DB FX Daily: London February/March vs Now

[RTFX-Trading]

FX Daily: London
February/March vs Now - Part 2
Today's Key Data and Events
GBP BoE rates announcement, no move expected (11:00 GMT)
EUR ECB rates announcement, no move expected (11:45 GMT)
USD Initial jobless claims, 310k expected (12:30 GMT)
USD Factory orders for Jun, 1.0% mom expected (14:00 GMT)

Upcoming Event Risks
Aug 3 US non-farm payrolls
Aug 7 FOMC rate decision
Aug 8: RBA rate decision
Aug 15: Norges Bank rate decision

February/March versus now - Part 2
We looked yesterday at performance in G10 FX during this bout of risk aversion compared to that in the February/March episode. Today we extend into a few other markets to provide a slightly broader assessment of developments over the past week. (Note that in reading our first chart we have expressed interest rate futures in terms of implied yields, with changes in interest rates in basis points. Changes in equity markets are shown in percentages, with a 45 degree line also on the chart. The time period covered is the first five days of the February/March unwind against developments since 25 July.)

As the chart shows US interest rate markets have largely moved as they did earlier in the year, although the 2nd ED contract has rallied a little more (our snapshot taken at the close of trading in yesterday's New York session). Looking at equity markets the Nikkei and Chinese stocks have held up well compared to February/March, likely reflecting the US based nature of this current episode. JGB's have rallied strongly, while the performance by European interest rates (ER2, ER4 and 10-yr Bunds) has been modest either against the US market or compared with moves in February/March.

EUR/USD should remain supported
In contrast to the relative underperformance by European rates markets (no doubt helped by expectations that the ECB will tighten again in the next few months although no move is expected today), EUR/USD has been largely unchanged during the current carry unwind (although it was off heavily immediately before). Indeed as our chart yesterday showed, the stability in E UR/USD over this current episode has mirrored its performance in the February/March unwind.

One upshot of this is that the tight relationship between EUR/USD and respective policy rate expectations has broken down over the past week or so (see the chart below on the right). Given the degree of stability that EUR/USD has shown during this unwind and also in February/March; and the move in interest rate expectations in favour of the single currency, we would expect EUR/USD to remain supported.

Adam Boyton
Strategist
(+1) 212 250-8646
[email]adam.boyton@db.com[/email]