Minutes of the FOMC meeting held on 18 September may explain the big interest-rate cut

Fundamental highlights this week
Germany: industrial orders, August - Monday

The order intake fell by 7% in July after rising solidly over the preceding months.

Given the strong euro and slowing growth in the US, a turn to the better does not seem imminent.

The order index of the PMI also points to additional falls, but it is far from a one-to-one correlation between PMI and the order intake.

The US: minutes of the FOMC meeting held on 18 September - Tuesday

The Fed lowered its Fed-funds rate by half a percentage point on 18 September, which was a surprisingly big cut..

It was the first time in a very long time that the Fed surprised the markets, and the minutes will be scrutinised for signs of more interest-rate cuts and explanations why the Fed made this surprise move.

In particular, market participants will look out for assessments of whether the financial turmoil will affect the rest of the economy.

The US: retail sale September ??“ Friday

One of this week's absolutely most important indicators, since it indicates whether the financial crisis has spilled over into consumer spending.

A credit tightening will primarily affect consumer buying of durable consumer goods such as cars, PCs, furniture etc.

Retail sales grew at the trend growth rate in August, and we expect retail sales to grow at a slower pace than the trend rate growth of .3%, mainly due to lower car sales.



Expected Exchange Rates

United States Dollar EUR/USD USD/DKK

The highlight of the week is the minutes from the monetary policy meeting held on 18 September.

The latest statements show that 95% of the market participants on a daily basis predict a continued weaker dollar. However, according to market psychology this can very well be a sign of a future trend turnaround.

The USD index reached a new all-time low on 1 October and strengthened afterwards.

We expect as a minimum a small strengthening of USD in the coming week.

Great Britain Pound EUR/GBP GBP/DKK

Macroeconomic highlights: industrial production and RICS.

As expected, since the end of last week we have witnessed a strengthening of GBP from the lowest level since April 2006 towards 69 against EUR.

We are expecting a relatively quiet week dominated by technical trades, since it seems that the Northern Rock affair has calmed. However, new stories about crises in the UK can spark off financial turmoil again..

Japanese Yen EUR/JPY JPY/DKK

Carry trades have been the predominant theme for a couple of weeks now. Still, we feel that the weakening of JPY will prompt some investors to buy at these low levels. Hence we find that the risk of a correction lower on EURJPY has increased

This week's main event will be the monetary-policy meeting at BoJ on Wednesday

We expect the BoJ to adopt a waiting stance and leave rates unchanged until mid 2008.

Swiss Franc EUR/CHF CHF/DKK

There are not many important macroeconomic releases in Switzerland in the coming week.

As in the case of EURJPY, we feel that the risk of a correction lower in EURCHF has increased

The currency cross has moved along a positive trend for a while now and is currently trading around the mid- July highs.

This will prompt some investors to take profit on long positions

Norwegian Krone EUR/NOK NOK/DKK

NOK has strengthened substantially over the past weeks on the back of rising oil prices and a relatively hawkish monetary policy stance by Norges Bank.

We find that the decline of EURNOK will prompt some investors to take profit on short positions ahead of the release of the Norwegian CPI on Wednesday.

We expect that overall inflation will pick up although the strong NOK will pull in the opposite direction

Swedish Krona EUR/SEK SEK/DKK

EURSEK has been trading sideways for some time now, and we expect this tendency to last until the release of the Swedish CPI on Thursday

The rising capacity utilization and the higher wage increases that are expected in relation to the agreements to be made in the spring will continue to contribute to a sustained inflationary pressure.

The Riksbank has been rather hawkish until now ??“ therefore SEK will strengthen in case the rise in CPI is substantially above expectations