FX Strategy Weekly 19th March 2010

By Kenneth Broux and Altaz Dagha

Rumours of a hike in the US discount rate on Thursday proved unfounded but served as the starting shot of a rally in the dollar index, with monetary tightening in India on Friday triggering subsequent profit taking in commodity currencies.

Accompanied by the increased aversion for EUR and GBP, the stage looks set for the dollar index to test the upper end of the trading range over the week ahead.

Long high yield and commodity currency strategies have been crowded but understandably continue to attract decent sponsorship from the global investor community backed by falling volatility, a stellar run in equities and superior yield differentials in the G10.

The CAD in particular should continue to do well as speculation builds of an earlier rate hike by
the Bank of Canada. Dithering by officials at the EU Summit next week and failure to close ranks over Greece threaten to spark a wave of EUR selling, with the USD and CHF well positioned to make the most of EUR aversion and diversification flows.

Hawkish comments by the SNB have sown confusion whether the Bank has now dropped its premise, repeated only two weeks ago, that it stands ready to curb Swiss Franc strength.

A brief positive interlude for GBP came to a brutal halt as participants sell at better levels ahead of the Budget and February data releases of CPI and retail sales.

Read more (PDF, 332 kB)

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

 


What do you think?

We are interested to hear your thoughts.

We do not publish email address information, this is only to confirm and validate your comments.





Your comments

We are not able to publish all comments submitted. All comments pass through a human review process before being published online.