Analytics from FBS Holdings Inc.

Russia, BIS, Asian sovereign sell euro (25.08.10)
EUR/USD presently trades at 1.2690. Russia has apparently joined in the selling. Stops just above the 1.2720/30 sell orders. Reports BIS and a large Asian sovereign have both been selling into the EUR/USD rally. So the pair back at 1.2700 from session high at 1.2725.
Moreover, Russia said to be buying cable in recent trade. Now the GBP/USD at 1.5430. Sell orders seen clustered up at 1.5480/00, stops probably not far north of there.

UBS AG: risk-averse investors are buying the franc (25.08.10)
The Swiss national currency increase to a new record against the united European currency after Ireland’s credit rating was cut to AA- by Standard & Poor’s. Investors seek the Swiss currency as a haven.
The Swiss franc advanced 0.4% against the euro to 1.2987 — the highest level since the single currency was introduced in 1999, and now it trades at 1.3030.
Since the beginning of 2010, the Swiss franc has appreciated more than 13% versus euro.
“Risk-averse investors are buying the franc as we have a mix of negative news,” said currency analyst at UBS AG. “Ireland has been downgraded, yesterday’s data from the U.S. were disappointing. In addition, stock markets are easing.”
Ireland’s credit rating was cut one step by Standard & Poor’s yesterday to AA-, the lowest since 1995, on concern the rising cost of supporting the country’s struggling banks will swell the budget deficit. In the U.S., sales of existing houses plunged by a record 27 percent in July, yesterday’s data show.
The franc has been pushed higher after Swiss National Bank President Philipp Hildebrand said that the bank’s ability to counter currency gains are “limited.” The central bank in June stopped purchases of foreign currencies after quadrupling holdings over the previous 15 months to bolster exports and fight deflation.

Stiglitz: European Economy at Risk of Double-Dip Recession (25.08.10)
Joseph Stiglitz, Nobel Prize-winning economist, think the European economy is at risk of falling into a recession as governments cut spending to reduce their budget deficits.
“Cutting back willy-nilly on high-return investments just to make the picture of the deficit look better is really foolish,” said Stiglitz.
Euro-area governments stepped up efforts to cut their deficits to below the European Union limit of 3% of gross domestic product after the Greek crisis earlier this year eroded investor confidence in the 16-member currency union. While the economy expanded at the fastest pace in 4 years in the II quarter, the recovery is showing signs of weakening.
“Because so many in Europe are focusing on the 3% artificial number, which has no reality and is just looking at one side of a balance sheet, Europe is at risk of going into a double-dip,” Stiglitz said.
Growth in Europe’s services and manufacturing industries slowed more than economists forecast in August and German investor confidence slumped to the lowest in 16 months. Moody’s Investors Service said yesterday that “risks to economic growth are clearly to the downside” in the euro-region economy.
The average budget deficit in the euro area will probably widen to 6.6% of GDP this year from 6.3% in 2009, the European Commission forecast in May. The Greek government aims to pare its shortfall, the region’s second largest, from 13.6% of GDP last year to 8.1% this year and to within the EU limit in 2014, it has said. The country has cut wages and pensions and increased taxes to stave off a default.
At 14.3% of GDP, Ireland had the highest deficit in the euro region last year. The shortfall will narrow to 11.7 percent this year, excluding the cost of bank bailouts, the commission forecast.
“Obviously, Ireland by itself is too small to determine what happens to Europe as a whole,” Stiglitz said. “But if Germany, the U.K. and other major countries follow this excessive austerity approach, Ireland will suffer.”
Stiglitz said that with companies still cutting jobs, he doesn’t expect economic growth to strengthen anytime soon.
“The problem is that we aren’t getting out of this current crisis very quickly,” he said. “What we’re doing is setting ourselves for a longer-term Japanese-style malaise of weak growth for an extended period of time. It’s very disturbing that people are talking about a new normal” with unemployment as high as 10 percent “which would be devastating.”

Morgan Stanley ended a bet against the euro (25.08.10)
Morgan Stanley ended a bet against the euro as U.S. economic weakness may “take a while” to influence Europe while the Federal Reserve moves closer to easing policy further.
“While we have been very vocal in recent weeks calling for dollar strength against the euro, the risk-reward has deteriorated and the risks of further easing measures by the Federal Reserve on September 21 are perhaps building,” analysts wrote today. “While it is likely that European data will eventually slow if the current bout of weakness in U.S. data continues, it might take a while to feed through.”
The short euro-dollar bet had a 20% weighting in the strategy team’s portfolio of trade recommendations and was ended with a profit of 326 basis points, or 3.26% points, the analysts wrote.

Roubini: U.S. economy increase will be “well below” 1% in the III quarter (26.08.10)
Nouriel Roubini, who predicted the global financial crisis, supposed U.S. economy increase will be “well below” 1% in the III quarter 2010. He said the possibility of a renewed recession at 40%.
Roubini said his forecast assumes the government will lower its estimate for growth in the II quarter to an annual rate of 1.2% “at best.”
“All the growth tailwinds of the first half of the year become headwinds in the second half,” Roubini said, including the government’s $814-billion stimulus plan, hiring for the census, and incentives such the cash-for-clunkers program and tax credits for first-time home buyers.
Economist expects an “anemic, sub- par, below-trend U for many years given the need and process of deleveraging” by households, governments and the financial system.
“With growth at a stall speed of 1% or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases,” he said. “Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double-dip,” he said, referring to two recessions in a quick succession.
The Commerce Department may report revised figures on Friday showing the economy grew at a 1.4% pace in the II quarter (earlier estimate was at 2.4%), because of a widening trade deficit, a smaller buildup of inventories and weaker construction.
 
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Sumitomo Mitsui: BOJ efforts will be in vain

The Bank of Japan (Bank of Japan, BOJ) announced today after an emergency meeting that it will increase funding program by 10 trillion yen ($117 billion) to a total of 30 trillion yen.

Analysts at Sumitomo Mitsui Banking Corp. believe that such decision of Japanese central bank won’t help to stop the appreciation of the national currency versus the greenback. According to the specialists, yen strengthened mainly because of decline in the pace of US economic growth.

Last week American Commerce Department reported that the country’s economy added only 1.6% in the second quarter that is below the original estimate. Treasuries’ yield is getting closer to the one of Japanese bonds and investors are looking forward to Federal Reserve’s new stimulus measures. As a result, US dollar finds itself under the negative pressure.

Sumitomo strategists note that situation is unlikely to change in the near future, so BOJ efforts to reverse yen’s uptrend will be in vain. The analysts also claim that the market understands this and has little faith in powers of Japan’s central bank.

BofT-Mitsubishi UFJ: dollar will fall to 80 yen

The Bank of Japan (Bank of Japan, BOJ) announced today after an emergency meeting that it will increase funding program by 10 trillion yen ($117 billion) to a total of 30 trillion yen. It also said it would offer fixed-rate loans to banks with a maturity of six months, and would keep its overnight call rate target unchanged at 0.1%. The central bank refrained from increasing its purchases of Japanese government bonds.

Strategists at Barclays Capital claim that new easing measures announced by the BOJ didn’t provide the positive surprise for the market, so invertors got disappointed and were again selling dollars.

It’s expected that Japanese currency may rise to new 15-year maximum in case the expectations that the Federal Reserve will loosen its monetary policy to support the economy strengthen. Analysts at Bank of Tokyo-Mitsubishi UFJ note that Friday’s speech of Ben Bernanke confirms such assumptions. In their view, yen will climb to 80 yen against its US counterpart by the end of 2010.

JPMorgan: USD/JPY decline doesn’t yet affect US

Analysts at JPMorgan Chase & Co. believe that US monetary authorities won’t act to prevent national currency from appreciation as long as institutional foreign investors keep buying Treasuries. The significant decline in demand for American long- and medium-term securities will cause the yield on them rise making US economic recovery even slower.

At the moment week dollar doesn’t affect the United States, claim the specialists. JPMorgan expects that yen will advance to 79 per greenback and to 99 per euro by the end of 2010.

USD/CAD is consolidating between 1.0506 and 1.0471

The greenback fell versus loonie from August 25 maximum at 1.0665 to Thursday’s minimum at 1.0525. After that on Friday it made attempt to erase losses rising to 1.0650. Then there was a dramatic decline and the pair USD/CAD got below 1.0500 during today’s Asian session.

Technical analysts note that US dollar confirmed “double top” formation trading against its Canadian counterpart that means that the greenback will be losing.

The pair is currently consolidating between 1.0506 and 1.0471. Resistance levels are found at 1.0520, 1.0600 and 1.0690. Support levels are situated at 1.0450 (38.2% Fibonacci retracement) and 1.0400/1.0350 (trendline support).

Commerzbank: pound gained versus euro

British pound made today the biggest advance versus the single currency in more than 2 weeks on the speculation that the pace of UK economic recovery will exceed the one of European countries. It happened as British Chambers of Commerce increased its 2010 GDP growth forecast to 1.7%.

Analysts at Commerzbank AG claim that today’s strengthening of sterling was caused mainly by the euro’s weakness. The specialists note that Britain doesn’t face such severe debt crisis as the euro zone does.

At the same time a number of the country’s economic fundamentals keep showing negative dynamics reflecting the problems at the housing market and negative impact of government spending cuts.

According to Hometrack Ltd. data, UK house prices fell in August for the second month in a row. In July they lost 0.1%.

EUR/GBP dropped from today’s maximum at 0.8213 and is trading now below 0.8165.
 
Gain Capital: correlation between Treasuries yield and yen

Analysts at Gain Capital Inc. claim that the correlation between US 10-year Treasury note yield and Japanese currency rose to 90%.

According to the specialists, it happened as investors tend to avoid risk choosing bonds and, consequently, yields diminish. Yen, in its turn, is regarded as a refuge currency and the demand for it now is also high.

Gain Capital strategists also note that yesterday’s decision of the Bank of Japan to extend lending program isn’t enough to prevent the national currency from strengthening. In their view, close connection between yen and key American government debt will keep due to the absence of positive economic data that would be able to improve market’s sentiment.

Japanese central bank announced on Monday after an emergency meeting that it will increase funding program by 10 trillion yen ($117 billion) to a total of 30 trillion yen, while Prime Minister Naoto Kan said the nation is preparing a 920 billion yen ($10.8 billion) stimulus plan.

Since the beginning of this year US yield lost 1.31% points getting down to 2.53%. Yen added more than 10% climbing to 84.56 per dollar.

Sumitomo Mitsui recommends watching US data

Yen was again up today – the pair USD/JPY fell from the levels just below 84.65 to set the minimum at 84.05.

Analysts at Sumitomo Mitsui Banking Corp. claim that there will be no intervention from the Bank of Japan (BOJ) today. The specialists note that investors will become more nervous if USD/JPY gets closer to 80 yen level.

At the same time Sumitomo Mitsui points out that Japan’s monetary authorities may intervene if US economic data scheduled to be released this week turns out to be negative driving yen’s rate versus the greenback up.

The strategists advise to watch attentively housing price data on Tuesday (S&P Case-Shiller HPI 20), manufacturing data on Wednesday (ISM Manufacturing Index) and jobs numbers on Friday (Nonfarm Payrolls).

Traders believe that BOJ will make decisive actions to prevent the appreciation of the national currency only if dollar loses 3-4 yen in one day. Market’s participants suppose that neither the United States nor Europe will support Japan’s intervention as they are currently facing serious economic problems.

Commerzbank: euro will fall to 1.2523/1.2490

Technical analysts at Commerzbank note that the single currency didn’t manage to overcome resistance area at 1.2730/35 after it began recovering from last week’s minimum at 1.2585. As a result, the specialists claim that the pair EUR/USD is moving down to support in 1.2605/1.2588 zone.

If euro falls below the mentioned levels, it will decline to 1.2523/1.2490 (mid-July minimum and June peak). This support area will be able to hold the first test, expect the strategists.

As for the longer term, the bank forecasts European currency to lower to 1.2190/50 and then to 1.1876 (June minimum).

Investors seek refuge in yen and franc

Analysts at Ueda Harlow Ltd. and Okasan Securities Co. Ltd. in Tokyo claim that the market is now extremely worried about the prospects of the world’s economy. It’s expected that American employment data scheduled to be released this week on Friday, September 3, will turn out to be negative. Economists surveyed by Bloomberg News expect that the number of jobs in the United States fell in August by 100,000.

In addition, Asian stock market fell with MSCI Asia Pacific Index losing 1.9% and Nikkei 225 Stock Average decreasing by 3.6%. Large New Zealand finance company South Canterbury Finance Ltd. with NZ$1.6 billion ($1.12 billion) of assets is under threat of bankruptcy and the state promised to repay all its depositors.

As a result, investors’ risk aversion is high and they keep increasing demand for such safe haven currencies as Japanese yen and Swiss franc.

BNY Mellon data showed that aggregate inflows in Japanese currency this week were 1.5 times the average compared with 2009 level, while inflows in francs became two times the average amount. The difference in number of hedge funds’ and other large speculators’ bets on franc’s increase compared with those on the drop of Swiss currency rose to 13,868 on August 24, while week earlier it was estimated by 11,750.

Ikeda: unsterilized intervention would be effective

Japanese deputy finance minister Motohisa Ikeda claimed today that the country’s government is ready to act decisively in case of sharp bounce of yen’s rate, so the currency intervention of Japanese monetary authorities is possible.

The policymaker underlined that unsterilized intervention in which the central bank don’t insulate domestic money supplies from the foreign exchange transactions would be effective and able to stop the strengthening of the national currency. For the operation to be successful, Japan’s government has to cooperate with the central bank.

Mizuho: downtrend for USD/JPY confirmed

The greenback rose from the multi-year minimum at 83.60 versus Japanese yen to yesterday’s maximum at 85.90. After that the pair USD/JPY pulled back moving down.
Technical analysts at Mizuho Corporate Bank expect that dollar will show a series of attempts to lower during the next sessions or days.

According to the specialists, downtrend was confirmed when US currency descended yesterday from the top of a potential “wedge” formation and the 26-day moving average. As a result, any bullish momentum from last week’s “hammer” candle at 83.58 minimum.

Mizuho strategists claim that it’s necessary to remember that the greenback is still not oversold against yen and the volatility is close to its long term average.

Euro may keep growing only above 1.2710

The single currency jumped from the session’s minimum at 1.2625 to trade slightly below 1.2710. Such move stimulated bullish momentum for the pair.
According to the technical analysts, EUR/USD will be able to advance to 1.2750/70 zone only if it overcomes 20-day SMA at 1.2710.

Otherwise, euro will return to the levels below 1.2660 and then to the daily minimum and 1.2580.

RBC: franc will gain in the short-term

Swiss franc climbed today to the record maximum versus the single currency at 1.2897. It happened as UBS AG’s index of consumption which is designed to predict changes for 3 following months rose last month to the 2-year maximum from revised 1.80 in June to 1.86 in July. Economists surveyed by Bloomberg also expect that the annual pace of Swiss GDP extended to 2.6% in the second quarter. The data will be released on Thursday, September 2.

Strategists at Royal Bank of Canada in London note that recent Switzerland’s economic data was encouraging, so the Swiss National Bank will let the currency strengthen in the near-term if this process passes slowly. Franc’s currently gaining as investors increased their demand for it as for the safe-haven currency, claim the specialists.
 
UBS: sell pounds versus francs and buy euro

Analysts at UBS AG advise investors to sell British currency versus Swiss francs at 1.5580 francs with a stop-loss order at 1.5825. Such recommendation is based on the forecast that pound will decline to the record minimum at 1.5000 francs. Yesterday sterling hit the lowest level since January 5, 2009 at 1.5551 francs.

The specialists expect that pound will fall when Britain’s government starts fiscal austerity program that implies reduction of the most departments’ budgets by a quarter. The measures will be announced on October 20. The Treasury’s fiscal monitor says they make public-sector lose 490,000 by April 2015.

The main reason why UBS thinks it’s necessary to turn to franc is that Switzerland’s economy is recovering faster than the European one. Economists surveyed by Bloomberg News predict that annual pace of Swiss GDP growth rose to 2.6% (data is released tomorrow), while euro zone’s economy gained only 1% during this period as it was reported last month.

Never the less, strategists stopped recommending selling the single currency versus franc. According to them, in the short-term investors are to buy back euro at 1.2868 francs.

Yen pulled back on positive data

Japanese yen declined today for the first time in 3 days versus the greenback and the single currency. It happened due to the encouraging macroeconomic data from China and Australia that helped to improve risk sentiment and make investors increase demand for higher-yielding assets, claim strategists at Credit Agricole Corporate and Investment Bank in Tokyo.

Chinese manufacturing gained pace – the country’s PMI advanced from 51.2 in July to 51.7 in August, while the economists surveyed by Bloomberg News expected to get only 51.5. Australian economic growth in the second-quarter turned out to be the fastest in 3 years – the country’s GDP extended by 1.2% versus 0.9% anticipated. Asian markets were up with MSCI Asia Pacific Index adding 0.8% and Nikkei 225 rising by 1%.

Never the less, analysts at Mizuho Trust & Banking Co. in Tokyo warn that positive Asian data doesn’t yet mean accelerating growth of developed countries. It’s vital that American indicators also get better. Otherwise, underline the specialists, risk aversion will remain and drive yen up.

Japanese currency reached the maximal level versus US dollar since June 1995 at 83.60 on August 24. USD/JPY is currently trading in 84.40/50 area.

Forex trading volume reached $4 trillion a day

According to the data published by the Bank for International Settlements (BIS) every three years, currency trading volume around the world has reached $4 trillion a day that is 20% up from $3.3 trillion in 2007. However, even though trading volume has risen, its growth pace was less than from $1.9 trillion in 2004 when it added 69%.

The main incentive for investors to come to forex market is the willingness to diversify their assets from home markets in times of high uncertainty. Rising volume of currency trading means globalization of investment process.

US dollar keeps being the main global currency accounting for 84.9% of transactions. In 2007 its share was bigger at 85.6%. The usage of single currency increased from 37% to 39.1%. About 35.9% of forex trade involves Asia-Pacific currencies such as Japanese yen, the South Korean won and the Hong Kong and Singapore dollars compared with 33% in 2007. Australian dollar surpassed Swiss franc and became the world’s fifth-most traded currency.

Mizuho: buy pounds versus dollar at 1.5415

British currency was losing to the greenback during the last 2 days before it dropped to support at Fibonacci retracement level.

Technical analysts at Mizuho Corporate Bank note that if sterling manages to close today above 9-day MA, the pair GBP/USD will get bullish momentum and may advance to 1.5500 and then to 1.5700.

As a result, the specialists recommend investors buying pounds at 1.5415 stopping below 1.5300.

Merrill Lynch raised yen forecast

Analysts at Bank of America Merrill Lynch increased their forecast for Japanese currency versus the greenback from 90 to 81 yen per dollar by the end of the year. The specialists expect now that yen will trade at 93 per euro by the end of the fourth quarter, while their previous estimate was at 104 yen.

According to Merrill Lynch, US economic data will remain discouraging and investors will be looking forward to more monetary easing from the Federal Reserve. Such expectations of the market will put USD/JPY under negative pressure.

In case yen’s rate gets close to postwar maximum at 79.75 yen per dollar, Japan’s monetary authorities may intervene to the currency market, note the strategists. In their view, Japanese currency will start gradually depreciating in 2011 when the world’s economic outlook improves. The bank predicts that yen will finish 2011 at 90 per dollar and 99 per euro compared with forecasts of 97 and 107 respectively made earlier.

USD/CHF consolidated below 1.0180

The greenback lost almost 170 pips versus Swiss franc during Monday’s and Tuesday’s trade. Yesterday the pair USD/CHF found support at this year’s minimum at 1.0135 hit on January 11 and then consolidated below 1.0180 during today’s Asian session.
If dollar goes down, support levels will lie at 1.0125 (January minimum), 1.0100 and 1.0023 (trend line support). If US currency managed to rebound, resistance levels be at 1.0180 (session’s maximum), 1.0220 and 1.0270 (intra-day levels).

Making larger outlook it’s possible to make out that USD/CHF moves are still directed downwards. The pair keeps descending from May maximum at 1.1723 getting closer to long-term support line near 1.0000 that was previously hit in March 2008 at 0.9635 in November 2009 at 0.9915.

Commerzbank: EUR/CHF may fall to 1.2750

The pair EUR/CHF renewed the record minimum at 1.2850.

Technical analysts at Commerzbank believe that its reversal is unlikely at the moment. Possible target of the pair’s decline is set at 1.2750, think the specialists.

If the rate goes up, resistance levels will be at 1.3072 and 1.3104. The market will remain bearish, until the pair overcomes 1.3104 level.

UBS: hedge funds made EUR/CHF fall

Strategists at UBS note that the decline of EUR/CHF may have happened because of the hedge funds activity.

UBS specialists claim that if hedge funds had taken profit and quitted EUR/CHF market, franc’s strengthening may have stopped and the pair could have chance to visit 1.35-1.40 area.

However, bank notes that US economic growth pace is increasing too slowly and investors’ risk aversion keeps being high. All these factors may pull EUR/CHF down to 1.25 and even below the parity, claims UBS.
 
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Standard Life: Japanese exporters in danger

Specialists at Standard Life Investments in Edinburgh claim that Japanese monetary authorities have to act in the near future in order to stem the appreciation of the national currency versus the greenback. According to the specialists, strong yen reduces competitiveness of the country’s exporters in comparison with their South Korean rivals.

Annual pace of Japan’s economic growth in the second quarter was equal only to 0.4% compared to 7.2% in South Korea. Yen becomes more and more expensive. Since the beginning of the year it gained 12% versus won.

The Bank of Japan added 10 trillion yen ($119 billion) in liquidity injections on August 31, while Finance Minister Yoshihiko Noda announced that the government is ready to conduct decisive measures if necessary.

Barclays: Japan needs unsterilized intervention

Analysts at Barclays Bank Plc. in Tokyo claim that Japan can make the intervention to the currency market effective by performing it in the unsterilized way.

In other words, after selling the national currency the country’s monetary authorities should leave extra liquidity in the financial system instead of draining it through bill sales, recommend the specialists. As a result, the Bank of Japan (BOJ) will be able to combine out intervention with monetary easing that might cause strong feedback from the market.

However, Barclays’ strategists underline that if Japanese central bank carries out unsterilized intervention under government pressure, it will show the lack of independency from the policymakers. The analysts believe that the BOJ will try to avoid such outcome.

On August 24 yen climbed to the maximal level since June 1995 at 83.60 yen per dollar under the impact of global risk aversion. The last time when Japan intervened at currency market was in March 2004 when the yen traded at about 109 per dollar. Strategists at Nomura Securities Co. in Tokyo believe that Japanese monetary authorities if the pair USD/JPY falls to 82-83 yen.

Societe Generale: ECB will continue monetary easing

Economists expect that the outcome of today’s ECB meeting will the decision to stay loyal to the policy of monetary easing.

Analysts at Bank of Tokyo-Mitsubishi UFJ note that Deutsche Bundesbank President Axel Weber claimed on August 19 that ECB policy should remain loose until next year and the President Jean-Claude Trichet may speak in the same way at today’s press conference that will take place at 12:30 GMT after the rate meeting.

Euro zone’s central bank may announce that it will stay alarmed as US recession may affect the rebound of European economy.

Economists at Nomura International Plc in London point out that the situation in Europe and US seems to be quite opposite. European data is surprisingly positive, while American indicators keep discouraging investors. In their view, the ECB will raise its 2010 growth forecast to 1.4%. In the second quarter the region’s economy added 1% just as it was anticipated.

Strategists at Societe Generale SA in London suppose that in such conditions of uncertainty about the growth outlook the central bank will continue emergency lending measures for banks till 2011. In addition, economists surveyed by Bloomberg News forecast that the ECB will leave its key interest rate at 1%.

Commerzbank: 1.0020 – support for USD/СHF

The greenback rose today from 0.0154 versus Swiss franc to cap at 0.0184 before declining to trade currently at 1.0110 area.

Technical analysts at Commerzbank claim that if US dollar breaks down through support line at 1.0020, the pair USD/СHF may fall to 1.0000 and then to 0.9915. According to the specialists, these are the key levels that will be strong enough to hold initial tests.

RBS: the most beneficial trading strategies

According to Royal Bank of Scotland Group Plc indexes, following the trend is the best trading strategy this year with the return of 7.3%. The most profits were gained by investors on 11% decline of the single currency and yen’s appreciation versus the greenback. The most unsuccessful choice to make was volatility strategy that brought only 5.9%.

Trend-followers are capturing momentum in several big currency moves. Specialists at Altegris Investments note that in the current situation of high uncertainty currency markets and interest rates move creating volatility that makes these investors benefit.
Analysts at JPMorgan Chase & Co. note that volatility strategy that is more effective when fast fluctuations in rates decline won’t help traders win anytime soon as volatility seems to keep being high this year. The economists reinforce their arguments pointing out that even the Fed’s key interest rate changes in rate between 0 and 0.25%.

The carry style of investing when traders borrow in lower yield currencies and invest in countries with higher returning assets has lost 4.4% this year, while valuation style of trade returned 4.5%.

UBS: franc’s role in Europe will grow

Switzerland’s GBP added 0.9% in the second quarter that was above expectations of 0.8% increase. On the annual basis it rose by 3.4%.

Analysts at UBS AG expect that Swiss currency will be regarded as the successor of the German mark as the country’s economic data is strong and is likely to remain so in the coming years. The specialists also note that Switzerland has large foreign exchange reserves and franc is regarded as a refuge currency.

Strategists at ACM Advanced Currency Markets note that as deflation threat disappeared won’t intervene to prevent national currency from appreciation. In their view, Swiss franc will reach the parity with European currency in the near term.
 
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Capital Management: AUD/USD may rise to 0.94

Australian dollar fell from 3-month maximum versus its US counterpart at 0.9220 reached on August 6 to 0.8770 level at the end of the month. After that the pair AUD/USD corrected upwards stopping last Friday at 0.9175 resistance.

Specialists at Capital Management believe that Aussie will keep recovering and testing key 0.9220 mark. In case of success, the currency will climb to 0.9400. If its rate doesn’t manage to overcome 0.9175 and then goes down below 0.9115, downtrend will be confirmed only below 0.9030 signaling that the rate is descending to 0.8770.

RBA will keep rated unchanged tomorrow

Economists expect that Reserve Bank of Australia will decide at its tomorrow meeting to keep it key benchmark rate unchanged for a fourth consecutive month at 4.5%.
Such decision of the central bank may be caused by concerns about economic problems in the United States, Japan and Europe and the necessity of deficit reduction in many developed countries. Specialists at Pacific Investment Management Co., for example, believe that the growth pace of global economy will stay below average during the next 3-5 years.

Australian outlook, at the same time, seems to be quite encouraging. Consumer prices gained 0.2% from July. The country’s economy advanced in the second quarter by 3.3% from a year earlier compared with anticipated 2.8% increase. GDP growth was helped by China’s demand for raw materials such as coal and iron that stimulated Australian exports. In addition, last quarter core prices showed the minimal growth during the last three years adding only 2.7% that is also an argument for keeping rates at current level.
Economists at Goldman Sachs expect that inflation rate will rise and interest rates will be raised in October or November.

The political situation is still uncertain. Neither Prime Minister Julia Gillard nor opposition leader Tony Abbott gained an outright majority on August 21 election, so one side must win negotiations with independent lawmakers to form government.

Commerzbank: risk sentiment will define franc's rate

Analysts at Commerzbank expect that the Swiss National Bank (SNB) will raise rates from the minimal 0.25% level by the end of 2010, while the Federal Reserve and European central bank may begin hiking rates only by the end of the next year.

The bank believes that Swiss currency will appreciate slowly versus the single currency. The possibility of deflation reduced as Swiss CPI demonstrated no decrease in August after 0.7% July fall, so the central bank is unlikely to intervene to the currency market.

In the absence of economic data this week except Switzerland’s unemployment rate that will be released on Tuesday franc’s rate will depend mainly on investors’ risk sentiment, note the specialists.

Mizuho: USD/JPY will decline

The pair USD/JPY made an upward spike on Friday to 85.20 testing the 26-day MA and then pulled back down to 9-day MA. It happened on the positive US payrolls data that lost only 54,000 versus 101,000 forecast decline.

Technical analysts at Mizuho Corporate Bank claim that this movement of the pair indicated new temporary maximum meaning that dollar’s rate will decrease again.
If the greenback falls, support levels will be at 1.5423, 1.5391 and 1.5327. If US currency advances, resistance levels will be found at 1.5492, 1.5545 and 1.5600.

Citigroup: yuan will rise to 6.7 per dollar by the year end

Chinese yuan rose to the maximal level since August 19. It happened due to the start of negotiations between Larry Summers, head of President Barack Obama’s National Economic Council, and Li Yuanchao, head of the Communist Party’s organization department.

Specialists at Citigroup Inc. believe that the United States will press China to allow yuan gain more. In addition, Citigroup notes that the greenback’s weakness also contributes to the growth of Chinese currency. The analysts suppose that yuan may climb to 6.7 per dollar by the end of 2010.

Yuan gained 0.6% versus its American counterpart since its peg to US currency was revoked on June 19.

UBS: euro rose to 3-week maximum versus dollar

The single currency reached today 3-week maximum versus the greenback at 1.2918.
Strategists at UBS claim that it happened on the positive Friday’s US payrolls data that lost only 54,000 versus 101,000 forecast decline.

Such encouraging figures eased concerns about double-dip recession in America and revived investors’ risk appetite making them increase demand for euro and growth-linked currencies like the Australian dollar.

Many traders also think that Asian central banks, excluding Japanese one, are selling dollars for euro after they intervened to stem advance in their national currencies versus US dollar.

UBS analysts note that it’s not clear how long optimistic sentiment will remain.
 
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Mizuho recommends investors to but pounds above $1.5480

Technical analysts at Mizuho Corporate Bank in London advise investors to buy British currency versus the greenback if it rises to $1.5480 looking forward to further strengthening of the pound. According to the specialists, sterling may advance to $1.56 and then $1.57. The trade should be stopped if GBP/USD gets down below $1.53, recommends Mizuho.

The strategists note that the weekly Ichimoku Cloud is very thin and MA analysis gives bullish results. Rising daily Cloud adds upward momentum as well.

Pound lost 5% against US dollar this year. The pair GBP/USD is currently trading in 1.5375 area.

Forecast Pte expects EUR/USD to rise

Technical analysts at Forecast Pte believe that the single currency may climb to one-month maximum versus the greenback if it overcomes major resistance levels at $1.2839 (50-day MA) and $1.2873 (38.2% Fibonacci retracement of euro’s decline from the August 6 maximum at $1.3334 to the August 24 minimum at $1.2588).

If the pair EUR/USD goes higher, above resistance at August 18 maximum at $1.2923, it may be able to strengthen to $1.3334, claim the specialists. It’s also necessary to pay attention to resistance at $1.2961 (50% retracement of the August decrease) and at $1.3049 (61.8% retracement).

According to Forecast Pte, all indicators suppose upward dynamics of the European currency. Euro’s MACD got above its signal line on September 3 for the first time in 3 months. The MACD today was minus 0.0009, while the signal line was found at minus 0.0023.

Danske Bank: daily forex outlook

Specialists at Danske Bank believe that forex market will keep being sideways for the second day in a row, even though US trade will open today after yesterday’s celebration Labor Day.

The Reserve Bank of Australia (RBA) kept its benchmark rate unchanged at this morning’s meeting and didn’t make any changes in monetary policy despite the recent strong domestic data. The analysts believe that Australian dollar will gain versus both its Canadian and New Zealand’s counterparts due to stronger cyclical position of the country’s economy.

In addition, the bank advised to look forward to declines in USD/JPY and EUR/JPY as the risk appetite may worsen rising investors’ demand for yen.

Mizuho: euro and dollar will lose to yen

Technical analysts at Mizuho Corporate Bank expect that the single currency and the greenback will show downward dynamics trading versus Japanese yen.

The specialists note that there is “triangle” consolidation between the moving averages for the pair EUR/JPY. Resistance at 109.50 is getting stronger and this level is likely to be the upper border of euro’s trading range this week. Mizuho strategists advise investors to sell European currency in 107.70/108.00 area stopping above 109.65. Euro may fall to 106.60, claims Mizuho.

As for the pair USD/JPY, the situation remains bearish as well and the greenback is thought to fall to 83.85/83.50. The analysts recommend selling US dollar in 84.15/ 84.50 zone stopping above 85.25.

Nomura: USD/JPY will fall to 82.50 by the end of 2010

Analysts at Nomura Securities Co. lifted up their yen forecast from 87.50 to 82.50 yen per dollar by the end of 2010. The specialists believe that Japanese currency may advance to 80 per dollar by March 2011 approaching the record maximum at 79.75 reached in 1995.

The main reasons for forecast revision were global uncertainty and decreasing yields on US debt. Yields on 2-year Treasury notes considered to be the best signal for USD/JPY rate may drop to 0.4% as the economic outlook for the United States is far from encouraging, underlines Nomura.

Commerzbank expects EUR/CHF corrective rebound

The single currency declined from Friday’s maximum at 1.3160 getting below 1.3000 today. Technical analysts at Commerzbank claim that the pair EUR/CHF is heading to the previous minimum at 1.2850. In their view, this level will be able to hold bearish pressure in the near term and, possibly, act as base for euro.

Commerzbank specialists ask investors to pay attention to divergence on daily and weekly RSI. According to them, last week the situation was the same: European currency hit record minimum at 1.2850 which wasn’t confirmed by the daily RSI, while the weekly RSI also diverged. As a result, corrective rebound of EUR/CHF seems to be quite likely.

ANZ Banking Group: reasons of Aussie’s decline

Australian currency weakened today affected by a group of factors.

Firstly, current Prime Minister Julia Gillard managed to win support of key independent lawmakers. As a result, her Labor Party will keep the government and enact a tax on mining companies.

The Reserve Bank of Australia (RBA) left its benchmark rate unchanged at 4.5% at this morning’s meeting despite strong domestic data claiming that there’s too much uncertainty abroad.

Strategists at Sumitomo Trust Bank believe that strong rebound of the world’s economy is necessary to make Aussie rise above $0.92. Economists at Australia & New Zealand Banking Group Ltd. in Melbourne note that the central bank will wait for inflation rate release in October to plan further actions that will put the national currency under negative pressure.

In addition, risk sentiment worsened due to concerns about the financial health of European governments and banks. Germany's banking association announced yesterday that the country's 10 biggest banks may need 105 billion euro of additional capital because of the banking rules revision. Consequently, demand for Aussie that is regarded as the risky asset reduced.

Bank of Japan will act timely

Bank of Japan Governor Masaaki Shirakawa claimed today that the central bank is always considering various policy options and will act in a timely and appropriate way when necessary.

Although Japanese monetary authorities are watching market moves very carefully as well as the impact of strong yen on the country’s economy, they won’t react to short-term forex and stock moves.

Further monetary easing is still possible next month, noted Shirakawa.
 
Citigroup: EUR/USD may fall to $1.22

Technical analysts at Citigroup Inc. believe that if the single currency breaks down through support level at 1.2588 last touched on August 24 it may lose 4% versus the greenback falling to hit last time on July 1.

The specialists claim that euro’s rate is affected by rising concerns about financial condition of European banks and growing sovereign spreads. Resistance for the pair EUR/USD is situated, according to them, at $1.2923.

Barclays Capital: Japan has to intervene urgently

Analysts at Barclays Capital believe that Japanese monetary authorities have to intervene to the currency market in the “immediate future” as excessive yen’s strengthening threatens the country’s economic recovery founded on exports’ advance.

The specialists warn that if Japan’s currency driven by global risk aversion keeps trading at current levels, production, as well as investment and hiring activity will escape abroad. In February exporters informed the government that they can’t make a profit if the national currency’s rate is higher than 92.90.

All in all, Japan will have to count on its own strength conducting intervention as the United States and Europe won’t raise their domestic currencies in the current economic situation and unilateral intervention will be more effective if it is unsterilized in which the central bank refrains from absorbing extra funding in the market.

Barclays strategists also note that it would be easier for Japan to weaken yen if China allowed its currency to gain more as yen tended to move in the opposite direction to the yuan during the global financial crisis started in September 2008.

CIBC markets: euro will fall to $1.19 in the first quarter of 2011

Analysts at CIBC markets claim that the single currency will keep falling getting down from 1.3335 at the beginning of August to 1.1900 in the first quarter of 2011. Then, according to the specialists, euro’s rate will reverse and rise to 1.3000 by the end of next year.

BNP Paribas: Aussie rose to 4-month maximum

Australian rose to 4-month maximum versus the greenback stimulated by strong jobs data. The currency managed to overcome resistance at $0.92 climbing to $0.9237.
The number of employed people increased in August by 30,900, while the economists surveyed by Bloomberg News were looking forward to 25,000 gain. The jobless rate decreased from 5.3% in July to 5.1% last month.

Analysts at BNP Paribas note that the direction of monetary policy in the United States and countries like Australia and Canada is completely the opposite. In their view, demand for Aussie and loonie will be higher.

The rise in the Aussie did not give its usual fillip to the U.S. dollar against the yen, via trade in the crosses, reinforcing bearish views on dollar/yen.

Morgan Stanley: EUR/JPY will reverse

Strategists at Morgan Stanley in London believe that the pair EUR/JPY will reverse and euro will start rising versus Japanese yen. In their view, the concerns of euro zone’s sovereign debt will be erased as weak euro stimulates German export.

The specialists advise to buy the single currency looking forward to its advance to 115 yen with stop-loss at 104.50.

Mizuho recommends selling USD/JPY

Technical analysts at Mizuho Corporate Bank claim that the pair USD/JPY continues trading inside the narrow channel noting that investors still didn’t get used to see the rate below 85.00 level.

According to Mizuho strategists, all elements of the chart indicate steady bearish momentum and US currency still isn’t oversold versus its Japanese counterpart.
The specialists expect that the greenback may fall to 81.95/81.50 and advise to sell dollars at 83.65/84.00 stopping above 84.95.

Commerzbank: pound’s advance was a correction

Technical analysts at Commerzbank believe that pound’s advance from 1.5300 versus the greenback didn’t change the general downtrend in GBP/USD but was simply a correction.

According to the specialists, sterling will be declining towards 1.5145 and 1.4905 levels representing 50% and 61.8% retracement of the advance from May to August.
If the British currency rises, resistance levels will be found at 1.5570 and 1.5650/1.5714 (50% retracement of the recent decline and maximums). Below these levels the outlook for the pair will remain bearish.

RBC: euro will fall to $1.10 by the middle of 2011

Strategists at Royal Bank of Canada in London believe that the single currency may drop to $1.10 by the end of the second quarter of 2011.

Such forecast is based on the negative effects that austerity measures will make on the euro zone’s economy that will appear first half of the next year.

The specialists note that governments of periphery European nations aren’t determined to make in their autumn budgets provisions for the 2011 downside risks.

PBOC reminds about euro zone's problems

Officials at the People's Bank of China (PBOC) claim that although the recovery of euro zone’s economy has turned out to be better than expected continuous debt problems will affect the region’s economic growth.

Chinese monetary authorities note that austerity measures won’t solve fundamental debt issues and underline that sovereign debt risk in Greece and Spain is still high.
As for the global economic outlook, Chinese central bank thinks that the growth pace in the major economies is generally good, while the one in the emerging markets is notably strong.

In addition, PBOC representatives confirmed that the government will continue to reform yuan’s exchange rate mechanism in order to make it flexible.
 
Negative forecasts for EUR/USD

According to Commodity Futures Trading Commission’s data, hedge funds and other large speculators increased bets on euro’s decline against its American counterpart.

Analysts at TD Securities Inc. and Bank of America Corp. believe that the single currency will weaken versus the greenback even as the pace of US economic recovery declines. The specialists note that $950 billion European bailout program won’t be sufficient to restore the market’s confidence as investors’ concerns are strengthened by Portugal’s and Ireland’s summer credit rating reductions the yields on government debt of which reached the record high compared with German ones. It’s also necessary to mention that the cost of insurance against losses on Greek and Spanish bonds rose to 3-week maximum. In addition, the leading European Germany’s economy starts to show discouraging dynamics with unexpected 1.5% decline in exports in July.

Strategists at Bank of Tokyo-Mitsubishi UFJ Ltd. underline that although both European and American currencies are weak, euro area’s problems are much more severe than US ones and this fact will certainly affect euro’s rate. Specialists at Royal Bank of Canada Europe Ltd. in London note that euro’s decline will accelerate due to the effects of austerity measures on the region’s economy.

Economists surveyed by Bloomberg expect that the common currency will trade at $1.25 by the end of 2010 decreasing to $1.22 in 2011.

Barclays: USD/JPY may rise to 85 yen

Tomorrow on Japan the election of Democratic Party’s leader will take place. The current Prime Minister Naoto Kan is opposed by Ichiro Ozawa, one of the key party’s figures proposing immediate intervention to the currency market. Strategists at Barclays Bank Plc in Tokyo claim that the pair USD/JPY may appreciate to 85 yen in case the country’s political situation stabilize.

The specialists also note that the fact medium- and long-term yield differentials between the United States and Japan increased, speaks in favor of the greenback. The extra yield of 10-year Treasuries over Japanese government bonds with similar duration added today 1.68 percentage points rising from 1.64 points on September 10.

Mizuho: EUR/USD inside 4-week channel

Technical analysts at Mizuho Corporate Bank note that the single currency is trading within its range of the last 4 weeks versus the greenback. The pair EUR/USD is attempting to form temporary base at 50% Fibonacci retracement support level.
According to Mizuho, neither euro, nor dollar is oversold, while weekly MAs have become bullish. The bank specialists advise investors to try buying European currency at 1.2795 stopping below 1.2575. First target 1.2850, then 1.2900.

Commerzbank: euro may rise to 1.2910

The single currency managed to show a strong rebound during the Asian trade and rose above 1.2800.

Technical analysts at Commerzbank believe that if the pair EUR/USD overcomes 1.2805/21 resistance area, it may become able to advance to 1.2910 zone (maximum of early September). On the contrary, below these levels euro will remain under pressure.

The specialists note that the interim minimum was confirmed at August low of 1.2588. Below this level support will be found in 1.2523/1.2490 zone.

UBS ended recommendation on GBP/CHF decline

Currency strategists at UBS AG in Singapore advise investors to stop betting on the appreciation of Swiss franc versus British pound. Such recommendation was given as the trade started at 1.5580 on September 1 led to 1.6% loss.

Never the less, the specialists still believe that franc will advance helped by the improvement of Switzerland’s economy. At the same time, sterling is thought to decline as it will be affected by UK government’s fiscal austerity program beginning on October 20.

As a result, UBS analysts confess that they are considering the possibility of re-entering this trade at a more favorable level.

China’s economic growth drives Aussie up

Analysts at KMJ Capital note that forex investors will prefer the currencies of countries having close connection to China demonstrating strong economic growth.

China’s industrial production added 13.9% in August from its 2009 level. The country’s retail sales rose last month by 18.4%, while consumer prices gained 3.5%. Imports climbed by in August reassuring investors that the demand for goods at Chinese market keeps being strong.

Australia exports raw materials to China and that's what's driving the growth of Australian dollar helping, consequently New Zealand’s dollar as well.

Strategists at Credit Suisse in New York believe that one more positive data cycle is needed to confirm US-based recovery. If 2010 GDP growth is expected to be equal to 2.9% in the United States and 1.6% in the euro area, Chinese annual growth pace is estimated by 8-10%.

Danske Bank: GBP/CHF may rise to 1.5785-1.5850

British pound was showing a downtrend versus Swiss franc. It lowered from double top at 1.80-1.8110 area formed in the second half of 2009 to trade last week only slightly above 1.54.

The pair GBP/CHF is currently in 1.5670 zone. Analysts at Danske Bank claim that sterling may rise to 1.5785-1.5850 to cap there.

In the longer term the outlook, according to the specialists, keeps being negative below 1.6760. As a result, the bank recommends selling British currency expecting that its rate will drop to the record minimum at 1.5125 hit last time in December 2008.
 
Commerzbank: dollar may fall below 80 yen

Technical analysts at Commerzbank AG in London believe that if the greenback gets down below 2008-2010 support line at 82.82 yen level it may fall below 80 yen to its post-1945 minimal levels. According to them, this can happen in the medium term.
The specialists note that the pair USD/JPY is trading within a clear downtrend and US dollar finds itself under strong pressure.

US currency fell to 79.75 yen on April 19, 1995. It’s currently trading below last week’s minimum in 83.34 area.

Ueda Harlow expects NZD/JPY to gain

Technical analysts at Ueda Harlow Ltd. in Tokyo claim that New Zealand’s dollar may rise to 5-week maximum versus Japanese yen. Such forecast is based on the Ichimoku analysis.

The specialists note that New Zealand’s currency overcame conversion line on the daily Ichimoku chart and is now moving towards top of the Ichimoku Cloud representing the maximal level since August 10. The baseline on the daily Ichimoku chart is found at 60.57 yen, while the conversion line lies at 60.73 yen.

According to Ueda Harlow, short-term outlook for NZD/JPY is improving. The strategists say that kiwi will face resistance in mid-62 yen zone and if it manages to break up through it, it will advance to mid-63 yen area.

New Zealand’s dollar that lost 9.3% since the beginning of 2010 hit on August 31 13-month minimum at 58.43 yen. The pair NZD/JPY is currently trading in 60.75 yen area.

Mizuho: USD/JPY will consolidate above 83.35

Technical analysts at Mizuho Corporate Bank note that there is a steep downtrend on USD/JPY weekly chart. According to the specialists, last week “spike low/hammer” candle was formed that means possible consolidation this week above 83.35 minimum.
The greenback isn’t oversold yet versus Japanese currency and investors begin to get used to the rate staying below 85.00 yen.

If USD/JPY declines, support level will be found at 83.58. If the rate goes up, resistance levels will lie at 84.43, 84.67 and 84.89.

BNP Paribas recommends selling pounds and dollars versus loonie

Analysts at BNP Paribas SA in London advise investors to sell pounds and US dollars versus the loonie. Such recommendation is based on the fact that the interest rate and yield differentials are moving into favor of the Canadian currency and the country wins from rising demand for commodities. The BOC won’t be able to prevent USD/CAD from declining.

The specialists note that the outlook will be better for Canada in comparison with the UK either in case of the world’s economic rebound on the terms-of-trade shock or in case of the global double dip recession due to clean balance sheets.

BNP Paribas strategists expect Canadian dollar to climb to 1.522 per pound and then show further advance. In their view, loonie may strengthen versus its American counterpart getting above the parity level.

Mizuho: EUR/USD will rise to 1.2911

Technical analysts at Mizuho Corporate Bank claim that the pair EUR/USD managed to rise above 9-day MA and is advancing to 26-day MA at 1.2911.

The specialists note that momentum is bullish and expect the single currency to advance to August maximum at 1.2933 and then to the top of the daily Ichimoku Cloud at 1.3030.

As a result, Mizuho specialists recommend buying euro at 1.2870, adding to 1.2775, and placing stop losses below 1.2575. The strategists place the target of the pair at 1.2900/1.2930 area.

USD/JPY fell after Kan’s victory

The greenback hit today 15-year minimum versus Japanese yen as Japanese Prime Minister Naoto Kan won the ruling Democratic Party of Japan's leader election that made investors believe that there will be no immediate currency intervention to stop yen’s appreciation.

Analysts at Bank of New York Mellon note that such sentiment is due to the fact that it was Kan’s opponent Ichiro Ozawa who was calling for urgent measures to hold yen’s strengthening, while Kan is expected to stay loyal to his cautious policy. The specialists also underline that political uncertainty in the country reduced after the elections’ results.

Strategists at RBC Capital Markets expect that in such situation yen will keep climbing versus dollar on the crosses. The pair USD/JPY set minimum at 83.08 so far.

Commerzbank: pressure USD/JPY will ease only above 85.23

Technical analysts at Commerzbank believe that the greenback should rise above September 3 maximum at 85.23 versus Japanese yen to diminish bearish pressure on the pair USD/JPY.

Resistance levels are still at Monday’s maximum at 84.45 and in 84.69/73 area limited by resistance line from June to September and the August 11 minimum.

Euro advanced this week on risk sentiment rebound

The single currency strengthened versus the greenback this week as the risk sentiment significantly improved.

It happened, firstly, due to better-than-expected Chinese data. Secondly, the Basel Committee on Banking Supervision approved the framework of Basel III that is the new agreement on global banking regulations. According to Basel III, recommendations for national banks will be replaced by obligatory requirements the execution of which will be controlled by the country’s central bank. As a result, concerns about the health of European banking sector eased as there will be enough time for euro zone banks that don’t yet meet new capital requirements to take necessary measures.

Today euro managed to hold Monday’s 1.6% gain setting maximum at 1.2909.
 
Citigroup: EUR/USD will rise to $1.325

Technical analysts at Citigroup Inc. in New York claim that the single currency may climb to $1.325 versus the greenback.

The specialists note that the pair EUR/USD overcame $1.292 level forming reverse “head and shoulders” figure. There are 3 minimums with the lowest in the middle.
Never the less, Citigroup strategists point out that general sentiment is still bearish, although not as strong as it used to be.

Goldman Sachs: Japan’s intervention will be a success

Analysts at Goldman Sachs Group Inc. in London believe that Japan’s currency intervention will turn out to be successful.

According to the specialists, the efforts of Japanese monetary authorities will drive yen’s down to 90 yen per dollar in a year. There is still the risk that Japanese currency will be strengthening during the next half of the year to the record maximum at 79 yen versus the greenback under the influence of US monetary easing, Japanese trade surpluses and the market’s testing the authorities’ resolve to intervene. As a result, Japan may have to sell more yens in order to prevent national currency from excessive gains that affect the country’s economy.

There are different estimates for Japan’s intervention – from $1.2 billion by the Nikkei newspaper to $20 billion from BNP Paribas SA’s point of view.

Morgan Stanley: end of recommendation to sell EUR/CHF

Analysts at Morgan Stanley in London stopped advising investors to sell the single currency versus Swiss franc. The recommendation was ended as the specialists believe that the Swiss National Bank (SNB) may intervene to the currency market to prevent franc from excessive strengthening after the same actions performed by Japanese monetary authorities. Although Switzerland’s fundamentals are still strong, the risk-reward has worsened, claims Morgan Stanley.

Hedge funds lost on Japan’s intervention

Yesterday currency intervention conducted by Japan to weaken yen from its 15-year maximum made lose hedge funds betting on the strengthening of Japanese currency.
Many funds were looking forwards to the further yen’s appreciation on the negative outlook for the world’s economy regarding it as a refuge currency. Some investors, especially Japanese, were stimulated by low returns in global stock markets. Yields on Japanese long-term government bonds remain under 2% but Treasuries yields aren't much higher. As a result, there is little incentive to go to the overseas markets.
Japanese currency that climbed by 10% since the beginning of this year slumped by 3% on Wednesday as Japanese monetary authorities sold the national currency.

John Taylor managing FX Concepts, a $7.8 billion hedge fund, notes that the situation is serious and that it’s necessary to buy some dollars. Mr. Taylor believes that yen may return higher in 1-2 months. However, he noted that the Bank of Japan tends seems to be quite decisive when the rate reaches extreme levels, so future dynamics of yen looks uncertain.

Even though the fund cut so far its portfolio in trades wagering on yen from 55% to 35%, it lost 2% on Wednesday. All in all, FX Concepts gained 12% this year also due to earlier advance of yen. Among other losers there are Aspect Capital Ltd. and Winton Capital Management.

Mizuho: USD/JPY will retest minimums

Technical analysts at Mizuho Corporate Bank claim that yesterday’s long bullish engulfing candle will make the pair USD/JPY stay above at least Wednesday’s minimum at 82.87 for the rest of the week.

The specialists regard current advance as a possibility for new decline to the minimums that may take place the next six or more weeks.

As a result, Mizuho strategists recommend selling the greenback at 85.35 with stop orders above 86.05. The target for the pair is set at 84.90 and maybe at 84.00.
 
Forecast Pte: AUD/USD may rise to 0.9850

Technical analysts at Forecast Pte in Singapore expect that if Australia’s dollar overcomes resistance at 0.95 (psychological level) and 0.9650 (May 21 and 22, June 9, and July 2 maximums), it may rise to the record maximum versus the greenback at 0.9850 set in July 2008.

Daily momentum indicators also point at Aussie’s future advance. The Australian currency’s MACD today was equal to 0.0125 that is above the signal line situated at 0.0100.

The pair AUD/USD finds itself in an upward channel created by an upper trend line that connects June 18, June 22 and August 6 maximums and a lower trend line that connects June 8 and July 6 minimums. As a result, Aussie is thought to be gaining as long as it doesn’t break below the lower trend line. Forecast Pte specialists note that Australian currency’s rate seems to be rather firm, so there are no signs of a downturn yet.

Australian dollar added this month 6.2% versus its American counterpart. Yesterday AUD/USD climbed to 2-year maximum at 94.94 cents.

Citigroup advises to sell euro versus dollar

Technical analysts at Citigroup Inc. advise investors to sell the single currency versus the greenback. Such recommendation is based on the forecast that the pair EUR/USD will lower to one-month minimum.

According to Citigroup, it’s necessary to place sell orders at $1.3095 with target at August 24 minimum of $1.2588. The specialists note that on Friday, September 17, euro capped at $1.3158 level representing 76.4% Fibonacci retracement of decline from 3-month maximum on August 6 to August 24, the minimal level since July.

On the upside, if EUR/USD overcomes resistance area at $1.3158/$1.3228, it will be able to advance to $1.3334.

Barclays Capital recommends buying AUD/USD after FOMC

Currency strategists at Barclays Capital believe that FOMC (Federal Open Market Committee) statement released today at 6:15 p.m. GMT will make Australian dollar advance versus its American counterparts. As a result, bullish investors may benefit from buying AUD/USD.

According to Barclays, the market is too strongly anticipating the quantitative easing measures. As the specialists believe that the Fed won’t act this way, there will be much disappointment among the market players. The following strengthening of US dollar will make it convenient to buy lower Aussie looking forward to US dollar’s weakening as the greenback’s bearish trend isn’t over yet.

Barclays Bank: dollar may rise to 86.50 yen

Strategists at Barclays Bank in Japan believe that the greenback may strengthen to 86.50 yen in the near term. The last time when pair USD/JPY way trading at this level was at the beginning of August. It will happen if middle- and long-term US Treasuries yields advance.

American yields, in their turn, will gain if FOMC (Federal Open Market Committee) statement released today at 6:15 p.m. GMT suggests no new monetary easing measures and if US economic indicators on housing market (Housing starts and Buildings Permits) turn out to be above expectations.

As for the technical analysis, the 55-day MA for USD/JPY in 85.85 area was acting as resistance since Wednesday’s intervention. The next resistance is found at 86.26 where the daily Ichimoku cloud comes behind the price chart.

Economists on FOMC statement’s prospects

According to the Barclays Bank specialists, the market has gone too far in its easing expectations.

Currency strategists at Wells Fargo claim that investors are looking forward for some changes from the Fed, although the prospects seem very unclear. In their view it is possible that the Federal Reserve will surprise investors as it already was in August when the central bank decided to reinvest principal payments on mortgage-related debt into longer-term Treasuries.

Economists at Pacific Investment Management Co. predict that the Fed will prepare investors for additional purchases of securities to keep borrowing costs at the low level.

Commerzbank: EUR/USD will consolidate in current range

The single currency made a significant advance last week from 1.2645 area.

Technical analysts at Commerzbank note there’s strong resistance in 1.3175 area and even stronger in 1.3220 zone (200-day SMA). The specialists believe that the latter will be able to hold the initial test. Higher the bulls will have to face August maximum at 1.3334 and double Fibonacci retracement in 1.3465/1.3510 area. According to Commerzbank, the pair EUR/USD will consolidate in current trading range in the short-term.

If the single currency declines, support will be found in 1.2935/20 zone above which the outlook is regarded as bullish. Below 55-day MA at 1.2882 the market will lose upside momentum. The rate in this case may move down to support line at 1.2720.

BNP Paribas advises to sell pounds versus Aussie

Strategists at BNP Paribas recommend selling pounds versus Australian dollars.
Bank specialists confessed that they keep preferring commodity currencies and Aussie the most. Sterling, on the other hand, seems to have quite negative prospects. British currency is strongly affected by discouraging housing market data. The number of mortgage approvals, for example, fell from 47,000 in July to 45,000 in August as yesterday’s data has shown.

As a result, UK monetary policy is very likely to remain extremely loose for longer period of time and pound will stay under pressure.

The pair GBP/AUD is currently trading at 1.64. According to BNP Paribas forecast, it will fall to 1.6230.

Commerzbank: EUR/GBP will rise to 0.8532

Technical analysts at Commerzbank believe that the single currency will advance versus the British pound as it managed to overcome pivotal resistance at 0.84.

The specialists expect that the pair EUR/GBP will climb to July maximum at 0.8532. The forecast should be revised only if euro’s rate drops below 0.8184.

The pair EUR/GBP is currently trading at new 8-week maximum at 0.8446 area.
 
BNP Paribas: euro will rise to $1.40 by the end of October

Technical analysts at BNP Paribas SA in New York believe that the single currency may rise to 7-month maximum versus the greenback as it managed to overcome its 200-day MA at $1.3220. The pair EUR/USD broke the trend line for the first time since May 2009.

BNP Paribas expects that euro will advance to $1.40 by the end of October or at the beginning of November. The fact that the European currency was able to close above $1.32 yesterday means points at its strength in the longer-term. This week its rate can rise already to $1.33 or $1.34, forecast the specialists.

On Tuesday the pair EUR/USD gained 1.6% rising from $1.3061 to $1.3265 at 4:52 p.m. in New York.

RBS Morgans: Aussie may rise to US$0.978

Australia’s currency supported by rising risk appetite renewed 2-year maximum at 0.9582 during today’s Asian trade. Then its rate lowered a bit staying between 0.9560 and 0.9570, 0.14% above yesterday’s closing level.

Australian dollar was helped today by the encouraging economic data – MI Leading Index added 0.4% in July after losing 0.1% in the previous month.

It’s very important that minutes from the Reserve Bank of Australia’s this month meeting released yesterday suggested that interest rates may be lifted up to correspond the country’s economic expansion. Specialists at Gaitame.com Research Institute Ltd. in Tokyo note that the opposite direction of Australia’s and US monetary policy will keep driving Aussie up.

Technical analysts at RBS Morgans are quite bullish on Australian dollar expecting that the pair AUD/USD will advance to US$0.978 in coming months. Some traders even bet that Aussie’s going to strengthen to parity with its US counterpart.

If the pair keeps climbing, resistance levels will be found at 0.9600 and 0.9660. If the rate goes down, support levels will lie at 0.9520 and 0.9480.

BofT-Mitsubishi UFJ: euro may rise to 114.00 yen

Strategists at Bank of Tokyo-Mitsubishi UFJ claim that the pair EUR/JPY that has renewed so far 6-week maximum trading currently above 113.0 may climb today to 114.00. In their view, the demand for the single currency has increased after the FOMC (Federal Open Market Committee) statement suggested that US monetary authorities intend to allow additional stimulus measures.

The bank’s specialists note that the market is still very cautious on the prospect that Japanese monetary authorities will perform currency intervention to prevent the national currency from excessive growth. The near term resistance level is found, according to Bank of Tokyo-Mitsubishi UFJ, at 115.00.

The Fed is expected to extend monetary easing

Although US monetary authorities didn’t announce new purchases of securities, they claimed yesterday that the Federal Reserve will be ready to conduct additional stimulus measures in case of necessity. The purpose of such policy is to stimulate the country’s economic growth and support prices.

The majority of analysts agree that the Fed aims to extend monetary easing that will certainly have a negative impact on the greenback. The Federal Open Market Committee statement also said that the FOMC keeps closely watching the country’s economic prospects and changes at financial markets.

Commerzbank: EUR/USD will rise to 1.3465/1.3510

The single currency rose yesterday above 200-day MA at 1.3210 and overcame 1.3000 level today. Technical analysts at Commerzbank claim that the pair EUR/USD is now moving towards August maximum at 1.3334 and then to double Fibonacci retracement in 1.3465/1.3510 area.

Never the less, the specialists note that there’s a gap at 1.3150, so euro may firstly lower to fill it and only then start gaining. The outlook for the pair is bullish above the 1.3020, says Commerzbank.

Analysts on negative prospects of dollar-crosses

US dollar was losing versus its major counterparts since the FOMC (Federal Open Market Committee) statement suggested that US monetary authorities intend to allow additional stimulus measures. The yields on 10-year Treasury bond dropped almost to summer minimums in 2.45/40% area.

Strategists at Barclays Capital expect that if the pair GBP/USD closes the week above 1.5680, USD/CHF – below 0.9915, the prospects of the greenback will be regarded as quite bearish till the end of this year.

Specialists at UBS suppose that it’s possible to conclude on the Fed’s comments that the monetary policy will be eased on the next FOMC meeting in November even if the country’s economic growth doesn’t get much worse. According to UBS forecast, the pair EUR/USD will keep trading 1.30 and 1.40, USD/JPY– in 83-87 range, USD/CHF – in 0.95-1.02 range and GBP/USD – between 1.50 and 1.60.

CBI reduced Britain’s 2011 growth forecast

Confederation of British Industry reduced its forecast for the pace of UK economic growth. According to the institution, the country’s GDP will add only 2% in 2011, while its previous estimate made in June pointed at 2.5% increase.

Such deterioration of the expectations was caused by the anticipated effect of the biggest postwar budget spending cut that with no doubts will harm British economy.
In addition, the CBI claimed that the Bank of England is unlikely to lift up interest rates until the second quarter of the next year.

As for 2010 GDP forecast, it was revised upwards from 1.3% to 1.6% as economic activity in the second quarter revives a bit.
 
Gaitame: AUD/JPY will fall to 2-week minimum

Technical analysts at Gaitame.Com Research Institute Ltd. expect Australian dollar to hit 2-week minimum versus Japanese yen.

The specialists note that the line, connecting September 8 and 14 minimums, shows that Aussie has reached its maximums. The pair AUD/USD went below this line on September 23, so it’s possible to say that Australian currency tests its way downwards and the line is turning from support to resistance.

According to Gaitame, Aussie will lower to its 20-day MA at 79 yen area. If its rate gets under this level, the slump to the line that connects August 25 and 31 minimums lying approximately at 78.33 yen. Last time the currency dropped below this level was on September 15.

Citigroup: loonie will rise to 0.9931 versus US dollar

Technical analysts at Citigroup Inc. believe that Canadian dollar will rise to the maximal level since April 21 versus its US counterpart at 0.9931.

It’s possible, claim the specialists, that loonie’s growth will continue up to 0.9059 stimulated by rising crude oil that is Canada’s biggest export. The analysis of crude oil’s trend, in its turn, shows that its price may advance to $100 a barrel as converged weekly MA indicate strong advance of the commodity in the near term.

Citigroup strategists note that the pair USD/CAD formed 3 minimums testing 1.0110/40 area. According to them, when it happens for the fourth time, the greenback’s rate may break down.

Canada’s dollar reached record maximum on November 7, 2007, at 0.9058.

UBS: franc keeps showing its strength

Technical analysts at UBS note that the pair USD/CHF is still trapped within the downtrend. If the greenback falls below 0.9786, it will be pulled down to support at 0.9625. If dollar’s rate goes up, resistance levels will be found at 0.9983 and 1.0183.

As for the pair EUR/CHF, the specialists expect it to trade in range 1.2991 and 1.3391. If the single currency breaks down below 1.2991, it will return to the recent minimums at 1.2766 zone.

Commerzbank: EUR/USD will consolidate

The single currency recovered versus the greenback from 1.2700 area at the beginning of September to 5-month maximum in 1.3500 zone.

Technical analysts at Commerzbank claim that further advance of the pair EUR/USD was held by double Fibonacci retracement at 1.3465/1.3510 levels. As euro has reached its initial target, it’s likely to consolidate in the near term. The bank specialists regard profit taking in this area and consequently some decline as quite possible.

If European currency manages to rise above 1.3510, it will start advancing to 1.3608 (55-week MA) and then to 1.3915 (200-week MA) in the medium term. Then the market will lose its pace and begin moving down, believes Commerzbank.

UBS cut forecast for US dollar versus euro

Analysts at UBS AG cut their short-term forecasts for the greenback versus the single currency looking forward to quantity easing conducted by the Federal Reserve. The specialists expect that the Fed will increase Treasury purchases in order to stimulate the country’s economic growth.

UBS reduced 1-month forecast from $1.28 to $1.35 per euro and diminished 3-month estimate – from $1.15 to $1.25 per euro.

It’s also necessary to mention that the strategists increased 3-month projection for the Swiss franc from 1.30 to 1.28 francs per euro.

Barclays Capital: dollar will fall to 83.90-83.50 yen

Technical analysts at Barclays Capital have negative sentiment for the prospects of the greenback in its trade versus Japanese yen.

The specialists underline that the pair USD/JPY closed lower after its Friday’s upside spike that means that market players prefer selling. Since then the pair’s rate began fluctuating within the narrow range limited on the upside by resistance at 60-day MA at 85.75 and 84.10 yen level on the downside.

As a result, Barclays Capital expects US currency to move down towards 83.90-83.50 yen.

MIG bank: GBP/USD may rise to 1.6458

Technical analysts at MIG bank claim that British pound is moving firmly upwards versus the greenback forming the second in a row bullish weekly “thrust” pattern.
The recent minimum at 1.5297 is regarded by the specialists as the end of the correction of the 1.4230/1.5997 bullish swing, with support in 1.5511/1.5675 area.

Bank analysts believe that if the pair GBP/USD manages to overcome swing’s maximum at 1.5997, it will be able to rise to 1.6458, while the key resistance will be found at 1.6878/1.7043 levels (August/November 2009 maximums).

If sterling drops below1.5511 would, it would mean that the pair’s advance from 1.5297 was corrective, increasing the risk of eventual breakdown through 1.5297 for 1.4948/1.5000 (outside week support/psychological) and 1.4781.
 
Japan sold 2.12 trillion yen during a month

Japanese Ministry of Finance announced yesterday that the country sold 2.12 trillion yen ($25 billion) during the month before September 28 to weaken the national currency the high rate of which harms exports and the economy in whole.

Analysts at NTT SmartTrade Inc. note that such huge intervention was above expectations, so the market’s players believe that Japanese monetary authorities will continue conducting intervention policy. That, according to the specialists, may help to curb currency’s gains.

Economists at Daiwa Institute of Research believe that the Bank of Japan should keep up with US monetary easing or the pair USD/JPY will remain trading within the downtrend.

Strategists at Mizuho Trust & Banking Co. point out that Japan still has plenty of resources for intervention and won’t allow yen to rise above 80 yen per dollar.

Since the beginning of 2010 yen added 12% versus the greenback showing the best results among 16 main counterparts and rising to 15-year maximum on September 15. It happened as investors significantly increased demand for Japans currency seeking for a refuge in time of severe economic issues in Europe and the United States.

New rate hike in Canada is unlikely

Bank of Canada Governor Mark Carney spoke about Canada’s monetary policy and economic prospects. Canadian retail, wholesale and manufacturing sales unexpectedly fell in July, the country’s trade deficit rose to maximum since at least 1971, while the economy lost 0.1%.

The official claimed that the outlook seems very uncertain and that the pace of the country’s economic growth reduced more than he projected due to rising household debt levels and the global economic slowdown in general.

Strategists at TD Securities note that Canada is the only nation among Group of Seven to increase interest rates this year and the Bank of Canada is very reluctant to go in the opposite direction of monetary policy than the Federal Reserve and other major central banks.

Carney told that even though the country is benefiting from rising demand global for commodities such as oil and despite the fact that the nation’s discipline of the inflation target requires a different policy approach than the loose American one, there are limits to “divergence” and Canada won’t completely fall apart with other developed countries.

As a result, it’s likely that the Canada’s central will keep interest rates unchanged as long as the United States is planning to extend monetary stimulus. The bank raised its policy interest rate by 0.25 percentage points to 1 percent on September 8, the third time this year.

The Bank of Canada’s rate meeting will take place on October 19, while the forecasts will be released on October 20.

Faros: dollar will fall to $1.50 per euro by December

Analysts at Faros Trading LLC expect that the greenback will lose by December 10% versus the single currency falling to the minimum since December 2009 at $1.50.

Such forecast is based on the fact that Asian and South American central banks sell dollars for euro. According to Faros, the volumes of dollar purchases in the two regions are equal to averagely $12 billion a day. The monetary authorities of these countries have to sell their national currencies for dollars to prevent from excessive strengthening but as they don’t want to hold US currency, the central banks sell dollars for euro, yen and sterling.

Another factor for the greenback’s weakening will be provided when the Federal Reserve announces another round of quantitative easing in the form of asset purchases in order to stimulate US economic growth and support prices, claim the specialists. The next meeting of Federal Open Market Committee will take place on November 2-3 in Washington.

It’s necessary to note that Faros correctly predicted in July that the euro would rise 6 percent to $1.3684 over two months.

Commerzbank: 1.3510/1.3465 – support for EUR/USD

Technical analysts at Commerzbank note that the advance made by the single currency in September brought euro close to April maximums at 1.3692 area where some profit taking may occur.

According to the specialists, as long as the European currency stays above support in 1.3510/1.3465 zone, the market will remain bullish. The pair EUR/USD seems to be moving upwards to 200-week MA at 1.3916 and will possibly lose steam and reverse where.

If the rate goes down below the support area mentioned above, the upside momentum will start to disappear and euro will become poised to pull back to 200-day MA at 1.3186.

Barclays: pound forecast's revised

Analysts at Barclays Plc in London changed their pound forecasts versus the single currency and the greenback pointing out that the downside risks for the British currency the short-term period have increased.

Sterling will trade at 85 pence per euro, 84 pence, 81 pence and 78 pence in one, three, six and 12 months respectively. Pound’s rate versus US dollar will be found at $1.59, $1.61, $1.64 and $1.67 in the same periods.

UniCredit advises to sell euro versus franc

Analysts at UniCredit advise investors to sell the European currency versus Swiss francs.

The pair EUR/CHF managed to climb above resistance at 1.34 returning above last month's maximum at 1.3390. According to UniCredit, the pair was helped by firm EUR/USD and rebounding USD/CHF.

Never the less, the specialists believe that franc will strengthen again due to the high uncertainty at the market and note that it’s currently the best time to get rid of euro.

Citigroup: euro will keep gaining versus US dollar

Currency strategists at Citigroup believe that the single currency will keep rising versus the greenback.

The specialists draw investors’ attention to the contrast of loose policy of the Federal Reserve that’s aiming to increase money supply and European Central Bank’s cautious approach that, on the contrary, tried to move euro’s rate up during the debt crisis earlier this year.

Such difference between US policy of monetary stimulation of the economy and European austerity measures will determine the dynamic of the pair EUR/USD, claim the analysts.
 
Mizuho: EUR/JPY advance comes to an end

Technical analysts at Mizuho Corporate Bank Ltd. in Tokyo claim that the pair EUR/JPY may start declining after 3-week advance. In their opinion, the single currency is getting close to the key resistance on the weekly Ichimoku Chart trading versus Japanese yen.

The specialists underline that euro’s short-term conversion line at 110.155 yen was below its longer-term baseline at 116.68 that means that the currency is losing momentum.

In addition, European currency has almost reached 116.68 yen area representing 50% Fibonacci retracement of its decline from April 5 maximum at 127.92 to the 9-year August 24 minimum at 105.44 yen.

The strategists note that although euro has climbed to 4-month maximum versus yen it didn’t manage to return to 120 yen level where its subsequent decrease began. It’s important that, according to Mizuho, even if the euro falls after failing to break through upside resistance, its decline will be limited by the top of a daily Ichimoku Cloud in 110 yen area.

Westpac: RBA didn't change benchmark rate

The Reserve Bank of Australia (RBA) decided today to keep its benchmark interest rate unchanged at 4.50%, while the majority of the economists expected its hike to 4.75%.

Strategists at Westpac claim that such decision of Australian monetary authorities surprised the markets noting that Aussie may find itself under negative pressure during more than 24 hours. In their view, all attention will be focused from now at the inflation data that will be released at the end of October. The specialists note that if inflation rate rises, the RBA will have to take some measures of monetary tightening.

According to Westpac, support level for the pair AUD/USD lies at 0.9460. If Australian dollar manages to bounce off this level, its rate may return to the previous range. Otherwise, there will be a greater correction.

Bank of Japan unexpectedly reduced the rate

Japanese yen survived today the biggest decline versus the greenback during the last 3 weeks as Bank of Japan reduced its key interest rate from 0.1% level on which it stayed since December 2008 to the range of 0-0.1%. According to the country’s central bank, the rates will be kept low in the longer term until prices stabilize and the economy begins recovering.

In addition, Japan’s monetary authorities pledged to expand its balance sheet by 5 trillion yen ($60 billion) to buy assets ranging from government bonds and short-term government securities to commercial papers and corporate bonds.

The BOJ maintained its bank credit program at 30 trillion yen, while its target for monthly purchases of government bonds remained at 1.8 trillion yen.

Strategists at Mitsubishi UFJ Morgan Stanley Securities note that BOJ actions turned out to be more aggressive than the market\s players had expected and believe that monetary easing will determine yen’s dynamics during some time.

Schneider: SNB won't sell the national currency

Specialists at Schneider Foreign Exchange in London claim that Swiss National Bank (SNB) won’t make efforts to devaluate its currency like the other major world’s central banks do.

According to the analysts, further franc sales may trigger the growth of Switzerland’s inflation rate, even though the country’s CPI remains within the downtrend. Growth of the money supply on franc’s market will make the SNB refrain from interventions to weaken the national currency.

Swiss franc lost 1.6% versus the single currency during the last 3 months showing the first decline since the second quarter of 2009.

Moody’s: Ireland's rating may be reduced

Rating agency Moody’s Investors Service announced today that it may again reduce Ireland's credit rating by one notch from current Aa2.

Among the reasons for the downgrade the specialists name the high amount of additional capital required by the country’s banks to survive, weak economic recovery and rising borrowing costs in form of surging yields.

As a result, Moody’s notes that there are risks to the financial strength of Irish government as well as the danger of further increase of Ireland’s debt and its serving costs.

The last time the agency cut Irish rating was on July 19, while last month it downgraded bailed-out Anglo Irish bank.

Commerzbank: resistance and support for USD/JPY

The greenback jumped from 83.15/20 zone setting maximum at 84.00 area as the Bank of Japan decided to ease its monetary policy surprising the markets.

Technical analysts at Commerzbank claim that the next resistance levels for the pair USD/JPY are found at 84.29 (20-day MA) and 85.13 (55-day MA). According to the specialists, trend reversal will be confirmed only if US dollar closes the day above the latter.

Support levels lie at the recent minimum of 82.87 and 2-year support line at 82.67. The bank supposes that the pair will be able to hold at the lower level increasing the chances of the trend’s switch upwards.

Barclays Capital: EUR/USD will advance in the near term

The single currency was advancing versus the greenback today rising from the day’s minimum at 1.3637 above 1.3770.

Euro was supported by high demand from the Asian central banks that are trying to diversify currency reserves from US dollar built up in order to curb excessive gains of their national currencies.

Strategists at Barclays Capital expect that the pair EUR/USD will continue advancing in the near term as American currency is affected by the slump of 2-year US yields to the record minimum and extreme weakness in USD/CHF that hit today 0.9656 level.

Rabobank: USD/JPY will return to 82.80

Analysts at Rabobank believe that additional monetary easing measures conducted by the Bank of Japan won’t be able to change bullish market’s sentiment about yen.

The specialists note that the policy of cheap yen didn’t help in the past. In their view, Japanese currency’s appreciation is triggered mainly by Japan's strong current account surplus and high demand for it as a refuge.

As a result, today’s actions of Japan’s central bank just delayed the USD/JPY slump to its post-intervention minimums in 82.80 area.
 
Goldman Sachs: euro forecast increased

Analysts at Goldman Sachs Group Inc. in New York revised upwards their forecasts for the single currency versus the greenback taking into account the expectations that the Federal Reserve will at its interest-rates meeting on November 2-3 start additional asset purchases (QE2).

According to the specialists, euro’s rate will be equal to $1.40 in 3 months, $1.50 in 6 months and $1.55 in a year. However, it isn’t known what previous forecasts of the bank were.

Goldman strategists note that although they’ve anticipated dollar’s weakness in the long-term, they didn’t think that US currency will depreciate so fast.

Morgan Stanley: not yet a “currency war”

The greenback has dropped this year against 20 of the 25 most-traded emerging market currencies. Last month Japan joined South Korea, Taiwan, Brazil, and Switzerland in the currency interventions policy in order to stem yen’s growth versus US dollar and stay competitive at the external market.

Analysts at Morgan Stanley in London believe that the current tensions between different nations about exchange rate policies can’t be characterized by the term “currency war” yet. The specialists base their judgment on the fact that there hasn’t been still any serious retaliation.

The emerging markets are suffering from rapid capital inflows, the necessity to tighten monetary policy and to prevent national currencies from further appreciation. These countries take “measured approach to managing currency appreciation” paralleling policy moves made the Fed, the ECB, the Bank of England and the Bank of Japan since the beginning of the financial crisis in late 2008 when they started stimulating economies by increasing the liquidity supply.

Wakabayashi: dollar will fall to 74 yen by February 2012

Eishi Wakabayashi, the currency strategist and the president of Wakabayashi FX Associates Co who has correctly predicted yen’s advance to the record maximum in April 1995, expects that the greenback will fall to the all-time minimum of 74 yen by February 2012.

Such forecast is based on the assumption that the pair USD/JPY will drop due to the concerns about the US budget deficit will turn to a real panic by October 2011. “A scary phase will start after the next northern-hemisphere summer”, warned the specialist. Yields on Treasuries will bounce, while dollar’s rate will weaken.

The 2010 decline in government yields is likely to come to an end as the US economic recovery will start gaining pace, notes the economists. According to Wakabayashi, US dollar may drop to 81 yen by the beginning of November.

Mizuho: EUR/USD will rise to 1.4400

Technical analysts at Mizuho Corporate Bank note that the single currency is climbing versus the greenback even despite the fact that the market’s concerns about euro zone’s debt problems strengthened again. The specialists note that euro managed to recover more than 61% of its losses earlier this year.

Mizuho strategists believe that if the pair EUR/USD confidently breaks above psychological level of 1.4000, another round of short-covering becomes quite possible even though it is more overbought in almost two years.

As a result, the bank recommends buying at 1.3945 adding to 1.3800 wi5th stops below 1.3600. First target 1.4000, then 1.4400.

Yen renewed 15-year maximum versus US dollar

The greenback renewed today 15-year minimum versus Japanese yen at 82.24 slumping below 82.87 where Japan started its first intervention in 6 years on September 15.
Dealers at Chuo Mitsui Trust & Banking Co. in Tokyo note that US dollar will remain under strong pressure as it’s not likely that US yields will stop declining as the country’s economic data continue to deteriorate.

Some analysts still believe that there will be no currency intervention of Japanese monetary authorities ahead of G7 meeting this weekend. Specialists at GCI Research Institute Ltd. in Tokyo, for example, claim that Japan risks bearing the brunt of international criticism for market manipulation.

Currency strategists at UBS in Zurich, however, expect that the policymakers will be focused more on China and the level of the yuan than on yen’s rate.

Commerzbank: EUR/USD reached target and will drop

The single currency advanced from the levels below 1.2700 at the beginning of September and almost reached 1.4000 gaining more than 1,000 pips in 4 weeks.

Technical analysts at Commerzbank note that the pair EUR/USD got to its target, so the possibility of euro’s decline and profit taking has significantly increased.

The specialists note that there’s 200-week MA at 1.3920 and the 1.3955/61.8% retracement of the decline from 2008 maximum. In addition, there’s Fibonacci extension of the move to 1.4000 area coming in at 1.4040/50.

As a result, bank strategists advise investors advise investors to be extremely cautious looking forward to the pair’s drop from 1.3950/4050 area to 1.3790/55 initial support. The analysts recommend either lightening up long positions or tightening up stops.

Barclays Capital: USD/CAD may fall to 0.9930

Analysts at Barclays Capital claim that the pair USD/CAD returned to the downtrend when the greenback broke down through trend line support at 1.02.

According to them, US dollar is moving down to the parity with its Canadian counterpart to retest 2010 minimum at 0.9930.

The specialists underline that the pair remained under downward pressure unless it closes the day above 1.0160.
 
CFTC: investors’ bets show that USD may advance

According to the data of Commodity Futures Trading Commission, hedge funds and other large speculators have become more bearish on the greenback than ever before. On October 5 the number of bets on US dollar’s decline versus the single currency exceeded those on American currency’s advance by 341,683 contracts.

The market’s sentiment was almost as negative at the beginning of 2008 and at the end of 2009 and it’s necessary to take into account that both time the greenback surged. The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona added 24% in the second half of 2008 and 19.6% from November 2009 to June 2010.

Mizuho: EUR/USD will consolidate

Technical analysts at Mizuho Corporate Bank expect that the pair EUR/USD will consolidate today inside a potential “flag” formation. The specialists note that there was a small “hammer” against the 9-day MA that may help the single currency provide some upward momentum.

Mizuho expects that the pair will pass the week in consolidation and closes it above 1.4030. The outlook for the European currency is rather positive. The strategists advise to take longs in 1.3960/1.3900 area stopping much below 1.3775.

Warren Buffett: euro will face serious difficulties

Well-known billionaire Warren Buffett, the head of investment fund Berkshire Hathaway, claimed that the single currency that gained 11% versus the greenback during the third quarter will face enormous difficulties.

In his view, 750 billion euro bailout program won’t be able to solve severe problems that occur from the differences among 16 euro area’s nations.

The famous investor, who has previously bet against US dollar, warned investors in May about the dangers of common currencies. Buffett noted then that entering the currency union the risk of the countries’ default run increases as they lose the ability to determine monetary policy and can print their own money no more.

As a result, it’s quite likely that the fiscal crisis in the peripheral European nations will once more get in the center of market’s attention putting euro under pressure, tells the billionaire.

RBC: pressure on China won’t ease

China’s trade surplus deceased from $20.03 billion in August to $16.88 billion in September, while the economists were looking forward to $18.5 billion figure.

Economists at Royal Bank of Canada believe that the decline of Chinese trade surplus won’t help the country to reduce international pressure for faster yuan’s appreciation.

The specialists claim that Chinese monetary authorities have enough room for letting the national currency strengthen. September data shows further impressive growth in both imports and exports. In addition, Chinese demand is still high enough to support the global economy.

Commerzbank: USD/JPY may fall to 80.77/40

The greenback fell from 85.95 yen in the middle of September to new 15-year minimum at 81.35 hit on Monday.

Technical analysts at Commerzbank claim that even though the pair USD/JPY was consolidating during the last 2 days, the general direction of its moving remains downward. The specialists note that US dollar may weaken to 5-year support line in 80.77/40 area trading versus Japanese yen and then to the record minimum at 79.90.
Below 82.78 the market remains in the power of the bears.

If the pair USD/JPY recovers, resistance levels will be found at 83.70 (20-day MA), 84.36 (the downtrend) and 84.57 (55-day MA). The rebound of the greenback will be confirmed only if it overcomes the latter.

Citigroup: AUD/USD approached the parity

Analysts at Citigroup claim that Australian currency has come too close to the parity with its US counterpart, so it will certainly manage to reach 1.00 level.

The specialists note that the Reserve Bank of Australia will almost certainly raise its key interest rate citing high consumer confidence and comments from the RBA's official McKibbin.

According to Citigroup, it would be clear during the first session after the breach of the parity if the uptrend continues or not – distinct break above the line would be regarded as a buy signal. Citigroup, however, believe that the rate may decline during the first time.

Strategists at Barclays Capital, on the contrary, claim that the pair AUD/USD may decline. In their view, Aussie may be negatively affected by Chinese trade data.

Dollar may start rising versus euro

The greenback survived from July to September the biggest quarterly decline in 8 years. Economists at HSBC Holdings Plc, BNP Paribas SA and Nordea Bank AB suppose that such slump may be the foundation for the advance of US currency. The specialists believe that the expectations of the Fed’s quantitative easing are already priced in dollar’s rate.

Bank of Tokyo-Mitsubishi UFJ Ltd. estimates the amount of bond purchases by the Fed by $500 billion, while last year the central bank bought $1.725 trillion. Bank analysts believe that US economic data hasn’t worsened to such extent that such an aggressive monetary approach becomes necessary. According to the International Monetary Fund forecast, US growth will exceed in 2010 and 2011 the euro zone’s one nearly by 1 percentage point.

Specialists at Nomura Holdings Inc. Fed’s bond purchase program will be equal to $100 billion of Treasuries a month, while economists at Goldman Sachs estimate this figure by at least $1 trillion. In their view, neither the market, nor the Fed is able to foresee how much will this amount be in reality. As a result, investors become nervous and making people nervous and dollar’s rate stays under pressure.
 
UBS: USD/CAD will rebound to C$1.0379

Technical analysts at UBS AG in Zurich believe that the greenback that dropped by 1.2% versus its Canadian counterpart this month will manage to compensate October’s losses. Such forecast is based on the “morning star” reversal pattern formed on the price chart and confirmed on October 15. This upside signal will be negated only if US dollar’s rate gets below C$0.9981.

The specialists expect US dollar to add 3.3% against loonie climbing firstly to C$1.0379 and then potentially C$1.0509. According to them, momentum for the pair USD/CAD is quite bullish.

Last Thursday US currency hit the minimal level since April 26 at C$0.9981.

UBS strategists advise investors to buy dollars this week when the pair retreats to support level at C$1.0080.

Aviva Investors: euro will finish the year at $1.45

Analysts at British insurance company Aviva Investors managing about $371 billion assets claim that the single currency will rise to $1.45 by the end of 2010.

The specialists suppose the fact that euro managed to gain 19% versus the greenback advancing from its 8-year minimum hit at the beginning of June means that the European Central Bank was quite successful in stabilizing financial markets.

Such estimate for euro’s future rate is higher than the median forecast of 44 economists surveyed by Bloomberg, according to which the pair EUR/USD will be at $1.33 by the year-end.

Aviva strategists underline that the ECB President Jean-Claude Trichet noted that the exit from emergency stimulus measures won’t be slowed down.

Last week the yield spread between Greek 10-year government bonds and similar German debt got below 700 basis points for the first time since June. In addition, the ECB’s financing of Portuguese credit institutions decreased by 19% in September, while the financing of the Spanish ones – by 11%.

Commerzbank: USD/CHF will reverse only above 0.9731

Technical analysts at Commerzbank claim that the greenback keeps trading within 3-month downtrend channel versus Swiss franc.

The specialists note that US dollar will be able to reverse the current descending trend only if it manages to break above 0.9731.

If American currency strengthens, resistance for the pair USD/CHF will be found at the minimum of the middle of September at 0.9932.

Mizuho: US dollar may fall to 80 yen

Technical analysts at Mizuho Corporate Bank note that extremely narrow trading range that we observed yesterday seems to be a ‘triangle’ consolidation within a steep ‘channel’.

The specialists believe that the 9-day MA that approached the current levels that act as a resistance capping the pair USD/JPY. According to them, US dollar may still get lower this week to 81.00 and then to 80.00 even though it’s oversold.

Mizuho strategists advise investors to take shorts at 81.50 stopping above 82.25.

Commerzbank: pound may fall to $1.5665

British pound went down from the multi-month maximum at 1.6100 to the uptrend line from the minimums of the middle of September. Technical analysts at Commerzbank note that sterling is moving down to the 1.5755 area that is the key level to confirm a top.

The specialists believe if the pair GBP/USD doesn’t manage to hold above 1.5755, it would start declining towards 1.5705 (support line from June to October) and 1.5665 (55-day MA).

According to Commerzbank, as long as pound’s rate stays below resistance levels at 1.6001 (August peak) and 1.6009 (last week’s maximum), the prospects for the pair will remain negative.

BNP Paribas: G20 will help to ease currency tensions

Analysts at BNP Paribas SA in London believe that the chances that G20 meeting will bring positive results on international currency issues have increased.

The specialists note that the International Monetary Fund uses its influence to convince G-20 participants that an agreement is a must.

In addition, the specialists note that the amount of asset purchases that is going to be announced next month by the Federal Reserve will show how ready is the US to reach out to China and avoid the currency war.

G-20 Summit will take place on 11-12 November in South Korea.
 
BNP Paribas: weak dollar will hot euro and yen

Analysts at BNP Paribas SA note that US economic performance seems discouraging and the Fed is going to quantitatively ease, so there’s no doubt that the greenback will be weak. The question, according to the specialists, is against which currencies it will be weak.

Bank strategists note that emerging market currencies will be surely poised to appreciate versus US dollar due to the higher pace of these countries’ economic growth, as well as the attractive interest rates. However, PNP points out that strengthening of developing nations’ currencies is stopped by the national monetary authorities conducting interventions. According to the analysts, the pressure from loose US monetary policy has to go somewhere else, and it’s likely to go entirely on the euro and the yen causing discomfort in Europe and in Japan.

In addition, it’s necessary to emphasize that PNP Paribas doesn’t think that the United States is weakening its currency. In their view, dollar’s weakness is a side effect of the country’s current monetary policy that’s necessary to avoid deflation.

If the US and the Great Britain do more monetary stimulus, then more liquidity will pour into market making dollar and pound depreciate. The specialists believe that such situation is quite natural and if the eurozone isn’t satisfied it has to adjust its monetary policy in the appropriate way. In fact, however, the ECB is thinking about exiting its stimulus program, while other countries at the same time regard the possibility of the entry.

BNP economists say that weaker dollar is affecting the monetary policy of other nations citing that the Reserve Bank of Australia didn’t hike although all the analysts except the ones at BNP Paribas had expected it to. The strategists note that there are too many imbalances in the global economy and more domestic demand stimulus on the emerging markets is needed to drive the global economic growth.

Barclays: EUR/CHF may fall to 1.3070

Technical analysts at Barclays Plc claim that the single currency may bring to nothing its one-month advance versus Swiss franc in case it drops below support level forming a head-and-shoulders pattern that consists of 3 maximums in a row and means downward reversal.

Barclays specialists underline that during the past month the pair EUR/CHF twice bounced off 1.3260. According to them, if this level is broken this time, euro will drop to 1.3165 and 1.3070. According to Bloomberg, the possibility of such outcome is estimated by 37%.

The franc lost 2.7% against the euro since September 15 as the Swiss National Bank reduced its inflation outlook. The euro has gained more than 5% versus its Swiss counterpart since September 8 when it hit record minimum at 1.2766.

RBC: China's growth pace slowed down only slightly

Analysts at RBC Capital Markets claim that Chinese third quarter economic data released today shows that the country’s economic growth declined only slightly. In their view, conditions are stabilizing that means that Chinese economy is strong enough for further gradual monetary policy normalization.

RBC strategists expect that Chinese rates will be raised by another 50 basis points during 2011, while the pair USD/CNY will be at 6.20 by end of next year. It’s possible that the moves of the rate will be more substantial, note the analysts.

Annual GDP growth dropped from 11.9% in Q1 and 10.3% in Q2 to 9.6% in Q3. Inflation reached new maximum with consumer prices 3.6% up in September compared with 3% increase in August. RBC underlines that China still has much to do in order to keep its economy on even keel.

Mizuho: bullish trend for EUR/USD

Technical analysts at Mizuho Corporate Bank note that large “bullish engulfing” candle formed yesterday shows that the main trend for the pair EUR/USD is bullish, while the single currency’s down moves are considered to be corrective.

The fact that euro managed to close above the 9-day MA increased the upward momentum. The specialists claim that the pair’s dynamic during the last 2 week should be regarded as an irregular “flag”.

As a result, Mizuho strategists are looking forward to the European currency’s growth to new maximums later this year. According to them, it’s necessary to open small longs at 1.3900 stopping below 1.3670. The first targets of the pair are situated at 1.4000 and 1.4150.

Stiglitz: low rates won’t help America

Joseph Stiglitz, the winner of Nobel Prize in economics, claimed that in order to help the national economy recover US monetary authorities should increase fiscal stimulus rather than unconventional monetary easing as the latter won’t be much effective.

According to him, it would only likely lower long-term lending rates by about 0.2% or 0.3%. The Federal Reserve is too focused on the interest rates, while changing interest rate isn’t going to solve all economic problems.

The economist believes that the government has to give more money to the states to save jobs so that the employees will be able to keep working and spending that would, in its turn, increase the confidence and encourage investment by companies.
 
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