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From the Floor: Moment of truth for high-flying EUR? — #SaxoStrats

   • Riksbank facing pressure to unwind policy, EURSEK in focus
   • Euro flying high versus CHF, commodity dollars pre-ECB
   • Turkish central bank in focus as Germany moves to cut funding
   • Canadian dollar breaks down on cautious BoC outing
   • 'Any pronounced selloff could see a major VIX spike'; Hardy

By Michael McKenna

Today's calendar sees central banks out en masse with a Riksbank rate announcement at 0730 GMT, the Turkish central bank out at 1100 GMT, and of course the European Central Bank out at 1145 GMT (press conference at 130 GMT) with the focus on purchase tapering.

For the SEK, Saxo bank head of forex strategy John J Hardy says that the focus is on the Riksbank's continued focus on maintaining krona weakness with EURSEK in the spotlight this morning.

In Turkey, Hardy says that he sees some elevated risk of a rate hike given Germany's move to cut funding to Turkey through a variety of European institutions, although he cautions that the consensus remains for no hike.

EURSEK at the heights:

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Source: Saxo Bank 

Investor focus remains on the European Central Bank's much-awaited tapering of bond purchases, with Hardy noting that price action in the euro pairs – particularly in terms of CHF and the commodity dollars – could mean that ECB president Mario Draghi "will have a hard time talking the euro down" today.

Beyond the immediate central bank trade, Hardy points to the 500%-plus gains in the XIV reverse volatility index since last summer, noting that any significant selloff could spike volatility enormously as even smaller risk-off moves such as the one seen yesterday have resulted in 10%-plus intraday swings.

Source: Saxo Bank 

Michael McKenna is senior editor at Saxo Bank 


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