Daily Currency Briefing

June 30, 2011

Relief

G10 Currencies
EUR: The first hurdle has been taken: the Greek parliament yesterday passed the austerity plan with 155-138 votes. Thus the way is paved for the payment of the next IMF/EU tranche (probably on Sunday) as well as a new aid package. The Greek parliament will have to get active again today: individual decisions are still due on how to actually make the savings, for instance via privatisations. The result of these votes is irrelevant for FX markets though as the big question which had remained unanswered over the past few days has now been solved. Now that the austerity plan was passed yesterday profits were taken in EUR-USD. Following highs of just below 1.4450 EUR-USD temporarily eased back to 1.4330 in the afternoon before recovering nicely thanks to positive market sentiment. Due to the risk-on mode in the market and stop loss hunting at 1.4450, the rally continued overnight, pushing EUR-USD to highs at 1.4519 early this morning. The marathon negotiations on a political level continue, though. The Eurogroup meetings will rd th take place on 3 and 11 July, when the details for a new aid package will be arranged. The first key points of the new aid package will probably be known by Sunday, but a final decision th will likely not be taken until 11 July. The debates regarding a possible involvement of private investors are likely to lead to this delay as an agreement seems to be difficult to reach. The highest uncertainty regarding a possible Greek default has now been overcome, but now the Greek government has to implement these reforms. In September the Troika will next verify how much progress has been made a further future uncertainty factor. FX markets are not looking that far ahead though. Considering current positive market sentiment (which means commodity currencies and EUR higher, USD lower), EUR-USD is likely to remain rather supported today, especially in case of a disappointing US Chicago PMI or high initial claims. Tomorrow will see the release of first tier US economic data with the June ISM Index. It is likely that market focus will then shift back again on fundamental data. GBP: All eyes were on Greece yesterday so many market participants can be forgiven for missing some important data relating to the UK money supply. M4 money supply increased by only 0.1% in May over the previous month and year on year M4 is down -0.2%. Mortgage approvals in May registered only 45.9k against expectations of 46.3k. These data make it clear that credit growth and consumer demand are at low levels and do not look like increasing any time soon. In particular the M4 data could give further ammunition to the doves on the MPC who are in favour of further asset purchases (QE). We do not think this is likely to happen, at least in the near term, and maintain our negative bias for GBP. Later this morning we will receive the GfK consumer confidence survey and Nationwide House prices. Should they post significant declines we may test the upside in EUR-GBP and the downside in cable. Levels to watch in EUR-GBP are 0.9020 and 1.5940 in GBP-USD CAD: Consumer prices rose quite considerably in Canada in May. CPI rose by 0.7% mom and by 3.7% yoy. This rise was mainly due to higher gasoline prices. But also the Bank of Canadas core CPI which excludes the eight most volatile components such as fruit and vegetables, mortgage rates and fuel recorded +0.5% and +1.8% respectively. The CAD was able to appreciate notably as a result of the publications; the high inflation rates mean that rate rise expectations have been moved forward. The May CPI readings should be treated with care though, as Statistics Canada has changed the weighting of the different components to reflect the most recent behavioural patterns amongst consumers. The new weighting replaces the 2005 weighting. As a result the data should not be over-interpreted. Even if the BoCs core rate
Peter Kinsella +44 20 7475 3959 peter.kinsella@commerzbank.com Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com

Antje Praefcke +49 69 136 43834 antje.praefcke@commerzbank.com

For important disclosure information please refer to the back pages

Daily Currency Briefing

has risen at 1.8% it still remains below the central banks target (2.0%). Nevertheless, the likelihood of a rate rise in the summer has risen, even if July is still too early for this step. In addition to the recovery of the oil price, the CAD therefore has another argument in its support. If market sentiment remains positive and if the oil price rises further, it will be time for USDCAD to re-test the lower end at 0.9640. A disappointing April GDP reading might temporarily limit the CAD gains today, though.

Emerging Market Currencies

PLN: The situation surrounding the Polish twin deficit has taken a turn for the better. On the fiscal side of things Minister of Finance Jan Rostowski had good news recently. 70% of this years credit requirements have been covered according to Rostowski. Surprisingly the draft budget is also on the right path. Yesterday some good news was received regarding the current account deficit. As previously announced the deficit of the previous years was revised upwards, in 2009 it reached 3.9% of GDP rather than 2.1% and in 2010 it stood at 4.5% rather than 3.4% of GDP. The deficit in Q1 2011 on the other hand was lower than expected. All in all the published data was received favourably so that the zloty was supported in its recovery on the back of generally more positive market sentiment. TRY: The minutes of the last rate meeting during which the Turkish central bank (CBRT) had once again left key rates unchanged are going to be published today. The statement which was published right after the meeting had already disappointed as it did not contain any indication of an imminent rate hike. We assume that the CBRT will once again point out in its minutes that its strategy of low key rates and high minimum reserve requirements was already showing the first results in controlling credit growth. Todays publication of GDP growth is likely to illustrate that the economy still expanded notably in Q1 driven primarily by domestic consumption. However the lira will probably benefit only to a limited extent from the growth figures while monetary policy is putting pressure on the currency. RUB: Deputy governor of the central bank Alexei Ulyukayev as well as Deputy Economy Minister Andrei Klepach stick to their inflation outlook of approx. 7% for this year, i.e. expect much weaker price rises over the coming months (May: 9.6% yoy). Moreover economic growth in Q1 2011 has eased slightly, compared with the previous quarter, so that various factors are pointing towards unchanged key rates at Bank Rossiis monetary policy meeting today. As this is likely to be priced in already, we do not expect any major momentum for the ruble. BRL: According to the latest Inflation Report the Banco Central do Brasil is of the view that inflation has peaked and that the rate is going to fall from the second half onwards. That does not mean though that the central bank will lean back now. On the contrary: after all inflation had reached 6.55% in May. According to the Inflation Report the inflation target of 4.5% will only be reached in Q2 2012. The central bank raised its inflation outlook for 2011 and 2012 slightly to 5.8% and 4.8% respectively and sees low unemployment and credit growth as a risk for inflation. As a result it repeated that monetary policy would have to be adjusted over a prolonged period of time to ensure that the inflation rate would converge to the target during the course of next year. As a result further rate hikes are on the agenda which is likely to benefit the real. If additionally concerns about Greece diminish over the coming weeks USD-BRL is likely to continue the downward trend towards 1.55.
You-Na Park +49 69 136 42155 you-na.park@commerzbank.com Thu Lan Nguyen +49 69 136 82878 thulan.nguyen@commerzbank.com

30 June 2011

Daily Currency Briefing

Todays Events
Time Region Indicator RUB 07:00 07:00 07:30 08:00 08:00 09:00 09:00 10:00 10:30 13:00 13:30 13:30 14:45 GBP GER HUF TRY HUF EUR NOK EUR ZAR ZAR USA CAD USA FX and gold reserves Interest rate decision Nationwide House Price Index Retail sales Current account balance Trade balance GDP Producer price index M3 money supply 3 month av. Retail sales CPI Producer price index Trade balance Initial jobless claims GDP Chicago PMI Period Jun Jun Jun May May Q1 May Q1 May May May Jun May May May Jun Apr Jun USD bn % mom mom yoy mn USD bn yoy yoy yoy mom yoy mom yoy ZAR bn K mom Actual Our Forecast Survey 8,25 +0,0 +0,5 +0,2 -9,40 +9,7 +1,5 +2,1 +0,5 +2,8 +0,5 +7,1 -1,0 420 -0,1 54,0 Last 520,3 8,25 +0,3 +0,0 +3,7 360 -9,05 +9,2 +4,9 +2,1 -0,1 +2,7 +0,9 +6,6 -2,5 429 +0,3 56,6 Direction Cross

+0,0 -2,8 +2,2 787

+2,1 +2,7

425 53,0

Important Market Data

FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low FX Current Change (%) Last trading day's high Last trading day's low Forwards / Options EUR-USD 3M Money Market Rate (%) Bonds / Bond Futures Yield (%), Price Equity Indices Closing Change Change (%) Oil / Prec.Metals $ per unit EUR-USD 1,4512 +1,09 1,4448 1,4335 EUR-SEK 9,1577 -1,03 9,2696 9,1608 EUR-AUD 1,3500 -1,01 1,3657 1,3510 EUR-RUB 40,4784 +0,32 40,4350 40,2361 Fwd 3M -37,4200 EURIBOR 1,54 10Y Bund 2,98 EuroStoxx50 2802,55 +52,06 +1,89 Oil, Brent 112,40 EUR-JPY 116,64 +0,36 117,18 115,91 EUR-NOK 7,7883 -0,08 7,8098 7,7664 EUR-NZD 1,7478 -1,19 1,7727 1,7513 EUR-RON 4,2218 +0,27 4,2260 4,2057 Fwd 6M -78,3600 $ LIBOR 0,25 10Y T-Note 3,11 DAX 7294,14 +123,71 +1,73 Oil, Nymex 95,39 EUR-GBP 0,9009 +0,44 0,9015 0,8967 EUR-DKK 7,4594 +0,01 7,4606 7,4580 EUR-BRL 2,2752 +0,13 2,2778 2,2489 EUR-CNY 9,3811 +1,00 9,3397 9,2737 Fwd 12M -162,4500 LIBOR 0,20 10Y JGB 1,15 Dow Jones 12261,42 +72,73 +0,60 Gold 1512,85 EUR-CHF 1,2057 +1,10 1,2059 1,1925 EUR-HUF 265,27 -1,28 268,84 264,86 EUR-MXN 17,0554 +0,34 17,0329 16,9192 EUR-SGD 1,7828 +0,23 1,7823 1,7735 Vol 1M 12,23 LIBOR 0,83 EUR-CAD 1,4034 -0,64 1,4130 1,3954 EUR-CZK 24,243 -0,58 24,420 24,298 EUR-TRY 2,3502 -0,35 2,3663 2,3407 EUR-KRW 1550,2502 -0,24 1555,7502 1544,2002 Vol 3M 12,65 $ index 74,28 -1,05 75,14 74,61 EUR-PLN 3,9844 -0,63 4,0139 3,9830 EUR-ZAR 9,8319 +0,10 9,8963 9,8133 EUR-THB 44,4930 +0,10 44,5680 44,1411 Vol 12M 13,28

CHF LIBOR CAD LIBOR 0,18 1,17 10Y T-Note 10Y Gilt Bund Future Future 3,33 125,90 122,86 Nikkei 225 9826,12 +28,86 +0,29 Palladium 760,75 Zinc 2260,5 FTSE 100 5855,95 +89,07 +1,54 Platinum 1723,80 Tin 25310,0 1307,41 +10,74 +0,83 Silver 35,11

S&P 500

Industrial Metals Aluminium Lead Copper Nickel $ per ton 2491,5 2585,5 9176,0 22885,0 Sources: Bloomberg L.P., European Banking Federation, British Bankers Association, Dow Jones, Xetra, S&P, TSE, LSE, LME.

30 June 2011

Daily Currency Briefing

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