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Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/It ain't looking pretty

Chief Investment Officers must be considering more defensive strategies right now. It has not been a bad year for asset market performance, with the MSCI World equity index up 13% and some common bond indices up 2-3%. But now faced with: a) an escalating US-China trade war taking on some unedifying nationalist tones, b) oil rising on supply concerns as Iran is backed into a corner in the Middle East and c) a late cycle US economy, investors will be focused more on preserving capital. This dark mood is playing out in the FX space, where any rallies in commodity currencies quickly fizzle and USD...

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/MXN: It's fun to stay in the USMCA

Some reports have emerged over the last 24hrs that the Trump administration is floating new proposals to get its NAFTA-replacement USMCA deal ratified in Congress. Little progress has been seen since all three leaders signed it off at the G20 in Argentina last November. Positive news on the deal would likely help CAD and MXN, both of whom have been on the receiving end of steel and aluminium tariffs. Today also sees a Banxico meeting. Despite a desperately disappointing 1Q19 GDP figure and what is seen as merely a temporary spike in inflation, our Gustavo Rangel believes Banxico will stay neut...

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/EUR: Warning shots from Italy

If the weak recovery in the Eurozone, renewed global trade tensions and flattening yield curves were not already bad enough for the Euro, it now has to contend with renewed populism out of Italy. Deputy PM Salvini said yesterday that he's ready to break EU fiscal rules to get unemployment lower. This is a timely reminder of MEP elections May 23-26th, where strong support for Salvini's Northern League (polling currently at 32%) warns that he could try and break free from his unlikely coalition partner, 5SM, potentially prompting new elections in the autumn. Given this back-ground it's unlikely ...

ING
Chris Turner ...
  • Petr Krpata, CFA

FX Talking: Trading blows

The re-opening of the US-China trade war has come as a surprise. We suspect a deal is concluded in 3Q19, but until then investors look set to play-it-safe. This should see JPY out-performance across the board and the continuation of the dovish re-pricing in open economies. It looks too early to re-buy into EMFX

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/USD: Taking stock

The sell-off in risk assets has taken a pause after slightly more optimistic remarks from President Trump on the prospects of a US-China trade deal over the next 3-4 weeks. The reality is, however, that both sides have announced another round of tariffs and until a deal is done, investors will be reluctant to buy the dip. We should also be hearing by the end of this week whether Washington wants to push ahead with tariffs on auto imports. There is far less cross party support in Congress for these, but President Trump could always be tempted to ‘bring out the base' of his supporters by opting ...

ING
Jakub Seidler ...
  • Petr Krpata, CFA

CEE strategy: US trip notes/Downside risk to CZK remains under-appreciated

We met a variety of real money investors and hedge funds during our US roadshow last week. Our main finding is that the downside risk to CZK remains under-appreciated while market participants remain strategically too negative on HUF IRS and HGBs. For Poland, there is a consensus that the key near-term driver for local assets is the EU elections in May. For RON, investors are well-aware of its poor fundamentals but carry is prohibitive to sell the currency.

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/Peak protectionism

Prospects of Washington extending tariffs to the entire range of Chinese imports as well as potentially opting for new tariffs in the auto sector – Trump is scheduled to make a decision by May 18th – creates a difficult environment for investors. Asian FX and activity FX will remain on the back-foot and that would typically favour the dollar – especially given the 2.4% cash rates available here. However, we're also waiting to see if and when China retaliates to the latest round of US tariffs. The threat of selling US Treasuries seems too blunt an instrument for China to use, but the dollar cou...

ING
Chris Turner ...
  • Iris Pang
  • James Knightley
  • James Smith
  • Mark Cliffe
  • Padhraic Garvey, CFA
  • Peter Vanden Houte
  • Raoul Leering
  • Rob Carnell

May economic update: Just when things were looking up

Just as pockets of optimism had begun to emerge in the global economy, trade tensions are back, though we still think a US-China trade deal remains likely. But in the meantime, trade uncertainty, as well as risks relating to forthcoming European elections and Brexit, suggest that financial market caution is likely to stay with us for a little while longer

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/Uber and out?

At 12:01am ET today US tariffs were raised to 25% on US$200bn worth of Chinese imports. So far financial markets have taken the news in their stride. It looks like investors expect some more constructive tweets from Trump at the end of the second day of negotiations in Washington and these tariffs to be quickly withdrawn. That is not guaranteed, however, with some suggestion that Chinese authorities feel that more compromises are to be had from Trump. Until some clarity emerges here, we'd say risk assets, including US equities, look vulnerable – especially after the largely uninterrupted rally...

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/JPY: Safe port in a short term storm

As yet, this week's renewed trade tension between the US and China is unresolved. Chief Chinese negotiator Liu He is in Washington today and tomorrow. Unless talks get back on track, US tariffs on US$200bn worth of Chinese goods will be raised tomorrow – prompting retaliation from China. These are probably the final few acts before a deal is struck, yet investors will be reluctant to hold risk assets until some clarity emerges. The best barometer for current tension is USD/CNH, where the basis over onshore has now widened to 250 pips. This may push out to 400 pips depending on what occurs in ...

ING
Chris Turner ...
  • James Smith

Norges Bank Preview: The hawkish outlier

Norway has been a clear outlier in the global shift towards more dovish central bank policy, and in fact, the combination of a weaker-than-expected krone and higher oil prices could see the central bank hint more strongly at a June rate hike this week

ING
Carlo Cocuzzo ...
  • Chris Turner

USD/CNY slips its anchor, global FX follows

While most suspect, president Trump's China tweets come from his ‘Art of the Deal' handbook, FX markets are worried that there could be more to it. USD/CNY has slipped its anchor near 6.70 and is dragging activity currencies with it. We take a quick look at which currencies are most at risk if this week's tension aren't merely a small bump in the road to a deal

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/EMFX: Floating in a sea of red

Away from the jubilation of Liverpool FC supporters is a less friendly sea of red that is global equity markets. Here, confidence that the US and China would reach a trade deal has taken a knock (although JPM's Jamie Dimon thinks the odds of a deal are 80%) and USD/CNY has also slipped anchor. Given the CNY's increasing sphere of FX influence (not just Asian FX but increasingly commodity FX as well), further Renminbi weakness stands to drag many currencies with it. We note that the offshore CNH performed poorly late yesterday and unless some positive news emerges today, USD/CNH could trade out...

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/AUD: RBA spoils the dovish party

Analysts had marginally favoured a rate cut at today's RBA meeting, but the RBA failed to deliver and gave no immediate signs it would be easing policy any time soon. While acknowledging low inflation and spare capacity, the RBA gave weight to the support to the economy from infrastructure investment, even while households grappled with the housing market downturn. That said, the focus was left squarely on the labour market, where the best hope of inflation returning to target seems to come from higher wages. Today's position from the RBA marks a correction to the recent trend in G10 FX, where...

ING
Peter Virovacz ...
  • Petr Krpata, CFA

Monitoring Hungary/Duality prevails – HUF to weaken further

The duality on which the NBH bases its monetary policy prevails. High frequency data suggests strong 1Q19 GDP growth in Hungary while the worsening external outlook and more dovishness from other central banks supports the NBH's ‘wait-and-see' approach. We revise our CPI outlook upwards mainly due to higher oil prices. HUF to continue weakening as NBH credibility is questioned.

ING
Petr Krpata, CFA

EM FX & Rates Trader/ING's portfolio track record update

We present an update of the EM FX & Rates Trader portfolio, showing all current live and previous closed trades. With regards to the live trades, we have a very high conviction in our long EUR/HUF position via 2-m forward and also receive 2y1y TIIE. 1x4 vs 3x6 CZK FRA steepener is in the money and we wait for expiry.

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/Sell in May and go away?

‘Sell in May and go away' is a market adage that equity markets generally perform better in the November to April months inclusive, suggesting that it's better to turn defensive in May. That has not always proved true – the S&P 500 has been up in seven of the last ten Mays. However in the FX space, May's seasonality is gaining some notice – the DXY gaining in May in eight of the last ten years. With the dollar strong at the moment and EMFX performing on the soft side (illiquidity because of Asian market holidays may have contributed here), today's NFP could well give this seasonality story a l...

ING
Chris Turner

EUR/USD: Protecting $ payables/Using FX options to hedge $ payable risk

For Euro based corporates, hedging USD payables has once again become a very expensive proposition. Despite the 340 pip dollar discount in the 12m forward being a help, the EUR/USD one year outright forward has still fallen to levels last seen in the summer of 2017. We certainly see the case for high hedge ratios against the risk of dollar strength this summer, but see value in FX option hedging strategies to provide flexibility should EUR/$ turn, as we believe, into 2020.

ING
Jakub Seidler ...
  • Petr Krpata, CFA

CNB Review/The end of the cycle, but cuts not (at all) at sight

The CNB 25bp hike today most likely marks the end to the CNB tightening cycle. While the CNB staff forecast still shows one more hike for 2019, what matters more is the judgment of the board. Gov Rusnok clearly signalled no more hikes as a base case. CZK upside is now fully exhausted in the absence of hikes and EUR/CZK to persistently move above 26.00 next year. We like 2s10s CZK IRS flattener as the CNB won't be able to cut rates aggressively due to the FX considerations.

ING
Chris Turner ...
  • Petr Krpata, CFA

Daily FX Strategy/CZK: CNB to deliver a dovish hike

Despite some persisting foreign uncertainties, recent CNB board member comments signalled there is higher support to back an interest rate hike today (see CNB Preview). This is due to high CPI (at 3%), weak CZK and tentatively declining Brexit uncertainty. While we look for a CNB hike today, we expect any positive spillover from the rate increase into CZK not to last as the May CNB hike may be a dovish one with limited guidance for any further tightening. This suggests that the EUR/CZK 25.50 support level should hold today. Medium term, we are bearish on CZK as the end of CNB tightening cycle ...

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