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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7455)	11/21/2006 6:36:07 PM
From: John Pitera	Respond to of 33421

Iceland crown slides 5.5 pct his past week as bear market reemerges in this poster child carry-trade currency of 2006. ---------------------- Tuesday, November 21, 2006 11:52:45 AM (GMT-06:00) Provided by: Reuters News (Adds further crown movement, quotes) STOCKHOLM, Nov 21 (Reuters) - The Icelandic crown extended losses against the euro and the dollar on Tuesday, sliding around 1.5 percent on the day and bringing cumulative losses since its latest fall began last week to 5.5 percent. TD Securities senior strategist Beat Siegenthaler said various factors had been cited for the drop, including generally bearish views among locals, and that demand for crown assets was saturated with the issuance of crown eurobonds having dried up. The currency, favoured as a carry trade for its high yield, sank to 91.85 to the euro <EURISK=> and 71.65 per dollar <ISK=> on Tuesday after opening at 90.53 and 70.63 respectively. At the start of last week it was at 86.86 and 67.59. "There has been good two-way flow all day," said one dealer based in Reykjavik, adding that one Icelandic bank had been bidding down the currency. He added there had been some speculation Iceland could be vulnerable to a ratings downgrade, although there was nothing to substantiate that so far. The only official ratings agency action on Tuesday came from Fitch and Standard & Poor's, which both gave Iceland's new eurobond a AA- rating, the fourth-highest level of investment grade. Moody's on Monday gave it the highest AAA rating. The proceeeds from the small North Atlantic island's biggest-ever bond issue will be used to strengthen its foreign exchange reserves after a year when concerns about its breakneck economic expansion have prompted slides in Iceland's currency, stocks and bonds. Another Reykjavik-based trader said earlier on Tuesday that many investors wanted to close their crown positions before the end of the year and that there were only sellers at the moment. TD Securities' Siegenthaler said in a note: "I haven't found anybody who has any satisfying explanation as to why this move has occurred today ... Obviously, the ISK is moving once again into very attractive levels, certainly for investors with a slightly longer term horizon." Siegenthaler also forecast that the central bank, fearing an inflation boost from a weaker currency, would hike rates again at its Dec. 21 meeting if the crown stayed above 90 to the euro. A Fitch downgrade in February on its outlook on Iceland to negative from stable sparked a sell-off in the crown that lasted to mid-April and drove the currency to near 100 to the euro. That and other research turned a harsh spotlight on booming Iceland's large current account deficit. The central bank has pumped up interest rates to a record 14 percent, the highest in the developed world, to fight inflation