 266,72 EUR-MXN 16,4639 -0,22 16,5632 16,4196 EUR-SGD 1,7134 -0,59 1,7264 1,7038 Vol 1M 13,94 LIBOR 0,83 EUR-CAD 1,3477 -0,93 1,3620 1,3510 EUR-CZK 24,222 +0,15 24,318 24,174 EUR-TRY 2,3080 -0,02 2,3172 2,2931 EUR-KRW 1485,8781 +0,06 1497,2960 1476,1401 Vol 3M 13,53 $ index 75,96 -0,04 76,72 75,70 EUR-PLN 4,0381 +1,35 4,0562 3,9836 EUR-ZAR 9,5637 -0,37 9,6793 9,5359 EUR-THB 42,3447 -0,54 42,6275 42,1312 Vol 12M 13,60

CHF LIBOR CAD LIBOR 0,18 1,17 10Y T-Note 10Y Gilt Bund Future Future 3,09 128,89 124,66 Nikkei 225 9975,71 +49,79 +0,50 Palladium 767,50 Zinc 2302,0 FTSE 100 5868,96 -60,20 -1,02 Platinum 1738,50 Tin 26300,0 1313,64 -5,85 -0,44 Silver 36,22

S&P 500

Industrial Metals Aluminium Lead Copper Nickel $ per ton 2444,0 2660,0 9500,5 23080,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.

13 July 2011

Daily Currency Briefing

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