Review of FX Markets - 5th March 2010

By Kenneth Broux and Altaz Dagha

Better than feared US employment data for February accompanied by new liquidity measures in Japan to combat deflationary pressures has reestablished a bid for pro-risk strategies, with a return of JPY led carry trades being touted.

A bullish technical set-up for risk assets and commodities, characterized by a move through 5,600 for the FTSE100 and crude oil through $81pb, favours long AUD, CAD, SEK vs JPY strategies over the week ahead.

GBP and EUR on the other hand continue to suffer from a growing short investor base and look set to fall further behind the curve vs the high yield an commodity currencies where tightening monetary policies are pursued and where less dovish inflation skews shave become mainstream.

Intra- G10 currency variations of correlation with risk assets, interest rate differentials and the SNB meeting will garner close attention next week.

For GBP, a shock surge in the February services PMI has diminished the likelihood of a double dip in Q1, though the strength of economic recovery remains highly uncertain.

Three MPC members take to the speaker circuit next week, meaning that discussions over the probability of additional QE are set to dictate GBP flows.

Read more (PDF, 928 kB)

* All charts are sourced to Lloyds TSB Corporate Markets Economic Research, Bloomberg, IMF and Datastream

 


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