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Forex Flash: Divergence in the Force - Societe Generale

Sebastien Galy, Senior FX Strategist at Societe Generale feels that the risk reward of ultra easy monetary policies continues to be reassessed.

He feels that Norway is going against the grain and digging in, wanting its currency to weaken, Sweden is choosing to let external forces tighten its monetary conditions (unemployment dropped), Switzerland is maintaining its stance choose prudential regulation to cool down the housing market as did Canada.

Galy adds that China meanwhile has just done an operation which effectively tightens policy and with less sugar in the blood the local stock market took a plunge. He writes, “Australia is willing to look through signs of a recovery to maintain an easy policy stance with its economy fragmented between a commodity and non commodity sector (RBA minutes overnight). This diversity of reaction and its impact on the sugar rush makes for an interesting trading environment.”

Forex Flash: Gilts set sights on 114.60-116.60 range – RBS

According to Dmytro Bondar, a Technical Markets Strategist at RBS, “From safe havens, Gilts look far less attractive, as a break of the recent ranges brought he market to the 114.58 retracement level (50% of 2012 extremes), while the former support of 116.00 has now turned into resistance. The overall bias is for a range of 114.60-116.60 with a possible recovery towards 117.80 if the latter is broken. However, this is unlikely to happen in the near-term. For the next week, we favor a range trade between 114.60 and 116.60. A break of 114.58 triggers a move to 114.00 and 113.14 – an upside break points to recovery towards 117.82.
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Forex Flash: Is balance sheet expansion a deflation remedy? – UBS

In looking at individual monetary policy, especially localized to the G5, the actual influences on exchange rates recently – on an absolute level – have not exactly been clear-cut. According to Research Analyst Gareth Berry at UBS, “There is no firm relationship between outright balance sheet expansion and currency strength or weakness. Japan and Switzerland have actively expanded their balance sheets with little success of escaping disinflation/deflation (until recently), while every instance of the ECB purporting to 'do the right thing' via balance sheet expansion has also been greeted with the market returning to bidding the euro.”
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