ERSTE Forex News

Erste Group Research – Forex News

Erste Group Research Forex News | Currencies | US dollar, yen, Swiss franc February 23, 2012

Forex News

EURUSD: Still hovering around 1.30, supported by “constructive tone” Yen: Surprise weakening only due to BoJ? EURCHF: Sideways trend continues

Analyst: Mildred Hager [email protected]

EURUSD: Still hovering around 1.30, supported by “c onstructive tone” The US dollar continued its sideways movement close to/above EURUSD 1.30. The news surrounding Greece provoked only minor reactions on bond markets, but in the run up to the announcement peripheral yield spreads (in particular, Italy and Spain) had already decreased somewhat, pointing to a slightly more “constructive” tone on the markets. This also supported the euro. The exchange rate is still sensitive to the Eurozone debt crisis, as shown in the correlation with peripheral yield spreads (higher yield spreads point to larger concerns about the debt crisis, which weakens the euro vs. the dollar). However, the agreement reached on Greece’s financing support remains dependent on the successful implementation of several measures by Greece (deficit targets, PSI, etc.), so that the situation remains surrounded by high uncertainty. As market participants get used to the prevailing uncertainty, there might be less purely sentiment-driven movements – but if the fundamental situation were to change we still see downside risks. EURUSD

0.7

0.9

1.1

1.3

1.5

1.7

2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Erste Group Research Confidence has so far also been supported by the ECB’s readiness to act with liquidity support. The ECB might also continue to relax its monetary policy stance through liquidity provision rather than rate cuts, both having a similar effect on money market rates and yields. The results of the second



3Y LTRO will be announced on February 29 – which is, in our view, one of the most important inputs for the EURUSD exchange rate. Indeed, the relative monetary policy stance of the ECB and Fed play an important role not only for risk aversion (in this sense, the 3Y LTRO might have supported the euro) but also for the money supply and rate differential (more euro liquidity and lower rates weaken the euro). In January, the Fed’s balance sheet increased more than the ECB’s – which could also have accounted for the EURUSD returning above 1.30. For the time being, we still expect the ECB to be more expansive than the Fed in 2012, which should weaken the euro, but we will reevaluate the balance of risks to our EURUSD forecast in March. The fair value has slightly shifted to EURUSD 1.26. Given the fact that large departures from this value are to be expected over time, this does not really impact our fundamental assessment of the EURUSD exchange rate approaching 1.25 until year-end – especially if the euro was still somewhat suffering from renewed worries about the Eurozone debt crisis. Yen: Surprise weakening only due to BoJ? The BoJ’s announcement that it will pursue an explicit inflation target and further expand asset purchases was fully unanticipated on the markets, and thus came with a surprise effect, as it also sharply weakened the yen. The improvement of the economic outlook in the US (leading to yield increases supporting the dollar, on the short end reinforced by operation twist) and a general decrease of risk aversion also supported the dollar, while the euro benefitted even more from a slight relaxation about the Eurozone debt crisis.

EURJPY USDJPY

80

100

120

140

160

180

2000 2002 2004 2006 2008 2010 2012 60

80

100

120

140

160

180

2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Erste Group Research

The last movement set in very rapidly and surprisingly, as is often the case with the yen; the more important question remains to what extent this movement is sustainable. The USDJPY exchange rate seems currently still in line with an (increased) rate differential, which might also lead to a build-up of carry trades by the Japanese or abroad (especially in the context of the BoJ now expected to ease more aggressively). This in turn exerts weakening pressure on the yen. In our opinion, the yen could easily approach USDJPY 85 (instead of our forecast of 80) by year-end, as both would be roughly in line with our expected rate differential and not too far

Analyst: Mildred Hager [email protected]



from the fair value at USDJPY 78. A weakening much beyond that seems unlikely from a fundamental point of view, however – unless the BoJ were to become much more aggressive. It is also worth mentioning that the yen has already shown sudden and sometimes persistent movements away from fundamentals (especially in the context of carry trades) in the past, so that the exchange rate is currently surrounded by particularly high uncertainty, in our opinion. EURCHF: Sideways trend continues Over the last two weeks, the EURCHF exchange rate continued to develop sideways and hovered only briefly at levels around 1.21. Despite the ongoing strong franc, the Swiss export industry put forward good performance at the beginning of the year. In particular, the chemical and watch industry contributed to the increase in exports of 5.4% y/y in January and to the trade balance surplus of CHF 1.6bn. Demand from the Eurozone remained subdued, while exports to the US gained sharply on an annual comparison. At the same time, SECO consumer confidence increased for the first time since the beginning of 2011. Sentiment improved slightly since the last survey in October, which is mainly based on positive expectations for economic development. The positive data still cannot be regarded as the beginning of a recovery but rather as stabilization at low levels. It remains to be seen whether the change in sentiment indicators in Switzerland as well as in the Eurozone will manifest itself in the economic development. As long as the risks for the economic and price stability stemming from the Eurozone do not considerably alleviate, we expect the SNB to stick to its lower bound and, if necessary, tighten its interventions by increasing the minimum exchange rate. However, in the event of considerable escalation of the debt crisis, it is unclear for how long the SNB would be willing to defend a minimum exchange rate by buying foreign exchange.

EURCHF

1.0

1.2

1.4

1.6

1.8

2000 2002 2004 2006 2008 2010 2012 1.0

1.1

1.2

1.3

1.4

07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 01/2012 02/2012 Source: Bloomberg, Erste Group Research

Analyst: Adrian Beck [email protected]



Exchange Rate Forecasts current Mar. 12 Jun.12 Sep.12 Dec. 12

EURUSD 1.33 1.27 1.25 1.25 1.25

EURJPY 106.83 99.06 97.50 97.50 100.00USDJPY 80.09 78.00 78.00 78.00 80.00

EURCHF 1.21 1.20 1.20 1.20 1.20 Source: Erste Group Research, Bloomberg Interest Rate Forecasts

current Mar. 12 Jun.12 Sep.12 Dec. 12

3M Euribor 1.02 1.00 0.70 0.70 0.70

3M Libor US 0.49 0.50 0.40 0.40 0.40

3M Libor JP 0.20 0.20 0.20 0.20 0.20

3M Libor CH 0.09 0.00 0.00 0.00 0.00 Source: Erste Group Research, Bloomberg



Contacts Group Research Research, Slovakia Head of Group Research Head: Juraj Barta, CFA (Fixed income) +421 2 4862 4166 Friedrich Mostböck, CEFA +43 (0)5 0100 - 11902 Sona Muzikarova (Fixed income) +421 2 4862 4762 Macro/Fixed Income Research Maria Valachyova (Fixed income) +421 2 4862 4185 Head: Gudrun Egger, CEFA (Euroland) +43 (0)5 0100 - 11909 Research, Ukraine Adrian Beck (AT, SW) +43 (0)5 0100 - 11957 Head: Maryan Zablotskyy (Fixed income) +38 044 593 - 9188 Mildred Hager (US, JP, Euroland) +43 (0)5 0100 - 17331 Ivan Ulitko (Equity) +38 044 593 - 0003 Alihan Karadagoglu (Corporates) +43 (0)5 0100 - 19633 Igor Zholonkivskyi (Equity) +38 044 593 - 1784 Peter Kaufmann (Corporates) +43 (0)5 0100 - 11183

Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 - 19632 Treasury - Erste Bank Vienna Elena Statelov, CIIA (Corporates) +43 (0)5 0100 - 19641 Saving Banks & Sales Retail Macro/Fixed Income Research CE E Head: Thomas Schaufler +43 (0)5 0100 - 84225 Co-Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 - 17357 Equity Retail Sales Co-Head CEE: Birgit Niessner (Macro/FI) +43 (0)5 0100 - 18781 Head: Kurt Gerhold +43 (0)5 0100 - 84232 CEE Equity Research Fixed Income & Certificate Sales Co-Head: Günther Artner, CFA +43 (0)5 0100 - 11523 Head: Uwe Kolar +43 (0)5 0100 - 83214 Co-Head: Henning Eßkuchen +43 (0)5 0100 - 19634 Treasury Domestic Sales Günter Hohberger (Banks) +43 (0)5 0100 - 17354 Head: Markus Kaller +43 (0)5 0100 - 84239 Franz Hörl, CFA (Steel, Construction) +43 (0)5 0100 - 18506 Corporate Sales AT Daniel Lion, CIIA (IT) +43 (0)5 0100 - 17420 Head: Christian Skopek +43 (0)5 0100 - 84146

Christoph Schultes, CIIA (Insurance, Utilit y) +43 (0)5 0100 - 16314 Fixed Income & Credit Institutional Sales Thomas Unger; CFA (Oil&Gas) +43 (0)5 0100 - 17344 Institutional Sales International Vera Sutedja, CFA (Telecom) +43 (0)5 0100 - 11905 Head: Christoph Kampitsch +43 (0)5 0100 - 84979 Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 - 17343 Institutional Sales Austria Martina Valenta, MBA (Real Estate) +43 (0)5 0100 - 11913 Head: Thomas Almen +43 (0)50100 - 84323 Gerald W alek, CFA (Machinery) +43 (0)5 0100 - 16360 Martina Fux +43 (0)50100 - 84113 International Equities Michael Konczer +43 (0)50100 - 84121 Hans Engel (Market st rategist) +43 (0)5 0100 - 19835 Marc Pichler +43 (0)50100 - 84118 Stephan Lingnau (Europe) +43 (0)5 0100 - 16574 Institutional Solutions Ronald Stöferle (Asia) +43 (0)5 0100 - 11723 Head: Zachary Carvell +43 (0)50100 - 83308 Editor Research CEE Brigitte Mayr +43 (0)50100 – 87481 Brett Aarons +420 956 711 014 Mikhail Roshal +43 (0)50100 – 87487 Research, Croatia/Serbia Institutional & High End Sales Head: Mladen Dodig (Equity) +381 11 22 09 178 Head: Patrick Lehnert +43 (0)5 0100 - 84259 Head: Alen Kovac (Fixed income) +385 62 37 1383 Antony Brown +44 20 7623 - 4159 Anto Augustinovic (Equity) +385 62 37 2833 Abdalla Bachu +44 20 7623 - 4159 Ivana Rogic (Fixed income) +385 62 37 2419 Ulrich Inhofner +43 (0)50100 - 84324 Davor Spoljar, CFA (Equit y) +385 62 37 2825 Margit Hraschek +43 (0)50100 - 84117 Research, Czech Republic Institutional Sales Germany Head: David Navratil (Fixed income) +420 224 995 439 Head: Jürgen Niemeier +49 (0)30 8105800 - 5503 Petr Bittner (Fixed income) +420 224 995 172 Marc Friebertshäuser +49 (0)711 810400 - 5540 Petr Bartek (Equit y) +420 224 995 227 Sven Kienzle +49 (0)711 810400 - 5541 Vaclav Kminek (Media) +420 224 995 289 Michael Schmotz +43 (0)5 0100 - 85542 Jana Krajcova (Fixed income) +420 224 995 232 Sabine Vogler +49 (0)711 810400 - 5543 Martin Krajhanzl (Equity) +420 224 995 434 Carsten Demmler +49 (0)30 8105800-5580 Martin Lobotka (Fixed income) +420 224 995 192 Jörg Moritzen +49 (0)30 8105800-5581 Lubos Mokras (Fixed income) +420 224 995 456 Rene Klasen +49 (0)30 8105800-5521 Research, Hungary Klaus Vosseler +49 (0)711 810400 - 5560 Head: József Miró (Equity) +361 235-5131 Milosz Chrustek +43 (0)50100 - 85522 Bernadett Papp (Equity) +361 235-5135 Andreas Goll +49 (0)711 810400 - 5561 Gergely Gabler (Equity) +361 253-5133 Mathias Gindele +49 (0)711 810400 - 5562 Zoltan Arokszallasi (Fixed income) +361 373-2830 Institutional Sales CEE Research, Poland Head: Jaromir Malak +43 (0)50100 - 84254 Tomasz Kasowicz (Equity) +48 22 330 6251 Sales CEE Piotr Lopaciuk (Equity) +48 22 330 6252 Pawel Kielek +48 22 538 62 23 Marek Czachor (Equity) +48 22 330 6254 Piotr Zagan +43 (0)50100 - 84256 Research, Romania Ciprian Mitu +43 (0)50100 - 84253 Head: Lucian Claudiu Anghel +40 37226 1021 Institutional Sales Slovakia Head Equity: Mihai Caruntu (Equity) +40 21 311 2754 Head: Peter Kniz +421 2 4862-5624 Dorina Cobiscan (Fixed Income) +40 37226 1028 Sarlota Sipulova +421 2 4862-5629 Dumitru Dulgheru (Fixed income) +40 37226 1029 Institutional Sales Czech Republic Eugen Sinca (Fixed income) +40 37226 1026 Head: Ondrej Cech +420 2 2499 - 5577 Raluca Ungureanu (Equity) +40 21311 2754 Pavel Zdichynec +420 2 2499 - 5590 Research Turkey Milan Bartos +420 2 2499 - 5562 Head: Erkin Sahinoz (Fixed Income) +90 212 371 2540 Radek Chupik +420 2 2499 - 5565 Sevda Sarp (E quity) +90 212 371 2537 Institutional Sales Croatia Evrim Dairecioglu (Equity) +90 212 371 2535 Head: Darko Horvatin +385 (0)6237 - 1788 Ozlem Derici (Fixed Income) +90 212 371 2536 Natalija Zujic +385 (0)6237 - 1638 Mehmet Emin Zumrut (Equity) +90 212 371 2539 Institutional Sales Hungary Goker Mustafa Gorkem (Equity) +90 212 371 2534 Norbert Siklosi +36 1 235 – 5842 Sezai Saklaroglu (Equity) +90 212 371 2533 Institutional Sales Romania Head: Valentin Popovic i +40 21 310-4449 - 59 Ruxandra Carlan +40 21 310-4449 - 612



Published by Erste Group Bank AG, Neutorgasse 17, 1 010 Vienna, Austria. Phone +43 (0)5 0100 - ext. Erste Group Homepage: www.erstegroup.com On Bloomberg please type: EBS AV and then F8 GO This research report was prepared by Erste Group Bank AG (”Erste Group”) or its affiliate named herein. The individual(s) involved in the preparation of the report were at the relevant time employed in Erste Group or any of its affiliates. The report was prepared for Erste Group clients. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates herein reflect our judgment on the date of this report and are subject to change without notice. The report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may from time to time provide investment banking or consulting services to or serve as a director of a company being reported on herein. Further information on the securities referred to herein may be obtained from Erste Group upon request. Past performance is not necessarily indicative for future results and transactions in securities, options or futures can be considered risky. Not all transactions are suitable for every investor. Investors should consult their advisor, to make sure that the planned investment fits into their needs and preferences and that the involved risks are fully understood. This document may not be reproduced, distributed or published without the prior consent of Erste Group. Erste Group Bank AG confirms that it has approved any investment advertisements contained in this material. Erste Group Bank AG is regulated by the Financial Market Authority (FMA) Otto-Wagner-Platz 5, 1090 Vienna, for the conduct of investment business in the UK by the Financial Services Authority (FSA), for the conduct of investment activities in Croatia by the Croatian Financial Services Supervisory Agency (CFSSA), and for the conduct of investment activities in Serbia by the Securities Commission of the Republic of Serbia (SCRS).

Please refer to www.erstegroup.com for the current list of specific disclosures and t he breakdown of Erste Group’s investment recommenda tions.

ERSTE Forex News

Documents

Transcript of ERSTE Forex News