FX This week: UK election outcome support Sterling, Norges bank to hike but some risk for dovish signals

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1 FX This week: UK election outcome support Sterling, Norges bank to hike but some risk for dovish signals May Anders Eklöf FX/MM strategist Swedbank FI/FX Research 1

2 EUR/USD some upside in play as Greece story take pause? Still, the medium term outlook is bearish EUR shorts to scale down positions as austerity package credible and uncertainty gradually drop? German lawmakers to give ok as package is conditioned on tough measures from Greece US Non-farm payrolls expected at 176k on Friday, adding to risk appetite and growth driven dollar strength ) EURUSD,LHS 1m risk revesal, RHS Increased reserve ratio in China, rate hikes In Brazil, Australia this week etc signal of extreme emerging market strength, i.e. capital flows to emerging market continue to weigh somewhat on USD Still, euro area need weak currency and low key rate for long to survive! ECB confirms that on Thursdays Q&A? We target 1.25 in 6m and stay short via put 6,5 month put spread, see page /29/10 2/5/10 2/12/10 2/19/10 2/26/10 3/5/10 3/12/10 3/19/10 3/26/10 4/2/10 4/9/10 4/16/10 4/23/10 4/30/10 5/7/

3 EUR/GBP expected election outcome to support pound, choose the least bad of two bad things Cameron received 41 %, Clegg 32 % and Brown only 25 in TV debate concerning economy. Most likely Cameron will need support by Clegg as Conservatives will not get above 40 % that is needed for majority. Conservatives expected to set up war cabinet and be more clear about need for fiscal tightening. Bank of England will have to stay on side lines for a while, but that goes for ECB too. We target EUR/GBP 0.82 in 6m 3

4 EUR/SEK Ingves open door for July hike Gov Ingves played down the impact from Greece on a monetary policy decisions for the short run. Minutes from today (including Ingves comment) indicate that there is a majority for a July hike. Still, the effects from the sovereign issues and need for Piigs to sort up their government finances should imply less need for Swedish rates hikes for next year. For SEK, strong short-term global growth momentum and strong underlying risk appetite in combination with sound government finances have potential to keep EUR/SEK brief, We target 9,40 in 3 m, but would like to see at least 9.70 to have enough risk reward, the lion share of SEK appreciation is behind us SEK will slowly starts to look to Swedish election and risk for government change that promotes oldfashioned left politics, that is obviously not something that trigger us to look for EUR/SEK at the low 9 area Net balance Todays strong Swedish PMI new export order at 64.6 indicates commercial flows are starting to help SEK but also point to a more solid GDP outlook Index 4

5 EUR/NOK - rate hike, but some risk for dovish signals. We expect the Bank to raise its key policy rate by 25 bp to 2.0% next week, consistent with the conditional interest rate path published before Easter. The risk of unchanged interest rates has arguably risen this week due to the Greek sovereign debt crunch and the appreciation of the NOK exchange rate. Yet, we still believe the probably of a hike by far outweigh the risk of a no change. The communication in the press statement is likely to be quite neutral, and the Board will probably announce that it sees no reason to deviate from the plan in the March MPR. For now, we continue to expect a cumulative 75 bp of tightening to 2.5% by the end of 2010 (including the 25 bp hike in May). Our forecast is that the next moves (of 25 bp each) will occur in August and October, although recent developments in financial markets suggest these moves may come later. We target a move to 7.60 in H2 NOK/SEK continue to range

6 FX Trade recommendations year to day row trade date trade nr profit,vs loss strategy spot ref expiry or projected time to reach target Trade specifics total cost in exit date net return** pips* 1 05-Jan-10 1 open, see 1below USD/JPY call spread 1 by m buy 1*** USD call /JPY 95, sell 1.5 USD call/jpy see row Jan-10 2 closed with loss EUR put/sek call days buy EUR put / SEK call KO 25-Mar Jan-10 3 closed with profit short EUR/SEK spot m sell 0.5 EUR/SEK , 10.37, S/L move 10,05 on feb 18,S/P to 9.76 on 25-Mar, 29-Mar 1.8% 4 26-Jan-10 1 open ref 1 converted to USD call /JPY put buy 1.5 sold USD call /JPY put strike 105, cost 20 pips Jan-10 4 closed with profit short GBP/NOK 1 to 3 m sell 0.5 GBP/NOK 9,49, 9,65 18-Feb 1.3% 6 26-Feb-10 5 see row 6 EUR/USD downside butterfly m buy 1.35 EUR put /USD call, sell 1.32 EUR put /USD call, buy 1 EUR put/usd expiry 7 24-Mar-10 5 closed with profit half of trade 4 closed with profit (105 pips recieved) m buy 1.35 EUR put /USD call, sell 1.32 EUR put /USD call, buy 1 EUR put/usd Mar Apr-10 6 closed with profit short NOK/SEK week sell 0.5 NOK/SEK@1.2185, s/l@1.2320,target 1.20, pos closed at as Riksbank was quite soft 20-Apr 0.27% 9 16-Apr-10 7 open long NOK/SEK vol 1 week buy a / strangle expiry 21 April Apr Apr-10 8 closed at break-even short EUR/USD week sell 0.5 unit , target new lows, Apr Apr-10 9 open EUR/USD put spread 1 by 1 with up&in on sold put ,5 m buy 1 EUR put/ USD 1.33 and sell 1 EUR put / USD 1.30 up&in 1.38, expiry Nov option positions in Italic writing * net cost in price currency spot year to day ret 3.4% **return in % (spot) or net return in pips (options) hit ratio spot *** notionals in units hit ratio options 6

7 Contact information Research - Macro, FI & FX VP Cecilia Skingsley Tel: cecilia.skingsley@swedbank.se Macro Knut Hallberg Tel: knut.hallberg@swedbank.se Macro Per Selldén Tel: per.sellden@swedbank.se Macro Karl-Johan Bergstrom Tel: karl-johan.bergstrom@swedbank.se FX/MM Anders Eklöf Tel: anders.eklof@swedbank.se Emerging markets Hans Gustafson Tel: hans.gustafson@swedbank.se This research report has been compiled by Swedbank Markets, a division of Swedbank AB (publ). The document is not advisory and is merely intended to serve as information to a limited amount of qualified investors. The information in this document has been compiled from sources believed to be reliable. We accept however no responsibility for correctness or completeness. It is recommended that recipients of this document supplement the basis for their decision-making with any material that might be considered necessary. Opinions and recommendations obtained in this document represent our present opinions but may change. Swedbank Markets accepts no liability whatsoever for any direct or consequential loss or injury of any kind arising from the use of this document. Recipients should be aware 7 that Swedbank AB and its subsidiaries from time to time may have positions or holdings in securities of such companies or issuers directly or indirectly referred to herein or may be providing or seeking to provide corporate finance and dept capital markets services to such companies or issuers. This document must not be published or distributed in the United States or to other countries or persons to which publication or distribution is prohibited. The material may not be reproduced without the consent of Swedbank Market. Reproduced by Swedbank Markets, Swedbank AB (publ), Stockholm 2009.