If you are just back from holiday, here are a few bullets on what happened while you were busy…
Passionate financial Markets follower and psychologist - is what best describes Aurelija Augulyte. She is a dedicated macro strategist, engaged in tying the economic reality with the market trends, tracking sentiment, drivers and ultimately forming Nordea's short term views. Aurelija’s focus is FX markets, but her strength is ability to find signals across the asset classes, which a broad product knowledge helps to utilize. A native of Lithuania, Aurelija speaks Russian, Polish, English, Danish, some German, and understands the different cultures, which gives her an edge in the cross-region analysis.
Aurelija is a Chartered Financial Analyst (CFA) and a certified dealer (ACI). She holds a bachelor degree in economics from Vilnius University and a master's degree in Applied Economics and Finance from Copenhagen Business School. Aurelija has been with Nordea since 2007.
The USD hovering at a major 1.5y support - break here should bring major new lows; European bad IP data, out this week, already "in the price". Good luck fighting Draghi.
Payrolls not to prevent USD from weakening further, as wages stuck at 2% y/y. Scandies gone too much, too far - inflation on agenda this week.
In the event of Scottish independence there will only be limited impact on the UK economy, but risks of a debt/GDP ratio above 100% and current account deficit above 7% of GDP. Probably interest rates will be higher in Scotland than in the UK, but credit premia in the UK would widen by 20-50bps. The worst case could translate into up to 10% weaker GBP.
What if the euro zone inflation comes lower this week? Will EURUSD take another hit? Let's think...
The recent rate cut from the ECB pushed the EUR/USD down. Furthermore, has a dovish Yellen paused the Fed funds repricing which altogether leaves the EUR/USD in a range with upward bias for the summer! Alongside that we have updated stories on JPY, FX vol, EM FX, NOK and SEK in this edition of Global FX Strategy. Enjoy!
This is the last financial forecast update before summer. The next scheduled update is 18 August.
The Swiss National Bank keeps the status quo, blessing a weaker CHF. We do see higher EURCHF at the end of 2014 and on...but the USDCHF will likely come down in the near term on broad USD weakness post FOMC, putting pressure on EURCHF too.
The H1 of 2014 has delivered surprisingly low volatility, lower than expected global rates and a comeback of the EM carry. Will H2 be what H1 was not? Which trades, recommended in January this year, are still attractive for the H2?
ECB won't kill EUR, as capital flow to resume. The USD staged a sharp reversal down last week, and wage growth stuck at 2% suggests - no Fed funds repricing imminent yet, but...
Taking another looks at the ECB’s message, we find potential in the new refinancing operations, but they will pale in comparisons with the 3-year LTROs, at least in size. The ABS programme in the pipeline will help as well, but will have an even longer lag. We see a faster rebound in inflation compared to the ECB, while we continue to look for higher core yields, tighter spreads and only a temporary rebound in the EUR/USD.
ECB delivered a whole package of measures just as we expected. As a result, longer core yields initially rose, the curve steepened and the euro depreciated. We see more upside potential for long yields, but expect EUR/USD to rebound soon. As it will take a long time to see the effect of the measures announced today, the ECB will be very reluctant to jump into any QE programme any time soon, but the ABS programme will be added to the stimulus package later.
There can be little doubt the ECB will provide a whole package of easing measures in its meeting on Thursday, including rate cuts, liquidity measures and a conditional LTRO. Even a whole package of measures is unlikely to be enough to sustain a core bond rally, and longer yields are set to see a rebound higher, while the curve will steepen.
Inflation is this week's theme: May HICP and ECB's revisions are key for EUR. The Market is sceptical about higher Fed funds rate projections, but a pickup in wage growth would cause repricing...
The EURUSD tapped the 200D MA, but still needs to confirm on higher volume. The USD uptrend has begun? Not if USDCHF stalls here.
We shed a light on the elections to the European Parliament that start today in the UK and the Netherlands. Results will be known late Sunday evening. EU- or euro-sceptic parties are set to perform strongly. Markets are well aware, but still it could create volatility.