EUR/USD may very well fall further

by Jyske Bank Team

Today's Comment

This will very much be the week that will define the FX development in the remaining part of 2010. The EU summit (Thursday/Friday) will be of crucial importance. If we do not see a definite plan to support the euro, which is under pressure, and the peripheral states, EUR/USD may very well fall further.

In addition to the EU summit, this week will also see a lot of economic indicators and interest-rate meetings. There are interest-rate meetings in the US, Norway, Sweden and Switzerland. Generally the consensus opinion is that none of the central banks will make any changes except for Sweden for which an increase from 1% to 1.25% can be expected.

Today will not bring many events, but the week as a whole will in addition to the interest-rate meetings bring key economic indicators from Europe/Germany, the UK, the US and Japan. Tuesday may very well be decisive for EUR/USD for the rest of 2010 as, in addition to the interest-rate meeting, we will see retail sales figures from the US as well as figures for industrial production in Europe and the ZEW index in Germany. Tuesday night, quarterly figures for the Japanese manufacturing industry in the form the Tankan index will be published.

Wednesday will focus on the Scandinavian currencies due to the interest-rate meetings in Sweden and Norway, but also, industrial-production and consumer-price figures will be released in the US. Thursday will see the interest-rate meeting in Switzerland as well as the publication of the Swiss industrial-production figures. The Swiss franc has appreciated somewhat and we expect further appreciation – yet with much volatility.

Thursday will also see PMI's from Europe and on Friday, the IFO index will be published in Germany.

So – we are in for a volatile week. In the 1-month term we think that the Japanese yen will remain more or less unchanged, while the Swiss franc, the US dollar and pound sterling will strengthen against the euro. We foresee a marginal weakening of the Scandinavian currencies in the 1-month term.

Today's Key Events

• 09:15 Producer and import prices, (CHF)
• 14:00 Speech by ECB's Ordonez (EUR)

Monday night:

• 01:01 RICS business trend survey (GBP)
• 05:30:00 Industrial production, final (JPY)

Today's Chart – EUR/USD