Focus FX weekly

30 Noiembrie 2011

RAIFFEISEN BANK S.A.

 

EUR/HRK

EUR/HRK: 7.496 - 7.50 (December)

According to the first estimate of the Croatian Bureau of Statistics (CBS), GDP grew 0.6% yoy in Q3 in real terms. So, in the wake of Q2, more economic growth was recorded in Q3 as well. However, the growth rate was disappointing and fell below the expectations of most analysts. The final quarter is expected to feature only a very moderate annual rate of growth or even a slight decline. This is supported by the negative impulses from the Eurozone, which is Croatia’s most important trading partner. For example, Italy alone accounts for about 25% of goods exports. The situation in the Eurozone will have an additional negative impact on the alreadyweak investments. Furthermore, towards the end of the year, unemployment will rise with the return of seasonal workers into unemployment, which will adversely affect consumer spending. Public spending has no room for noticeable growth in consumption or financing of investments. For the whole year we expect only a very slight increase in GDP (slightly above zero). In 2012, the domestic economy will face with even greater challenges as we expect the GDP to shrink by 1%.

EUR/HRK moved in a range of 7.48 to 7.50 last week, as trading volumes were mainly slim and trading was stable. Since the EUR-HRK interest rate differential has narrowed in the last two weeks, the FX rate did not show any significant reaction after the auction of EUR-linked T-bills. Namely, right after the auction mild appreciation pressures on HRK were recorded, but EUR/HRK then returned above 7.49 in no time. Next week, we expect low volumes and stable trading in a range of7.48 to 7.51.

We expect the same until the end of the year. Depreciation pressures on HRK will mainly be supported by corporate sector demand for EUR. So far, EUR/HRK has not reacted directly to uncertainties and risk aversion. However, an indirect effect has been seen in terms of weaker inflows of foreign investments, which has been supporting depreciation pressures on HRK throughout the entire year. The situationis not likely to change next year either.

 

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.

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