It has become blatantly obvious that risk appetite has improved since the Fed made its QE3 intentions known. Announcements made by Ben and Draghi seems to have removed tail risks from the market, allowing investors to become most bullish on the EUR, RUB and MXN. At the same time, speculators are becoming more bearish on the USD, CHF and JPY. In other words, investors are not keen on the traditional low yielding save haven currencies. The market, in not unkind terms, is telling the retail sector not to mess with the CBanks. Investors seem to have become most optimistic on their assessment of the single currency in 15-months. This is not good news for 11% of the market, the retailers, who insist on being short EURâ€™s the past two weeks. The squeeze has begun!
Below are some other highlights of the week:
- NOK: Norwayâ€™s inflation surprised weak, falling -0.4%, m/m after a -0.5% drop in July. Underlying measures of inflation came also soft, with the annual rate down to +1.2% from +1.3%, well below consensus for +1.5%. Analysts expect little impact on Norges Bank policy, considering the economy has remained relatively resilient.
- SEK: Swedish IP fared better than expected in July, rising +0.3%, m/m after a +0.4%, m/m gain in June. However, the -5.5 point fall in the Swedish PMI in August has suggested a worrying outlook for the months ahead. The Riksbank has room to ease further in the case this materializes.
- FRF: French IP production rose +0.2%, m/m, above consensus for a -0.5% drop.
- TRY: Turkish GDP surprised weaker than expected in Q2 at +2.9%, y/y, versus consensus at +3.1%, while IP was stronger than expected at +1.7%. Despite the strength in the latter, Market expects the data will likely reinforce investor expectations that the central bank will be cutting the upper end of the interest rate corridor on 18 September.
- EUR: The German Constitutional Court confirmed that it will issue its decision on ESM constitutionality as expected and on time, rejecting a request for delay.
- GBP: UK trade balanced narrowed to -Â£1.5b from -Â£4.3b in June, the best reading in nine-months. The goods trade deficit also surprised positively, falling to -Â£7.1b from -Â£10.1b.
- HUF: Hungarian inflation rose to +6.0%, y/y from +5.8% previously, in line with consensus forecasts. The IMF deal might be achieved â€œperhaps at the end of this yearâ€ and that talks will resume only in October, rather than September, which leaves us expecting more delays and HUF underperformance.
- EUR: Markets reacted positively to the German constitutional courtâ€™s favorable ruling on the ESM, with peripheral sovereign spreads tightening sharply and risk rallying in FX, equities and commodities.
- EUR: The German constitutional court rejected the petition to block the ratification of the ESM, as widely expected. In the ruling, the court added that current legislation caps the contribution from the German taxpayer to the rescue fund at â‚¬190bn, and that a parliamentary vote would be needed in order to expand the size of the contribution.
- GBP: UK jobless claims fell 15k in August, much stronger than the market consensus forecast for no change.
- TRY: Turkeyâ€™s Prime Minister Erdogan announced a set of fiscal revenue measures aimed at tightening fiscal balances. Analysts expect these measures as worth about +0.6% of GDP, and believe that they will help keep CPI under control into year-end.
- EUR: Euro zone industrial production grew 0.6%mom in July, above the consensus forecast of 0.1%mom but only matching the drop in June. This was driven by a better monthly result in Germany while production in Italy and Spain continued to contract.
- CHF: SNB left the EUR/CHF floor unchanged at 1.20, but revised its inflation forecasts lower (+0.4% vs. +0.6% due to a worsening global economy).
- CHF: The SNB also revised down its 2012 growth forecast to 1.00% from 1.50%.
- SEK: Swedish inflation stayed unchanged at +0.7%, y/y in August, below consensus for a pick up to +0.9%. Subdued inflation could lead to a softening stance from the CBank.
- EUR: Euro zone core inflation fell to +1.5%, y/y from +1.7%. Meanwhile headline inflation was unrevised at +2.6%, up from +2.4%, y/y in July.
- SEK: Swedish growth in Q2 was revised significantly lower to +0.7%, q/q from +1.3% previously.
ASIA Week in FX 
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