Daily Currency Briefing

June 23, 2011

QE3 off the agenda for now

G10 Currencies
USD: It has been a while since the USD was able to benefit from an FOMC meeting; but that is exactly what happened this time round, EUR-USD temporarily eased from over 1.44 to below 1.43. Obviously the Fed did not change key rates (they remained between 0.00% and 0.25%). It has also renewed its promise to keep interest rates at this low level for an extended period of time. The fact that the USD nonetheless received support is likely to be due to the fact that the Fed wants to take a monetary policy reprieve. The usual statement as well as the following press conference underlined that the Fed does not intend to take any additional stimulating measures. The economic data published since the last meeting was mainly disappointing. The market reaction in EUR-USD demonstrates that some market participants had already expected further Fed measures (QE3). Fears of QE3 are off the agenda for now. Even though the Fed commented in the statement that the economic recovery was “somewhat more slowly than the Committee had expected”, it sticks to its view that growth will take off over the coming quarters with unemployment slowly falling. Above all the Fed is concentrating increasingly on inflation risks. The usual reference to low core inflation was removed from the statement; the Fed no longer seems to worry about inflation rates being too low. This became clear during Bernanke’s press conference. He explained the differences between the current situation and that in August 2010 when the Fed announced QE2. At the time deflation had been a “non-trivial” risk and the situation on the labour market had improved despite recently weak data. Conclusion: QE3 is quite a way off. This does not constitute an exit from the Fed’s expansionary monetary policy (any fund inflow from maturing bonds will still be reinvested into Treasuries). FX markets have however taken it positively that the Fed is at least not getting bogged down any further. For some time now monetary policy has been the main negative factor for the greenback. The Fed is unlikely to have changed that yesterday. In the early European trade EUR-USD might ease a little further we do not expect a sustainable downtrend in EUR-USD though. The weekly initial jobless claims and new home sales are the most important data due for publication today. In both cases our economists are slightly more optimistic than consensus. From a chart technical point of view EUR-USD is in neutral territory in the 1.43 area. The low seen in the early Asian trade (1.4289) is likely to provide some support but there are no further obstacles until 1.4050/20. The first resistance is also located at 1.4500. EUR: At last no news from Greece. The meeting of the EU heads of government in Brussels is unlikely to provide any news regarding the aid packet. After all it is clear that the donor countries are going to wait whether the Greek parliament will pass the new savings measures. At that stage more funds are likely to flow. The new programme will only postpone Greece’s default though. On the data front attention in the Eurozone is likely to focus on the June PMI, which is generally expected to record a slight fall. GBP: Yesterday’s MPC minutes gave some clarity regarding the thinking of the BoE. The vote was 7-2 (the previous vote in May was 6-3) in favour of continuing the policy of keeping base rates at 0.5%. Sterling depreciated against the EUR and the USD almost immediately as it became clear that the BoE was in no mood to hike in the near term. The committee highlighted their expectation that inflation would rise above 5% before subsiding as the temporary impacts
Peter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com

Lutz Karpowitz +49 69 136 42152 lutz.karpowitz@commerzbank.com

For important disclosure information please refer to the back pages

Daily Currency Briefing

of the increase in VAT, energy costs and the significant depreciation of sterling dissipate. The key downside risk was that the strength of demand would prove insufficient to eliminate spare capacity within the economy, therefore leading inflation to undershoot over the medium term. This is a particularly important point for price developments for sterling. This risk is not insignificant as the UK consumer has seemingly gone into hibernation, if recent retail sales data are anything to go by (May retail sales -1.6% vs expectations of -0.6%). In the coming days we will receive house price data and GDP data, both of which should give clarity about the overall shape of the UK economy. Should these figures disappoint, we expect GBP to come under further selling pressure. Levels to watch in EUR-GBP are 0.902 and 1.6050 in cable. NOK: Markets were taken by surprise: even though Norges Bank left key rates unchanged at 2.25% it suggested in its monetary policy report that it might take two further rate steps before the end of October rather than previously assumed until the end of the year. As a result it raised the key rate path for 2011 as we had expected but left it unchanged for 2012. This is mainly due to its optimistic view of the local economy and the expected rise in inflation. In the end we might even see three rate steps until the end of the year, should wage and price pressure increase. We feel confirmed in our view that Norges Bank will take action again in August and then in the autumn. Only negative effects of the debt crisis on the local economy would be able to prevent this, but Norges Bank seemed confident that the difficulties in Greece would be solved without problems of this nature. Following the decision EUR-NOK fell to around 7.84. As important indicators in the form of retail sales are only due next week market sentiment and the oil price are likely to become the main drivers in EUR-NOK again now. In our view a breach of the broad 7.75-7.95 range is not yet on the agenda though.
Antje Praefcke +49 69 136 43834 antje.praecke@commerzbank.com

Emerging Market Currencies
CZK: By regional comparison inflation in the Czech Republic is still relatively benign. Even though at 2% inflation rose slightly more notably in May than expected. This was mainly due to a rise in petrol prices. It is therefore hardly surprising that there is agreement once again today: the Czech central bank will keep key rates unchanged at 0.75%. In the absence of local momentum the koruna is therefore expected to be driven by global market sentiment. TRY: The Turkish central bank (CBRT) is likely to once again leave key rates unchanged today – for the sixth consecutive time. As local lending remains well above the central bank’s target there is however a high likelihood that it will once again raise the short term minimum reserve requirements. This is unlikely to support the lira much. Since December it has been suffering as a result of the fight against a high current account deficit and the resulting uncertainty regarding monetary policy. We are still waiting for unambiguous signals regarding the first key rate rise. Due to the currently high risk aversion this is an uncomfortable environment for the Turkish currency.
Thu Lan Nguyen +49 69 136 82878 thulan.nguyen@commerzbank.com

2

23 June 2011

Daily Currency Briefing

Today’s Events
Time 08:30 08:30 09:00 09:00 11:59 12:00 12:00 13:30 15:00 Region Indicator GER GER EUR EUR RUB CZK TRY USA USA PMI (Markit) PMI Services (Markit) PMI (Markit) PMI Services (Markit) FX and gold reserves CNB interest rate decision Interest rate decision Initial jobless claims New home sales Period Jun Jun Jun Jun Jun Jun Jun Jun May May Actual Our Forecast Survey 57,0 55,7 53,8 55,3 +0,75 6,25 415 310 -4,0 Last 57,7 56,1 54,6 56,0 528,0 +0,75 6,25 414 323 +7,3 Direction Cross

57,0 56,0 54,0 56,0
USD bn % % K K mom

0,75 6,25
410 320

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 1,4308 -0,74 1,4442 1,4342 EUR-SEK 9,1255 -0,39 9,1730 9,1276 EUR-AUD 1,3559 -0,23 1,3613 1,3539 EUR-RUB 40,1382 -0,18 40,3189 40,0714 Fwd 3M 1,4269 EURIBOR 1,53 10Y Bund 2,94 EuroStoxx50 2795,07 -6,92 -0,25 Oil, Brent 113,49 EUR-JPY 115,07 -0,46 115,77 115,14 EUR-NOK 7,8101 -1,22 7,9200 7,8071 EUR-NZD 1,7519 -1,22 1,7747 1,7600 EUR-RON 4,2112 -0,56 4,2551 4,2057 Fwd 6M 1,4230 $ LIBOR 0,25 10Y T-Note 2,97 DAX 7278,19 -7,32 -0,10 Oil, Nymex 94,20 EUR-GBP 0,8917 +0,49 0,8943 0,8878 EUR-DKK 7,4582 -0,01 7,4605 7,4567 EUR-BRL 2,2759 -0,43 2,2924 2,2758 EUR-CNY 9,2529 -0,71 9,3323 9,2695 Fwd 12M 1,4150 ¥ LIBOR 0,20 10Y JGB 1,12 Dow Jones 12109,67 -80,34 -0,66 Gold 1547,25 EUR-CHF 1,2048 -0,61 1,2147 1,2026 EUR-HUF 267,17 -0,10 268,16 266,69 EUR-MXN 16,8886 -0,50 17,0088 16,9136 EUR-SGD 1,7660 -0,56 1,7777 1,7687 Vol 1M 12,22 £ LIBOR 0,83 EUR-CAD 1,3924 -0,53 1,4039 1,3961 EUR-CZK 24,305 +0,26 24,333 24,216 EUR-TRY 2,3221 -0,04 2,3291 2,3127 EUR-KRW 1539,5122 -0,78 1553,5702 1542,1102 Vol 3M 12,65 $ index 75,05 +0,68 75,00 74,50 EUR-PLN 3,9847 +0,12 3,9933 3,9746 EUR-ZAR 9,7123 +0,35 9,7599 9,6428 EUR-THB 43,7175 -0,50 44,0222 43,6776 Vol 12M 13,35

CHF LIBOR CAD LIBOR 0,18 1,18 10Y T-Note Future 10Y Gilt Bund Future 3,19 126,21 123,83 Nikkei 225 9629,29 -0,14 -0,00 Palladium 762,25 Zinc 2196,0 FTSE 100 5772,99 -2,32 -0,04 Platinum 1733,50 Tin 25100,0 1287,14 -8,38 -0,65 Silver 36,28

S&P 500

Industrial Metals Aluminium Lead Copper Nickel $ per ton 2508,0 2455,5 9007,0 21875,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.

3

23 June 2011

Daily Currency Briefing
This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank’s branch offices mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. The author(s) of this report, certify that (a) the views expressed in this report accurately reflect their personal views; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The analyst(s) named on this report are not registered / qualified as research analysts with FINRA and are not subject to NASD Rule 2711. Disclaimer This document is for information purposes only and does not take account of the specific circumstances of any recipient. The information contained herein does not constitute the provision of investment advice. It is not intended to be and should not be construed as a recommendation, offer or solicitation to acquire, or dispose of, any of the financial instruments mentioned in this document and will not form the basis or a part of any contract or commitment whatsoever. The information in this document is based on data obtained from sources believed by Commerzbank to be reliable and in good faith, but no representations, guarantees or warranties are made by Commerzbank with regard to accuracy, completeness or suitability of the data. The opinions and estimates contained herein reflect the current judgement of the author(s) on the data of this document and are subject to change without notice. The opinions do not necessarily correspond to the opinions of Commerzbank. Commerzbank does not have an obligation to update, modify or amend this document or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. The past performance of financial instruments is not indicative of future results. No assurance can be given that any opinion described herein would yield favourable investment results. Any forecasts discussed in this document may not be achieved due to multiple risk factors including without limitation market volatility, sector volatility, corporate actions, the unavailability of complete and accurate information and/or the subsequent transpiration that underlying assumptions made by Commerzbank or by other sources relied upon in the document were inapposite. Neither Commerzbank nor any of its respective directors, officers or employees accepts any responsibility or liability whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this document. Commerzbank may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Commerzbank endorses, recommends or approves any material on the linked page or accessible from it. Commerzbank does not accept responsibility whatsoever for any such material, nor for any consequences of its use. This document is for the use of the addressees only and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part, for any purpose, without the prior, written consent of Commerzbank. The manner of distributing this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves about and to observe such restrictions. By accepting this document, a recipient hereof agrees to be bound by the foregoing limitations. Additional notes to readers in the following countries: Germany: Commerzbank AG is registered in the Commercial Register at Amtsgericht Frankfurt under the number HRB 32000. Commerzbank AG is supervised by the German regulator Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Lurgiallee 12, 60439 Frankfurt am Main, Germany. United Kingdom: This document has been issued or approved for issue in the United Kingdom by Commerzbank AG London Branch. Commerzbank AG, London Branch is authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and subject to limited regulation by the Financial Services Authority. Details on the extent of our regulation by the Financial Services Authority are available from us on request. This document is directed exclusively to eligible counterparties and professional clients. It is not directed to retail clients. No persons other than an eligible counterparty or a professional client should read or rely on any information in this document. Commerzbank AG, London Branch does not deal for or advise or otherwise offer any investment services to retail clients. United States: This document has been approved for distribution in the US under applicable US law by Commerz Markets LLC (“Commerz Markets”), a wholly owned subsidiary of Commerzbank AG and a US registered broker-dealer. Any securities transaction by US persons must be effected with Commerz Markets. Under applicable US law; information regarding clients of Commerz Markets may be distributed to other companies within the Commerzbank group. This report is intended for distribution in the United States solely to “institutional investors” and “major U.S. institutional investors,” as defined in Rule 15a-6 under the Securities Exchange Act of 1934. Commerz Markets is a member of FINRA and SIPC. European Economic Area: Where this document has been produced by a legal entity outside of the EEA, the document has been re-issued by Commerzbank AG, London Branch for distribution into the EEA. Singapore: This document is furnished in Singapore by Commerzbank AG, Singapore branch. It may only be received in Singapore by an institutional investor as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”) pursuant to section 274 of the SFA. Hong Kong: This document is furnished in Hong Kong by Commerzbank AG, Hong Kong Branch, and may only be received in Hong Kong by ‘professional investors’ within the meaning of Schedule 1 of the Securities and Futures Ordinance (Cap.571) of Hong Kong and any rules made there under. Japan: Commerzbank AG, Tokyo Branch is responsible for the distribution of Research in Japan. Commerzbank AG, Tokyo Branch is regulated by the Japanese Financial Services Agency (FSA). Australia: Commerzbank AG does not hold an Australian financial services licence. This document is being distributed in Australia to wholesale customers pursuant to an Australian financial services licence exemption for Commerzbank AG under Class Order 04/1313. Commerzbank AG is regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) under the laws of Germany which differ from Australian laws. © Commerzbank AG 2011. All rights reserved. Version 9.13

Commerzbank Corporates & Markets Frankfurt London Commerzbank AG Commerzbank AG London Branch DLZ - Gebäude 2, HändPO BOX 52715 lerhaus 30 Gresham Street Mainzer Landstraße 153 London, EC2P 2XY 60327 Frankfurt Tel: + 49 69 13621200 Tel: + 44 207 623 8000

New York Commerz Markets LLC 2 World Financial Center, 31st floor New York, NY 10281 Tel: + 1 212 703 4000

Singapore Branch Commerzbank AG 8, Shenton Way, #42-01 Singapore 068811

Hong Kong Branch Commerzbank AG 29/F, Two IFC 8 Finance Street Central Hong Kong Tel: +852 3988 0988

Tel: +65 63110000