By Magnus Prim from SEB 10-22-2001
• It is becoming more difficult to envisage a scenario that may weaken the dollar against euro and yen; after all, bad news has been heaped on the dollar since 11 September. In technical terms, Friday saw a break of important support at 0.8980 and the euro has now been trending lower since 17 September. Our next target is 0.8949. The commitment-of-traders report saw speculative accounts reducing their euro longs for the third consecutive week last week. The net long overhang remains substantial and is likely to be a drag on the euro also in coming weeks. As for the yen, net longs have been squared altogether. A move above USD/JPY 122 should see the speculative community building net dollar longs.
• Swedish Riksbank governor B?ckstr?m and deputy governor Heikensten appeared on radio/TV during the weekend. We interpret the comments made as Heikensten is concerned about the present high inflation numbers and that he’s not ready to cut interest rates in present environment. He argued that the strong economic stimulus measures presented by central banks and governments around the world should have positive effects on global growth. Moreover, the Swedish krona’s weakness and rising disposable incomes for Swedish households also support an economic recovery that might raise the inflationary pressure. Even though B?ckstr?m presented a slightly less optimistic view on the economic development, he also seemed to be somewhat concerned about the inflation outlook. Our conclusion is that there is still room for a rate cut from the Riksbank, since economic growth is seen to slow down even more.