Focus FX Currency Forecast
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25 Mai 2010 |
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RAIFFEISEN BANK S.A. |
Adresa
Piaţa Charles de Gaulle, Nr. 15
011857 Bucureşti, Sector 1
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+40-21-306.10.00
+40-21-306.15.54
Fax
+40-21-230.07.00
Website
www.raiffeisen.ro
EUR/CZK
EUR/CZK: 25.52 - 25.4 (June)
Germany may be world champion in exporting – since Sunday the Czech Republic is (again) ice hockey world champion! Nevertheless, the Czech koruna (CZK) is traded 10 hellers weaker compared with one week ago at 25.6 against the euro. While the development on the global market, and in particular the euro turbulences, have dominated the CZK market, this week the upcoming parliamentary election next weekend could move into the focus. The last polls show the Social Democrats holding a clear lead. However, given the uncertain results of a number of smaller parties (entering parliament hinges on gaining a minimum of 5% of votes) the question if there will be a majority left or right of the centre cannot be answered and even another stalemate like after the 2006 elections cannot be ruled out. For the Czech financial market a coalition right of centre might be the preferred outcome, a socialist minority government tolerated by the communist the most problematic. Given the need for fiscal consolidation, a stalemate or lengthy negotiations similar to 2006 would be particularly unfavourable. Although we believe in the continuation of the fundamental long-term appreciation trend of the CZK in the course of 2010 and beyond, the CZK remains vulnerable to the global market sentiment and the degree of risk aversion. We still see the parliamentary election as the main risk to our forecast scenario.
Trading Ideas
Note: This list contains only the strongest trading ideas for the markets that we cover. Therefore not every market forecast that implies a buy recommendation is also listed as a trading idea! Trading ideas may also differ from our quarterly forecasts. as the time horizon can be different. The time horizon of the trade is at least two weeks, but not more than 3 months.
EUR/USD
After hitting a new 4-year low of EUR/USD 1.215 on Wednesday, the euro then jumped back to over 1.26 extremely quickly. Factors behind this included rumours about currency market intervention by the ECB (which, however, are most likely unfounded, in contrast to the SNB, which did move to intervene against the overly strong franc), and in particularthe related short covering. This latter aspect was probably quite sufficient to have this effect, as short positions on EUR had reached record-setting levels shortly beforehand. The euro is now running out of steam again and dropped back below 1.24 on Monday. Which way will it go now? The one thing that appears most certain is that volatility will remain extremely high until EUR/USD gradually reaches a new equilibrium level on the market. We do not expect the data, including new orders figures, consumer confidence in the USA and business sentiment surveys in Europe, to really dictate developments on the market this week. Over the medium term (i.e. the coming weeks/months), we still see a strong possibility that temporary rebounds in EUR/USD may bring the rate briefly back up to around 1.30. From the current vantage point, this would represent a good opportunity to switch out of EUR into USD. More short-term weakening would then hopefully be part of some kind of bottoming out for the euro and would prompt us to consider a short-term buy on EUR (at the current level we have no short-range position and our recommendation is thus neutral). Over a one-year horizon, we do not believe that EUR/USD has hit its ultimate lows yet, because in 2011 the interest rate differential should work against the euro and in favour of the US dollar, as the ECB will have to pursue a loose monetary policy for a longer period of time due to crisis and also because worries about Greek debt restructuring will not disappear completely.
