Forex Flash: Are markets pricing in global disinflation? – UBS

FXstreet.com (Barcelona) - The recent gyrations in commodity markets are likely an over-reaction to idiosyncratic factors in the gold market. However, “there is a risk that markets are now pricing in global disinflation coupled with policy futility. Although the Canadian dollar is not a commodity bloc currency in the strictest sense as its energy exports only represent a minority of total exports, falling commodity prices is still something Canada can do without in an environment where demand for discretionary exports is already waning.” notes Research Analyst Gareth Berry at UBS.

The Bank of Canada has highlighted in its statements that due to 'persistent' supply bottlenecks, Canadian heavy crude already trades at a discount to global prices. A secular change in the commodity sector would sharply reduce export earnings and more importantly, investment expectations domestically.

Meanwhile, correction in the housing market is ongoing and the growth in consumer credit outstanding (seasonally adjusted) in January was the weakest since November 2008. Both house prices and consumer credit growth are bordering on outright contraction – another shift, which could render the BoC to change its view on the economic evolution from 'constructive' to 'troubling'.

Apr 17, 2013

Forex Flash: Riksbank rate cut unlikely despite clear easing bias – TD Securities

The Riksbank decided to leave the repo rate on hold at 1.00% today, “as unanimously expected, but struck a decidedly dovish tone via its repo rate forecasts, pushing the first rate hike back by nearly a year from what had been estimated previously”, said analyst Marcin Budkiewicz, pointing to the new CPI forecasts as the driving factor, which see inflation taking even longer to return to the Riksbank’s 2% target. “While the Riksbank did still maintain a clear easing bias, we think that an actual rate cut is unlikely unless we see much weaker foreign demand than what is currently anticipated”, continued the TD Securities analysts, noting that the central bank is still worried about financial imbalances. Also, brighter prospects for the Swedish economy, together with low interest rates, have contributed to an increase in housing prices, and this is expected to continue and to contribute to a faster increase in household debt in the coming period than was forecast earlier.

Forex Flash: EUR/JPY expected to stabilize at 128.80/85 area – Commerzbank

Having bounced off the 125.00 support, the EUR/JPY looks well placed to tackle the 128.80/85 minor Fibonacci retracement, “which is regarded as the last defense for the 131.12 recent high”, and ideally we would like to see stabilization here, however we remain unable to rule out a deeper retracement to the daily cloud at 123.21/120.46”, wrote analyst Karen Jones, pointing to the 20 and 55 day ma at 124.25/67 directly below 125.00. “Key support remains the 118.74 February low. Recovery from here would target initially 131.12 – last week’s high en route to our target 136.71 (upside measurement from a wedge)”, she added.