Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more ➡
Standard view
Full view
of .
Add note
Save to My Library
Sync to mobile
Look up keyword
Like this
0 of .
Results for:
No results containing your search query
P. 1
FX Pilot 2 November 2011

FX Pilot 2 November 2011

Ratings: (0)|Views: 109|Likes:
Published by Tony Zhang

More info:

Published by: Tony Zhang on Nov 02, 2011
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See More
See less





For full disclaimer and definitions, please refer to the end of this report.
FX Pilot
November 2, 2011
The best laid plans of mice and men
Neutral on risk sentiment
USD still a buy
Positive on SEK, and on NOK in the medium term
Market view
US macro statistics have tended to surprise on the upside,helped by resilient consumption and removal of bottlenecksfrom the global supply cycle, post-tsunami. This helped un-derpin risk appetite, as did the Fed’s “operation twist” andQE3 speculation. The latest EMU rescue effort was full ofholes but nonetheless gave a boost to sentiment. We thoughtmarkets would give the EMU the benefit of the doubt for afew more weeks. All this was up-ended as Greece’s PM Pa-pandreou launched a surprise referendum on the latest res-cue deal. Now the risk of an uncontrolled default is on theradar screen yet again. The referendum can be interpretedas a vote on whether Greece should leave the euro. Theproverbial can has been ripped open, something which couldhave disastrous implications for other troubled eurozonecountries (pages 3-4).
USD to gain on all fronts
We stick to our USD-positive view (page 2).
Keep an eye on…
ECB rate decision, November 3
Greece confidence vote, November 4
G20 summit, November 3-4
Martin Enlund – maen12@handelsbanken.se, +46 8 463 46 33Nils Kristian Knudsen – nikn02@handelsbanken.no, +47 228 23010Jenny Mannent – jema01@handelsbanken.se, +46 8 463 45 25
Table of contents
 FX view ........................................................................... 2
Ripping open the proverbial can ..................................... 3
The Big Picture ............................................................... 4
FX behaviour................................................................... 5
Trading recommendations .............................................. 6
Graph 1: ECB to cut as unemployment rises
Source: Handelsbanken Capital Markets, Reuters EcoWin
G10 FX
   N   Z   D   A   U   D   C   A   D   E   U   R   G   B   P   C   H   F   J   P   Y   S   E   K   N   O   K   U   S   D
November 2, 2011
FX view
The proverbial can of worms opened by Greece’sPapandreou has unleashed the debt crisis once more.
The recent rally was not at all supported by movesin fixed-income markets (graph 2).
Euro sentiment indicators (PMI composite) suggestGDP contraction and a 50bp-100bp rate cut (graph 3).
Increasing unemployment rates also imply a heftyrate cut from the ECB (graph 1, p. 1).
While an ECB rate could boost risk sentiment, weexpect the end result to be a lower EUR/USD.
sell on rallies
We stick to our view that EUR/SEK is a sell on rallies.
The SEK continues to show resilience to financial tur-bulence despite the normal SEK/cycle correlation.
The Swedish economy is not decelerating as much asthe eurozone economy.
An ECB rate cut would be positive for the SEK.
Norges Bank is going to ramp up FX purchases in No-vember with the largest daily sum since 2004.
Increased volatility is likely to dampen NOK demandshort term.
We remain bullish on the NOK medium term.
Graph 2: EUR/USD and basket rate spread
Source: Handelsbanken Capital Markets
Graph 3: PMI collapse suggest imminent rate cuts
Sources: Handelsbanken Capital Markets, Macrobond
Handelsbanken Capital Markets forecasts
Source: Handelsbanken Capital Markets
02-Nov< 1 m< 3 m02-Nov< 1 m< 3 m02-Nov< 1 m< 3 m
EUR/USD1.371.351.33AUD/USD1.040.980.90Fed0.1250.1250.125USD/JPY78.175.075.0NZD/USD0.7950.7500.700ECB1.501.501.25EUR/GBP0.8590.8710.865USD/CAD1.021.061.09BOE0.500.500.50EUR/CHF1.221.251.25NOK/SEK1.171.201.16SNB0.000.000.00EUR/NOK7.757.607.60USD/NOK5.655.635.71Norges Bank2.252.252.25EUR/SEK9.069.108.85USD/SEK6.606.746.65Riksbank2.002.002.00
November 2, 2011
Ripping open the proverbial can
The referendum announcement boosted the probabil-ity of an uncontrolled default and a euro exit
What if households and companies start to seriouslyquestion whether a PIIGS euro is truly a euro?
The surprise move spells trouble for the ECB
Greece’s Papandreou "out of the blue" decided to call areferendum on whether Greece will accept the new termsin the most recent rescue package. If Greece turns downthe new deal (a referendum likely in January) then it's ei-ther back to the drawing board for new concessions fromthe EU/the private sector, it’s time for an even deeper re-cession (Depression-like), or its drachma time. The latestpolls indicate that 60% of the populace in Greece “doesnot like” the new deal.We have known since 2010 that the failure of EMU lead-ers to deal with the underlying problems facing the cur-rency union (competitiveness issues, coordination prob-lems and now a continent-wide paradox of thrift) is likelyto prevent a robust recovery from taking hold in the trou-bled countries. Without a robust economic recovery, la-bour markets can’t improve, and without such a recoverythe populace is likely to remain discontented with the on-going policies. This, in turn, heightens the implementationrisks in all rescue deals. What’s more, once the statebudget approaches primary balance, it becomes more pal-atable to default on your debt from a game-theoretic pointof view.It was also fairly evident that last week’s 50% haircut onthe private sector’s holding of GGBs would do little tosolve Greece’s long-term solvency issues with a 120%debt-to-GDP ratio in 10 years.It is fairly easy to understand that Greece would like betterconditions. It is however also fairly easy to see that a bet-ter deal would be a hard sell in the creditor nations.
What is the referendum about?
On the surface, it seems to be a yes or a no to the latestrescue deal. However, Greece’s Finance MinisterVenizelos has said that “citizens will have to answer thequestion: are we for Europe, the eurozone and the euro?”,and this has troubling implications for the ECB. It standsto reason that a central bank ought to be very reluctantlending against a country’s collateral if said country isgoing to vote on leaving the currency.
Graph 1: Greece budget balance worst since 2009
Sources: Reuters Ecowin
Graph 2: Depression-like economic sentiment
Sources: Reuters Ecowin
Another can of worms at risk of being torn open
Source: Handelsbanken Capital Markets
This spring and summer the initiative to bring the private sectoron board in the Greek rescue deal triggered a repricing of allnon-German EUR debt as it was now much more likely thatbond investors would receive a hair cut. This was probably animportant cause of the spread widening for Italy.Introducing the drachma in Greece implies that a euro inGreece was not truly a euro. Is a euro in Spain a euro? Is aeuro in Italy a euro?

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->