EMEA Currencies: Week 50‏

This week we published our FX Top Trades 2013 . Among the top trades is a number of recommendations on EMEA currencies. Our overall view is that we expect continued global recovery (though moderate) and further monetary easing globally. This should be supportive for investor risk appetite, which in turn should support the EMEA currencies going into 2013.

Hence, 2013 should be a good year for the EMEA FX Markets. We expect increased risk appetite, the search for carry in a low-carry environment, low volatility in G10 and the de-escalation of the euro crisis to support EMEA markets, even though there will be some bumps down the road and country-specific fundamentals will be back in fashion.

RUB, PLN, HUF are the jokers but mind the differences

The candidates to benefit the most are the Russian rouble, Polish zloty and Hungarian forint. Probably the strongest arguments can be found for the Russian rouble. The Russian economy, despite some slowdown, looks solid with strong external balances. Polish zloty and Hungarian forint should also perform well next year. Fairly good fundamentals, with continued improvement of external balances, should be PLN and HUF positive. Even though the local central banks will continue their easing cycle due to the marked economic slowdown, both currencies should continue to provide attractive carry especially on a three- to six-month horizon.

CZK is odd man out

The Czech koruna is odd man out in EMEA as the risk of a significantly weaker CZK is high. The Czech central bank has exhausted the standard monetary policy tools (such as interest rates) and it clearly stated that it will use the exchange rate channel for further easing. Given the need for more aggressive easing as the Czech economy struggles to recover, the risk of FX intervention weakening CZK is high. In fact, FX interventions, perhaps late 2012 but rather going into 2013, are our main call.

To Read the Entire Report Please Click on the pdf File Below.