Analytics from FBS Holdings Inc.

UBS: G20 meeting results

Strategists at UBS AG note that the weekend meeting of G-20 finance ministers and central bankers devoted primarily to the problems of competitive currencies’ devaluation didn’t result in some firm obligations taken by the countries, but brought only vague general agreement on the fact that the nations shouldn’t lower their currencies to promote exports and growth and on the necessity to diminish trade imbalances without any surplus/deficit targets as it was wished by the United States.

As a result, the specialists believe that the meeting won’t have strong impact on the forex market. UBS notes, however, that the risk of currency war has declined making investors’ sentiment improve that may drive up Australian and Canadian dollars, the Nordics, and the emerging markets’ currencies.

Never the less, the analysts warn that in the longer term there will be still currency tensions and trade imbalances. The second-biggest currency trader expects yuan’s rate to advance a bit rising to 6.55 yuan per dollar by the end of 2010. The market’s attention will be focused on the Fed’s quantitative easing decision.

John Taylor: pound will fall below $1.40

Famous investor and the CEO of FX Concepts Inc., John Taylor claims that spending reduction performed by the British government in order to decrease the country’s budget deficit is too big and expects the pound to fall below $1.40 already this year.

British policymakers are going to cut spending by 81 billion pounds ($128 billion) of austerity measures through 2015.

The pair GBP/USD hit 2010 minimum at $1.4231 on May 20. Currently it’s trading in 1.5740 area.

Commerzbank: USD/JPY will consolidate at 80.00

The greenback broke below October minimum at the 80.87 level trading versus Japanese yen and renewed 15-year minimum at 80.41 (2004-2010 support line) getting closer to the record low at 79.90.

Technical analysts at Commerzbank, however, expect that the pair USD/JPY will consolidate this week in 80.00 area.

According to the specialists, if US dollar rebounds, resistance levels will be found at 81.47 (channel resistance), 81.93 (last week’s maximum) and then at 82.87 (September minimum).

Barclays Capital: USD/JPY will drop to 79.30

Technical analysts at Barclays Capital believe that the pair USD/JPY will keep trading within the downtrend unless it rises above 82.00. The specialists forecast that the greenback will lower to the all-time low at 79.90 and then to the channel base at 79.30.

BNP Paribas: Japanese companies reduced USD/JPY forecast

Economists at BNP Paribas note that Japanese corporations prepare for yen’s appreciation versus the greenback. According to the bank, the main country’s exporters reduced their USD/JPY forecast for the second half of the year from 90.00 to 80.00 yen, while the rate for future investment plans is set at 70.00 per dollar.

British pound’s expected to decline

Strategists at UBS AG note that the market’s losing confidence in British Prime Minister David Cameron’s ability to make the country’s economy recover conducting at the same time the biggest ever spending cuts in the UK.

According to the specialists, 81 billion pounds ($128 billion) of austerity measures through 2015 will force the Bank of England to use quantitative easing in order to prevent new recession. As a result, the amount of pound liquidity will surge making in its turn the demand for sterling drop.

UBS economists advised investors on October 21 to sell pound, especially against such currencies as Swiss franc, Australian dollar and Norwegian krone. Analysts at BNP Paribas SA also predict that British currency is going to lose much more due to the monetary easing, while Morgan Stanley strategists specify that sterling may fall from the current level of 89.25 versus the single currency to 93 pence per euro.

It’ll be necessary to watch for Britain’s third-quarter GDP data that will be released on Tuesday, October 26, as this report will show in what condition is the country’s economy and influence November Bank of England’s decisions on monetary policy.

Barclays Capital: EUR/CHF may rise to 1.3930

Currency strategists at Goldman Sachs Group Inc. ended an October 19 recommendation to sell the euro versus the Swiss franc as the single currency advanced reaching the 1.3663 level. The trade caused investors potential loss of 1.4%.

Specialists at Barclays Capital With yield differentials in euro's favor the pair EUR/CHF is likely to gain more. The broken up so far 1.35 area became a support. According to the bank, the growth targets for the single currency are at 1.3680, 1.3870 and possibly at the 200-day MA at 1.3930.
 
RBA rate increase

Australian dollar almost reached today the parity versus its US counterpart after the Reserve Bank of Australia (RBA) unexpectedly raised interest rates for the first time in 6 months. The pair AUD/USD is currently trading in the 0.9991 area.

The RBA increased benchmark rate by 25 basis points to 4.75% as the Governor of the central bank claimed that the risk of inflation rising didn’t disappear. High rates in Australia in comparison with close to zero ones in the United States and Japan make investors pour their money into higher-yielding Australian assets that stimulates the demand for the national currency. In addition, Aussie strengthened due to the speculation that the Federal Reserve and Bank of Japan will ease monetary policy this week.

Strategists at Australia & New Zealand Banking Group Ltd. comment that December rate hike is quite unlikely, so Aussie’s advance may be limited. The specialists believe that the outlook for Australian dollar will from now depend on the greenback and QE expectations.

Forecast Pte: euro may rise to $1.4400

Technical analysts at Forecast Pte believe that the single currency may rise to the 9-month maximum versus the greenback at $1.4400 last reached on January 19 in case it manages to overcome strong resistance at $1.4004. The specialists note that this resistance represents a descending trend line connecting maximums of October 15 and 25, which crosses ascending trend line through the minimums of October 20 and 27 forming a triangle pattern.

According to Forecast Pte, euro is currently found at the top of a triangle and there are all the chances that it’ll break above the descending trend line. In other words, the strategists expect that the uptrend will continue.

Above $1.4004 the pair EUR/USD will be poised upwards to the next resistance at the October 15 maximum of $1.4159. The euro’s target of $1.4400 is calculated by adding to $1.4004 the difference between the October 20 minimum at $1.3698 and the triangle top at $1.4119 level.

ECB will have to act

Currency strategists at UBS AG believe that if the single currency keeps climbing versus the greenback the European central bank will be eventually forced to ease its monetary policy conducting some stimulus measures.

The specialists suppose that the ECB may broaden the collateral it accepts for loans or even reduce its key interest rate from the current 1%. At the same time UBS believes that more asset purchases in Europe are unlikely.

On the contrary, Bundesbank President Axel Weber is calling for an immediate end of the central bank’s bond purchase-program. The ECB’s buying is already different from quantitative easing in other countries as the central bank withdraws the resulting liquidity so that the net effect on the money supply is neutral.

Mizuho: GBP/USD may advance to 1.6500

Technical analysts at Mizuho Corporate Bank claim that yesterday’s close of the pair GBP/USD was the highest since January and above the psychological 1.6000 level.
The closing candle formed on the h4 chart is a ‘doji’ that means the market is nervous – quite natural reaction with sterling trading so high.

The specialists underline that British currency isn’t overbought and momentum is steadily bullish and look forward to advance any moment now – the target levels for the pair GBP/USD are at 1.6100 and 1.6500.

According to Mizuho, it’s necessary to buy pounds if the pair lowers to 1.6000, adding to 1.5900 with stop orders below 1.5770.

Commerzbank: GBP/USD won’t rise above 1.6108/32

Last week British currency bounced strongly versus the greenback from the 55-day MA to get in favorable position for revisiting of recent maximums in the 1.6100 area.
Technical analysts at Commerzbank believe that the pair GBP/USD will climb to test 1.6108/32 resistance zone limited by recent maximum and 3-month resistance line, but fails to overcome these levels.

If pound declines, support levels will be found at 1.5871 (20-day MA) and 1.5660/50 before 1.5526 (April peak) and 1.5474 (mid-July maximum).

UBS: dollar will rise if Republicans win

Currency strategists at UBS AG claim that if the Republicans will make strong gains in both the House of Representatives and the Senate on today’s US mid-term elections dollar will climb in the near term. According to the specialists, investors expect that government spending will be reduced if the power of Republicans increases.
The pair EUR/USD advanced today from 1.3895 to 1.3980 area.

Mizuho: mixed outlook for EUR/JPY

Technical analysts at Mizuho Corporate Bank claim that there’s a mixed outlook for the pair EUR/JPY. The matter is that Fibonacci support at 111.75 is holding, but the moving averages have crossed signaling the selling. The specialists believe that the rising daily Ichimoku cloud might provide some support.

All in all, Mizuho specialists remain bearish expecting that the single currency will get down to 111.50 and 110.50. Stop order should be placed at 113.35. The pair EUR/JPY is currently trading in the 112.60 area.
 
UBS: yuan will gradually strengthen

Analysts at UBS believe that Chinese yuan will keep gradually strengthening. In their view, this may happen due to multiple reasons, among which are the necessity to defuse international currency tensions and reduce the threat of trade protectionism, as well as to fight inflation and adjust the country’s economic structure.

However, China is expected to stay firm on its current monetary policy ignoring the external calls for faster and larger appreciation of its national currency as its monetary authorities are concerned about the state of the country’s exports sector.

UBS specialists believe that yuan’s trade-weighted index will rise by 5%/year during the next few years, while the pair USD/CNY will be trading at 6.5000-6.5500 by the end of 2010 and at 6.2000 by the end of the next year.

SocGen: invest in emerging market currencies and bonds

Analysts at Societe Generale SA expect that the demand for the emerging-market currencies and bonds that offer investors higher yields is likely to surge due to the huge monetary inflows from developed nations where the rates are close to zero. According to EPFR Global data, $39.5 billion was poured into developing-nation bond funds during the first 9 months of the year.

The world’s economy needs rebalancing and the resulting upward pressure on the emerging markets will concern primarily the currencies significantly undervalued on fundamentals in the long-term. The specialists advise investors to buy this year Egyptian pounds, Indian rupees, Korean wons and Polish zlotys. As for the debt, Societe General recommends purchasing Egyptian, Polish, South African and Czech bonds.

SocGen economists point at the fact that the liquidity injected by central banks into financial market after monetary easing is absorbed by the investments in the emerging-market assets. As a result, if the Fed goes for the second round of quantitative easing making the greenback’s rate weaken this trend will continue in the short term.

At the same time, emerging-market equities, on the contrary, don’t seem to be a good investment decision as their profitability would lower due to monetary tightening on developing nations and strengthening of their currencies. India today raised interest rates for a sixth time in 2010 and the Polish central bank is as well expected to do so this year.

RBC Capital Markets: dollar may find support after the Fed

Strategists at RBC Capital Markets believe that the greenback may be supported in case more than one Federal Reserve policy maker object to resuming asset purchases at today’s Federal Open Market Committee meeting.

In addition, the specialists advise investors to pay attention to the details of the Fed’s decision as a suggestion that there will be gradual increases of the monetary stimulus depending on the country’s economic performance may also help US dollar advance.

Barclays Capital: EUR/USD levels

Analysts at Barclays Capital note that the single currency was trading versus the greenback this week between 1.3860 and 1.4060. According to them, stops should be placed on the both sides of this channel.

The pair EUR/USD will lose bullish momentum only below 1.3860, claim the specialists. If euro manages to get above 1.4080 and then 1.4160, it will be able to climb to 1.45.

Commerzbank: USD/CHF will rebound to 0.9921

The greenback went down versus Swiss franc ahead of the FOMC decision that will be announced at 18:15 GMT.

Technical analysts at Commerzbank believe that the pair USD/CHF will find support firstly at 0.9771, and then at 0.9713.

In their view, US dollar is going to recover to the 55-day MA in the 0.9921 area. If the pair closes above these levels, it will manage to rise to the parity and then to Fibonacci retracement at 1.0118 and 1.0330.

UniCredit advises to buy euro after the Fed

Strategists at UniCredit believe that the amount of the Federal Reserve’s bond purchase announced today will be equal to $300-$500 billion.

In their view, the pair EUR/USD may get below 1.40 right after the FOMC meeting.
The specialists regard such move of the rate as the opportunity to buy euro expecting that the single currency will rise to 1.43 in the fourth quarter.
 
Commerzbank: bullish reversal of USD/JPY may be confirmed

The greenback jumped last week reaching 82.70/84 area on Friday and at the beginning of Monday’s trade. The pair USD/JPY is now trying to break up through 6-month downtrend resistance and 55-day MA in this zone.

Technical analysts at Commerzbank claim that if US currency manages to close the day above these levels, the bullish reversal will be confirmed. The specialists note that such outcome is quite likely after the triple divergence of the daily RSI.

If USD/JPY advances, it will be poised to climb to 85.94 (September maximum) and 88.00/05 (200-day MA).

Mizuho: GBP/USD will rise to 1.6300

Technical analysts at Mizuho Corporate Bank claim that the strong “doji” candle formed on Friday shows that the pair GBP/USD is attempting to form new interim base in the 1.6000 zone.

The specialists note that it’s necessary to take into account that the MAs are pointing to a long position and the Chinkou Span obtained some bullish momentum from October’s candles, while the August resistance is likely to become a support level.

According to Mizuho, investors should buy on the dip to 1.6050 stopping below 1.5950 as the analysts expect pound to rise to 1.6175 and then to 1.6300.

Mizuho expects EUR/JPY to gain

Technical analysts at Mizuho Corporate Bank claim that the big “hammer” formed on Friday on the EUR/JPY candle chart is regarded as the third and the last in the series and marks an interim minimum. The low of the “hammer” lies at 111.04, that is below 2 previous downside tests. The specialists note that the daily close above the top of a large daily Ichimoku Cloud was able to change momentum from bearish to bullish.

According to Mizuho, it’s necessary to buy on the dip to 112.50 stopping below 111.50 as the analysts expect the single currency to rise to 113.50 and then to 114.40.

Commerzbank: pound risks falling below $1.6185

The pair GBP/USD has now survived 3 attempts of the bears to break down its 20-day MA at 1.5976. As a result, technical analysts at Commerzbank see further consolidation as quite possible.

At the same time the specialists warn that there are significant downside risks as long as pound trades below Fibonacci resistance at 1.6185, so the 20-day MA may be tested again and sterling can drop below 1.5950 to 1.58.

GBP/USD is currently trading in the 1.6080 area.

UniCredit: pound will rise to 84 pence per euro and $1.62

Analysts at UniCredit SpA expect British pound to appreciate. Their assumptions are based on the fact that investors may increase demand for sterling regarding it as safer currency than euro is. The specialists are citing the deteriorating of the euro zone’s debt crisis, the concerns about Irish banking sector its possible implications for the 2011 Irish budget in particular.

According to UniCredit, when European investors choose sterling they theoretically remain in the European Union hedging themselves against euro-zone-specific risks. The strategists think that pound may rise to 84 pence per euro and $1.62.
 
Commerzbank: USD/CHF may rise to 1.0480

Technical analysts at Commerzbank note that the pair USD/CHF keeps consolidating below the psychologically important 1.0 level. The recent down moves of the rate were modest enough to suggest that the greenback has all chances to climb this week. The key support for US currency is found at 0.9780.

The specialists regard the current pattern as a potential base. In their view, if USD/CHF closes above 1.0 it will rise to 1.0329 on its way towards 1.0480.

Commerzbank: EUR/USD will consolidate before falling down

The single currency fell sharply versus the greenback from the Monday’s maximum at 1.3785 and slumped today below its initial downside target of 1.3365/35 hitting 1.3284 low so far. Analysts at Commerzbank expect the pair EUR/USD to consolidate before resuming the longer term downtrend.

The specialists believe that the next euro’s downside targets lie at 1.3230 (6-month support line) and 1.3136 (200-day MA). According to Commerzbank, the rate of the European currency won’t be able to get above 1.3525/1.3625. The bears will dominate the market below the channel at 1.3701.

RBS: ECB and euro under pressure

Currency strategists at Royal Bank of Scotland Group Plc claim that the tough determination of the European Central Bank to remove monetary stimulus and reduce liquidity support for commercial banks is intensifying the euro zone’s debt crisis.

According to the specialists, the market will pressure on the ECB to ease its monetary policy that, in its turn, will negatively weight on the European currency.

Merkel is worried about euro zone’s prospects

German Chancellor Angela Merkel called today the prospect of more euro zone’s countries applying for bailout “exceptionally serious” referring to the concerns that the debt crisis may spread to greater economies such as Portugal and Spain. Such words drew critics from other EU officials.

Greek Prime Minister George Papandreou claimed last week that the German position makes the yields for indebted countries such as Ireland or Portugal surge. As a result, their market financing becomes more expensive and the possibility of their default increases.

Investors were selling the single currency on Merkel’s remarks. The pair EUR/USD hit 2-month minimum at 1.3284.

According to the officials at the European Commission, Ireland may need 85 billion euro ($114 billion). Of the total, 35 billion euro would go to banks and 50 billion euro to help finance the government. Analysts at Lloyds TSB Corporate Markets note that investors have completely lost confidence in the efficiency of the nation’s rescue program and its ability to end the European turmoil. As a result, the risk to the euro area’s financial system as a whole keeps surging.

Tomorrow Ireland’s government is expected to announce welfare cuts by about 800 million euro in 2011 as part of its 4-year plan to reduce its budget deficit from 12 to 3% of GDP. The county’s corporate tax rate may remain at 12.5%, while the minimum wage can be diminished by 12%.

Mizuho: interim maximum on USD/JPY

Technical analysts at Mizuho Corporate Bank note that the first signs of interim maximum appeared yesterday on the USD/JPY chart. The greenback reached 7-week at 83.85 yen.

Large doji against Fibonacci resistance and a daily close below the top of the daily Ichimoku Cloud mean that the bulls won’t be able to push the rate in the near term any higher and the pair USD/JPY will likely remain capped by 83.85 level until the end of the week.

Support for the pair will be found at 9-day MA at 82.75 it was on Tuesday.

Rabobank about the situation in Ireland

Analysts at Rabobank claim the Irish bailout won’t make the problems of the euro area vanish. On the contrary, they believe that many issues are going to arise in the next few months. The specialists agree with the opinion that the concerns about Portugal's and Spain's debt woes ruined the recent advance of the single currency.

According to Rabobank, the initiative of Ireland's Green Party to conduct new elections may mean that the country will be an object of concern for a longer period of time. The possibility that the party that participates in the coalition government won’t support Ireland’s austerity plan isn’t high, but if it happens euro may find itself under even more severe pressure. Now political uncertainty increases the volatility of EUR/USD.

The bank also commented on China as investors try to make out when the country’s monetary authorities will tighten monetary policy. The expectation of the rates hike will limit the advance of the currencies closely tied to the pace of the world’s economic growth letting US dollar strengthen against Norwegian krone and Brazilian real.
 
Barclays Capital: Aussie will lose versus commodity currencies

Analysts at Barclays Capital claim that massive flooding in Australia and the impact of China rate hikes will make Australian dollar lose versus other commodity currencies, especially versus its Canadian counterpart.

The specialists say that the floods will negatively affect coal and wheat exports from Australia reducing economic activity and possibly even the RBA's tightening bias.

The greenback will find support in 2011

Many currency strategists believe that the greenback’s likely to remain supported in 2011 taking into account continuing concerns about the European sovereign debt crisis and the fact that it’s still the preferred reserve currency of the emerging countries.
On December 30, the International Monetary Fund released a report showing that the dollar share of developing countries’ new official reserves rose in the third quarter.

Analysts at Barclays Capital note that there are serious dollar-negative factors such as the coming of further easing measures, concerns about the US fiscal situation and media speculation of currency wars, dollar devaluation and even dollar debasement.

However, none of these factors overcame the need to rebuild dollar stocks depleted during the crisis, the need to slow local currency appreciation against the dollar, and the general tendency to buy more dollars when it cheapens.

Commerzbank: euro’s rising versus Swiss franc

The single currency surged versus Swiss franc from the day’s minimum at 1.2454 to 1.2590. Such advance may have been triggered by the stops.

Technical analysts at Commerzbank note that as the pair EUR/CHF lost downside momentum and there’s a large divergence on the daily RSI euro may survive a corrective rebound in the near term.

The specialists advise investors to buy the European currency in case of any decline of the rate to 1.2440/00 area stopping at 1.2375 aiming to take profit at 1.27.

Citi: resistance for USD/JPY

The greenback continued its yesterday’s advance versus Japanese yen reaching 82.27 yen level. Stops were triggered through 82.00 in Asia and 82.20 at the beginning of the European trade.

Analysts at Citi note that resistance for the pair USD/JPY will be found at the 55-day MA at 82.60 and the top of the Ichimoku cloud at 82.95.

Commerzbank: EUR/USD under pressure below 1.3500

The single currency strengthened versus US dollar during the last week of 2010 but didn’t manage to break above the 1.3496/1.3500 area limited by the 55-day MA and December maximum resistance. According to technical analysts at Commerzbank, as long as euro keeps trading below this zone, it will remain in bearish hands.

The specialists believe that below 1.3500, the pair EUR/USD may drop to the 200-day MA at 1.3085 and the recent minimum at 1.2970. If euro succeeds and overcomes 1.3500, it will aim to 1.3781/86.

Barclays Capital: USD/CHF will drop below 0.90

The greenback rose by one cent versus Swiss franc from the record minimum at 0.9320 hit on January 3 getting above 0.9420.

Never the less, currency strategists at Barclays Capital note that the outlook for USD/CHF is the most negative among dollar crosses noting that the pair completed a large bear “flag” in December.

The specialists note that resistance levels are found at the previous range lows near 0.9430 and 0.9500 where the sellers will likely increase their efforts. In the next months the greenback is expected to fall to 0.9210 and then go further down below 0.90.

Yuan's appreciation will slow down in 2011

The world’s leading currency analysts believe that yuan’s strengthening will slow down this year as China’s trying to reduce monetary inflows in order to fight raising inflation. In 2010 Chinese currency for the first time in 17 years climbed above 6.6 yuan per dollar. Since June yuan’s rate gained 3.6%.

Specialists at JPMorgan Chase & Co., the most accurate forecaster of yuan’s rate by December 31, 2010, expect yuan to gain 4.6% to 6.3 yuan per dollar. Analysts at ING Groep NV and HSBC Holdings Plc who have made the next most accurate predictions suppose yuan will climb by 3.8% to 6.35 yuan per dollar.

Chinese consumer prices rose in November by 5.1%, that’s the biggest advance in 28 months. The country’s GDP added 9.6% in the third quarter from the previous year’s level, after expanding by 10.3% in the second quarter and 11.9% in the first. The People’s Bank of China increased banks’ reserves requirements 6 times last year. In addition, Chinese monetary authorities lifted up on December 25 1-year lending and deposit rates by 25 basis points after lifting borrowing costs for the first time since 2007 in October.

Strategists at HSBC note that the Europe’s debt crisis negatively affects demand for the emerging-market assets and weak euro will limit the yuan’s ability to appreciate. According to them, China’s inflation will peak in the first quarter and this will relieve pressure on the central bank to use the yuan for combating inflation. ING’s economists think that to reduce inflation China will impose price controls and use administrative measures.

UBS: it’s necessary to diversify currency assets

Analysts at UBS note that the traditional “Big Four” currencies – US dollar, euro, pound and yen – will be challenged in 2011. As a result, the specialists advise investors to diversify their assets with the currencies of commodity producers and emerging markets.

Estonia entered the euro zone

In the situation when the euro zone's suffering from the debt crisis and Portugal and Spain risk following the pattern of Greece and Ireland asking for financial bailout the currency union enlarges comprising Estonia – its newly-made 17th member.

Estonia became the member of the European Union in 2004 after it left Soviet Union in 1991. In 2010 the country’s unemployment rate swelled to 20% as Estonia was trying to recover from a recession – in 2009 its GDP contracted by 14%. According to Estonia's central bank, in 2010 Estonian GDP expanded by 2.5% and in 2011 it will add 4.2%.

Entering the euro zone has for a long time been the goal of the country. Prime Minister Andrus Ansip claimed that Estonia is the poorest country in the euro zone, so it has a lot of things to do also now after this goal is accomplished. Estonian policymakers are convinced that the adoption of euro will encourage investors and stimulate businesses as 80% of Estonia's trade is within the EU.

However, many analysts believe that the timing for entering the block is far from good as the euro area has a bunch of internal issues. A recent opinion poll conducted in Germany showed that 49% of respondents want to leave euro and return to the deutschmark.
 
Commerzbank: USD/CHF may rise to 1.0067

Technical analysts at Commerzbank note that the greenback keeps rebounding from 15-year support line trading versus Swiss franc. USD/CHF climbed to the 0.9684 representing 50% retracement of December decline. According to the specialists, some intraday consolidation seems to be quite likely. Commerzbank sets the target of the pair at 0.9747/74 and above it at 0.9875/0.9905 on the way to December maximum at 1.0067.

Analysts at UBS note that they’ll remain cautious until the release of the actual payrolls and the speech of Fed’s Chairman Ben Bernanke on Friday. The strategists draw investors’ attention to the weekly jobless claims that are due today. In their view, dollar may find further support in case fewer than 400K claims are reported.

RBC: forecast for NZD/USD

Currency strategists at RBC Capital Markets note that New Zealand’s dollar keeps weakening versus US dollar. In their view, it happens due to the general strength of American currency. The specialists say that investors are going to take profits in all the positions that showed such good results during the holidays and at the end of 2010.
According to RBC, now it’s necessary to focus at US non-farm payrolls due on Friday as the analysts are hurrying to increase their estimates for the jobs data after the Automated Data Payroll surged above forecasts adding 297K in December while the economists were looking forward only to 101K advance.

Taking into account the recent dynamics of the rate there’s the risk of US dollar’s decline. Initial support is at 0.7540, while the resistance level is found at 0.7600.

BNP Paribas: AUD/USD may decline to 0.9850

Specialists at BNP Paribas believe that the rate of the pair AUD/USD is affected by the stop-orders selling and the greenback’s strength. In their view, Aussie’s going down to 0.9850.

However, the analysts think that investors shouldn’t turn absolutely bearish on Australian dollar because of the Queensland floods. The bank points out that the necessary reconstruction work will require foreign capital stimulating GDP growth. That will, in its turn, have positive impact on the national currency that may offset some of the declines.

Mizuho: GBP/USD may move up

Technical analysts at Mizuho Corporate Bank note that British pound’s consolidating versus the greenback inside a kind of “triangle” formation. Sterling’s currently holding roughly between the moving averages. It’s necessary to watch whether the Lagging Span takes any support from the growth candles at the beginning of December.
The specialists advise to try small longs at 1.5515 stopping below 1.5400. The pair GBP/USD may move up to 1.5650.

Barclays Capital: pressure on euro will ease above $1.3425

Analysts at Barclays Capital believe that the single currency will go down versus the greenback to 1.31 ahead of Friday’s US non-farm payrolls data.

The specialists note that if EUR/USD breaks below 1.3050, the risk of its decline to 1.2795 and 1.2680 later in January will increase.

According to Barclays, euro will be able to ease negative pressure only if it rises above 1.3425.

Soros: bailout's too expensive for Ireland

Next week Ireland begins getting its 85 billion euro ($113 billion) bailout. Many investors doubt that the country will be able to repay its debts. As a result, during the past 6 months the cost of insuring against default for 5 years with credit-default swaps has more than doubled to a record maximum of 628 basis points.

The famous billionaire George Soros last month expressed an idea that Ireland will have to renegotiate its deal with the European Union and the International monetary fund.

According to the conditions, part of the bailout includes money to recapitalize the country’s banks, which the government agreed to reduce in size. Ireland can also tap into 50 billion euro to cover day-to-day spending for the next three years. In return, Prime Minister Brian Cowen’s government agreed to reduce spending, raise taxes and cut the minimum wage. As part of the bailout accord, the government pledged to protect holders of senior bank bonds that Soros regards as “politically unacceptable”. The investor also believes that 5.8% interest rates charged on rescue packages should be lowered in order to avert the risk “that the euro may destroy the political and social cohesion of the EU”.

John Taylor: 2011 currency forecast

John Taylor, the head of the world’s largest currency hedge fund FX Concepts LLC managed to achieve in 2010 the best returns equal to 12.53% since the pre-crisis time in 2006 when the firm gained 18.58%. His success was due to the bets against euro in the first half of the year and selling dollars later.

According to Taylor, the fund focused on selling currencies of nations whose central banks and governments pumped the most cash into the financial system. The specialist’s sure that the rates’ dynamics seems currently to be function of global liquidity trends.

In the Fed’s first series of asset purchases, which ended in March, the central bank bought $1.75 trillion in securities, including $300 billion in Treasuries. The Fed has injected about $177 billion into the banking system under the new round of quantitative easing.

Taylor claims that in 2011 the single currency may fall below the parity with dollar, while Australian dollar and Brazilian real are likely to keep appreciating. While selling euro, FX Concepts expects that the greenback will weaken versus commodity currencies into the second quarter and then rebound as the Fed ends debt purchases in June, while commodities will drop. In addition, Taylor notes that dollar will get a boost if congressional Republicans cut government spending.
 
Credit Agricole: Aussie may fall to $0.9752

Analysts at Credit Agricole note that Australian dollar wasn’t successful at the beginning of the year trading versus its US counterpart. In their view, Aussie has more difficulties on its way: the currency will find itself under the negative pressure as investors aren’t sure any more that the Reserve Bank of Australia will lift up interest rates, while export income will lower due to the flooding that causes mining disruptions. In addition, the specialists underline that no one can predict what the extent of damage from flooding will be.

According to Credit Agricole, there’s the chance that the pair AUD/USD will fall to the technical support at 0.9752 or possibly even lower to the 0.960/70 zone. The analysts, however, underline that any decline of Australia’s dollar will be temporary providing better levels to buy the currency.

The strategists expect AUD/USD to finish the first quarter at 1.02. By the end of the year the pair’s rate is likely to reach 1.06, claims Credit Agricole.

Ueda Harlow: euro will rise to $1.3499

Technical analysts at Ueda Harlow Ltd. believe that the single currency will climb to 1-month maximum versus the greenback.

The specialists note that yesterday the pair EUR/USD managed to rise above key technical levels. According to the daily Ichimoku chart, euro got above conversion and base lines approaching the Cloud. These lines will likely become support for the rate. If the conversion and base lines create a floor, the Ichimoku Cloud will come down and upward pressure for the European currency will gradually increase.

Ueda Harlow projects that EUR/USD may advance to $1.3433 reached on January 4 and December 14 maximum at $1.3499. If euro overcomes these levels, the trend will switch to the upward mode. The lagging Chinkou Span will enter the Cloud and euro should keep advancing, say the analysts.

JPMorgan: Ireland’s funding rate should be reduced

Analysts at JPMorgan Chase & Co think that the EU has to reduce the 5.8% average interest rate on 85 billion-euro ($113 billion) emergency aid to Ireland by 50% or 250 basis points. Otherwise, the indebted country won’t be able to get out of the crisis without debt restructuring. The borrowing rate is critical given that economic growth will be very weak for some time due to severe fiscal tightening.

Specialists at Barclays Capital share the opinion that the funding costs for Ireland are to be lowered by 200-300 basis points.

According to the IMF forecast, Irish economy will add less than 1% this year and below 2% in 2012. EU estimates that the ratio of Irish debt to GDP will reach 114% next year, while in 2007 it was equal only to 25%. The difference in yield between 10-year Irish debt and benchmark German bonds staying above 500 basis points, compared with an average of about 60 during the past decade.

Mizuho: EUR/USD will climb to 1.35

Technical analysts at Mizuho Corporate Bank note that the single currency is showing the biggest daily advances versus the greenback during several months.

The specialists claim that euro’s rally this week from Monday’s minimum at 1.2873 repeats last week down move like a mirror. In their view, such dynamics of the pair EUR/USD can be explained by the low trade volume at the markets.

According to Mizuho, if euro closes the week above 1.3400, bullish momentum will significantly strengthen.

The analysts advise investors opening small longs on a drop to 1.3315 but only if prepared to add to 1.3200. Stops should be placed below 1.3100.

EUR/USD may rise to 1.3500, where another short-covering round is likely.
 
20/01/11

HSBC: China will lift up rates already in January
Analysts at HSBC believe that China will raise interest rates for the first time this year before Lunar New Year, in other words, within January. The specialists note that as the released today data showed that Chinese economic growth turned out to be higher than expected the country’s authorities can now focus on stemming inflation.
China’s GDP gained 9.8% in the final quarter of 2010 compared with the previous year’s level, while the economists were looking forward only to 9.4% advance. The country’s CPI rose by 4.6% in December on the annual basis after it had added 5.1% in November.
The strategists regard the easing of inflationary pressure as temporary and think that inflation’s likely to rebound in the coming months due to seasonally buoyant demand around the Lunar New Year, with a shortage of food supply due to a cold winter, excessive credit growth and rising global commodity prices.
According to HSBC, China will increase banks' reserve requirement ratio by 150 basis points and make two 25bp rate hikes in the next 6 months.

Commerzbank: euro failed to close above $1.35 yesterday
Technical analysts at Commerzbank say that the fact that the single currency didn’t manage yesterday to close above 1.35 versus the greenback seems to be disappointing.
The pair EUR/USD declined from 8-week maximum at 1.3538 reached on Wednesday to trade currently in the 1.3460 area.
The specialists believe that euro’s rate will retain a neutral to bid tone while it holds above its 20-day moving average at 1.3223. The bank still doesn’t eliminate the possibility of the pair’s advance towards 1.37 and 1.40.

Daiwa SB Investments: Aussie declined versus yen
Australian dollar fell to minimum since December 7 trading versus Japanese yen. Specialists at Daiwa SB Investments suppose that Aussie’s decline happened as Asian equities perform weak today and, consequently, investors’ risk aversion’s increasing.
The main factors pushing AUD/JPY down were ongoing concerns about the flooding and lower AUD/USD.
According to the strategists support for the pair UD/JPY lies at 81.25. Daiwa SB Investments also note that it’s necessary to pay attention to the Dollar Index as if it falls below the important technical support of 78.00, US currency may significantly drop especially versus euro.

Commerzbank: NZD/USD will trade sideways in the medium term
Currency strategists at Commerzbank expect that the pair NZD/USD will trade sideways in the medium term. According to the specialists, the attempts of kiwi to get higher will be limited by 78.6% Fibonacci retracement of the rate’s decline from November to December at 0.7854 or by November 11 maximum at 0.7876.

Credit Agricole recommends selling pound
Analysts at Credit Agricole advise investors to look forward to pound’s decline in the short term even despite yesterday’s more hawkish speech from Bank of England MPC member Adam Posen.
The bank recommends selling sterling especially versus Japanese yen and Swiss franc.
In addition, the strategists say that CBI industrial trends survey that is released at 11:00 GMT may turn out to be worse than expected increasing the negative pressure on the British currency.

Mizuho: USD/JPY may fall to 80.21
Technical analysts at Mizuho Corporate Bank claim note that US dollar closed on Wednesday below the bottom of the daily Ichimoku cloud trading versus Japanese yen.
As a result, the specialists believe that the pair USD/JPY may be now poised to decline to January's minimum at 80.93 and then to October minimums in the 80.21 area.
According to Mizuho, it’s necessary to sell the greenback at 82.25/40 stopping above 82.75 for targets of 81.85 and 81.00.

Nomura: sell euro versus British pound
Analysts at Nomura International advise investors to sell the single currency versus British pound. In their view, fiscal restructuring conducted by Britain’s government will be credible and supportive for the national currency.
In addition, UK inflation is likely to remain high during the next few months making the Bank of England raise interest rates earlier than expected. One more factor positive for sterling is the overseas investors’ demand for gilts.
Investors should sell buy pounds around the level of 84.50 British pence per euro with a target of 81 pence stopping above 86.50 pence.
UK inflation accelerated to an 8-month maximum in December as food and fuel prices rose. Consumer prices climbed 3.7% from a year earlier after a 3.3% increase in November. In October 2010 Prime Minister David Cameron’s government announced the biggest budget cuts since World War II to curb the record budget deficit.
Nomura also recommended selling the euro versus the Australian dollar as the economic impact of the flooding in the South Pacific nation may be limited.

On-line analytics from FBS always is available on : http://www.fbs.com/analytics/news_markets
 
31/01/11

Commerzbank: comments on EUR/USD
The advance of the single currency versus the greenback from January 10 minimum at 1.2870 was limited by the 61.8% Fibonacci retracement of the decline from November to January at 1.3760 and the pair EUR/USD retreated to 1.3570.
Technical analysts at Commerzbank expect euro to lose more lowering to support in the 1.3500/1.3316 area (December maximum and 55-day MA). Then the European currency may make one more attempt to strengthen, say the specialists.
According to Commerzbank, if EUR/USD overcomes November 22 maximum at 1.3789 it will be able to climb to 1.3978/1.4000.

UBS: yen’s temporarily not used for carry trade
Currency strategists at UBS claim that the greenback is trapped between 80 and 85 yen since late September 2010. The specialists believe that such dynamics of the pair USD/JPY may be partly explained by the current steep slope of yield curves all over the world. As a result, investors benefit from carry trades in one currency: they borrow and lend without taking any forex risk.
According to UBS, yield curves will flatten only when the Fed stops QE and investors start to consider major central bank rate hikes in second half of 2011 and in the first half of 2012. By then, traders will switch back to cross-currency carry trades borrowing in yens and buying higher yielding foreign currencies.

MIG Bank: comments on USD/JPY
Last week the greenback made an attempt to bounce but didn’t manage to overcome the 83.20 level.
Technical analysts at MIG Bank claim that as long as the pair USD/JPY is trading below the resistance in the 83.22/68 area, the outlook will remain bearish. The specialists note that US dollar may fall to support at 81.85 and then 80.93 minimum ahead of November swing low at 80.24.
According to MIG Bank, the pair will confirm a base at 80.90 only when it gets above December maximum at 84.51. Then the pair will be able to rise to 85.94 and even 88.14/90.00.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets
 
Mizuho: EUR/USD consolidation will take 1-2 weeks

The single currency rose from minimum versus US dollar at 1.2870 to last week’s maximum at 1.3760 representing Fibonacci 61% retracement resistance before easing down. The pair EUR/USD is currently trading in the 1.3740 zone.

Technical analysts at Mizuho Corporate Bank note that last week euro formed a “doji” candle on the weekly chart that may mean the consolidation below the recent maximums during the next 1-2 weeks.

The specialists also claim that the European currency managed to hold above the key support of the Ichimoku Cloud top at 1.3500. In their view, if EUR/USD continues on the same lines it will be able to break higher will occur sooner.

BNP Paribas: euro will fall versus the greenback

Currency strategists at BNP Paribas SA expect the European currency to decline versus the greenback as it loses support from the factors that were driving it up during the recent weeks: the expectations of the ECB rate hike and the permanent solution of the debt crisis are weakening. As a result, investors will turn pessimistic and the demand for euro’s going to diminish. So, underlines BNP Paribas, upside potential for the pair EUR/USD seems to be limited.

In addition, the analysts say that the EU leaders’ meeting scheduled on February 4 will disappoint the markets as the agreement probably won’t live up the expectations and take longer than estimated.

According to the bank’s forecast, in 3 months euro will fall by more than 7% to $1.27 before slumping to $1.20 later this year.

The single currency has managed to add more than 2% versus the greenback in 2011 after losing 6.5% the previous year.

Barclays Capital: Japan will keep buying EFSF bonds

According to the estimates of Barclays Capital, the single currency accounts for 21%-24% of Japan’s official currency reserves. As a result, the analysts conclude that the Asian country’s monetary authorities may continue buying EFSF debt at the rate seen in last week's first EFSF bond issue. Japanese government bought more than 20% of euro zone’s debt without significant changes in the currency composition of its reserves.

Continued purchases may ease the pressure on the holders of European debt and help to stabilize euro’s rate.

Mizuho: sterling will keep strengthening

British pound surged yesterday trading versus the greenback rising from the day’s minimum at 1.5820 to maximum at 1.6048 and compensating all the losses it made last week.

Technical analysts at Mizuho Corporate Bank note that the pair GBP/USD broke through the weekly "flag" formation and got today above resistance at 1.6060. In their view, sterling’s going to strengthen more.

The specialists say that all elements of the weekly Ichimoku Cloud point at the necessity to buy pounds. Investors should, however, pay attention to the strong resistance all the way up to 1.7800. The monthly close at 1.6000 has slightly increased bullish momentum.

According to the bank, resistance levels are found at 1.6080, 1.6100 and 1.6170/85. In case the British currency declines, support levels will lie at 1.6000, 1.5950 and 1.5915.

Niesr: Bank of England will make 3 rate hikes in 2010

Analysts at the British National Institute of Economic and Social Research (Niesr) expect that the Bank of England will increase interest rates 3 times this year in order to ease inflationary pressure. According to their forecast, by the end of 2011 the BoE will raise its key interest rate to 1.25% from the current 0.50% level. In October the specialists were looking forward to one rate hike to 0.75%.

In addition, the institution lifted up its 2011 inflation forecast from 2.8% to 3.8%. In December UK consumer-price growth accelerated to 3.7% on the annual basis, while the central bank’s target lies at 2%.

On the Monetary Policy Committee’s last meeting that took place on January 13 there were already 2 members calling for the rate increase: Martin Weale joined Andrew Sentence who was proposing such step since June 2010.

RBC: European inflation’s provoked by the Fed

Analysts at Royal Bank of Canada believe that quantitative easing program launched by the Federal Reserve in November may be the reason of rising inflation in Europe. The specialists note that the policy of US monetary authorities create inflationary problems in the European countries even despite the fact that American prices themselves don’t surge.

“Maybe look to the UK, where as in the US, there are no domestic cost pressures driving up inflation. Maybe look to the European Union. Maybe look to commodities, which are adding to pressures in many countries, but not in the US”, Bloomberg cites the economists’ view.

Aussie rose after the RBA statement

Australian dollar rose today above the parity with the greenback after the Reserve Bank of Australia decided to keep the benchmark interest rate unchanged at 4.75%. Analysts at Nomura claimed that the RBA was cautiously hawkish removing the markets’ concerns about the possible reduction of the rate, so there was no chance for bears.

According to the country’s central bank, global economy looks strong and there are signs of rising private investment in the nation amid higher commodity prices. In addition, the RBA expects wages to keep increasing this year, while inflation is projected to stay at the target range of 2-3%.

Demand for the Aussie surged as the state of New South Wales sold A$1.55 billion ($1.55 billion) of bonds.

The pair AUD/USD is currently trading in the 1.0065 area up from the day’s minimum at 0.9963. Nomura strategists say that Aussie may head up towards $1.0330 as growth in Asia and the US stimulates demand for commodities.

Economists at Royal Bank of Scotland suppose that the RBA is not in any immediate hurry to change rates in either direction, so Australian currency is going to struggle to climb higher.

MIG Bank: comments on USD/JPY

Analysts at MIG Bank note that the pair USD/JPY broke through support at 81.85 and renewed one-month minimum at 81.47. The specialists claim that as long as the greenback’s trading below resistance at 83.22 it risks falling to the last reaction minimum at 80.93 and then to the 15-year minimum at 80.24 hit in November.

MIG Bank: comments on GBP/USD

Analysts at MIG Bank note that British pound jumped today from the minimum at 1.5820 getting above 1.6100.

The specialists claim that sterling’s decline from November’s high at 1.6299 to December’s minimum at 1.5345 is now regarded as correction of the advance from May’s minimum at 1.4230 to November’s maximum at 1.6299. In their view, the pair GBP/USD may ease to 1.5751/1.5900 before rising to 1.6299 on its way to 1.6878/1.7043.

If pound falls below support in the 1.5749/1.5900 area, bears will regain control of the market. In such case the British currency will risk falling to the swing minimum at 1.5345 and below this level to psychological mark of 1.5000.

EUR/USD renewed 2-month maximum

The European currency rose to the 2-month maximum versus US dollar on the expectations that the European Central Bank will raise interest rates earlier than the Federal Reserve due to the increasing inflation pressures in the euro zone.

According to the data released yesterday, the region’s inflation rose by 2.4% from the level of the previous year, the fastest pace since October 2008.

Currency strategists at Danske note that the pressure on the ECB has strengthened ahead of its Thursday meeting. The specialists remind that the ECB has hiked rates when inflation was previously at this level, so it's possible they could do it again.
Analysts at Nomura International say that the situation may change if the US data this week is stronger than expected. In such case US yields will head higher providing support for the greenback.

Barclays Capital: US dollar loses to commodity currencies

Analysts at Barclays Capital note that investors’ risk sentiment has revived. As a result, demand for US bonds went down, while US stock markets, on the contrary, found support. Commodities prices increase, so the greenback’s weakening losing to the commodity currencies.

According to the specialists, if the pair AUD/USD closed today above the parity, it will be able to revisit December maximums in the 1.0260 area.

As for the pair USD/CAD, American currency finds itself under pressure as long as it’s trading below the resistance at 1.0055 and targets January minimums in the 0.9834 zone.

New Zealand’s dollar will face resistance at 0.7815, says Barclays, but as soon as it overcomes this level it will head up to November maximums in the 0.80 region.
 
07/02/11

US trade balance deficit may have widened in December
According to the median forecast of the economists surveyed by Bloomberg News, US trade deficit may have increased from the $38.3 billion in November to $40.2 billion in December for the first time in four months. The data will be published by the Commerce Department on February 11.
Specialists at Wells Fargo Securities believe that shortfall widened due to the growth if the imported oil prices. The price of imported petroleum climbed 3.9% December from November’s level and 14% from the previous year, claims the Labor Department.
Moreover, imports may have been boosted by the need to rebuild the inventories of consumer goods at the end of the year after American consumers spent at a faster clip in the fourth quarter. The analysts note that export growth remains very strong as most trading partners are experiencing solid rates of growth. For example, Caterpillar, the world’s largest producer of construction equipment, expects its sales to climb from $42.6 billion in 2010 to $50 billion in 2011.


UBS cut US unemployment forecast
According to the surprising data published on Friday, US unemployment fell in January to minimum since April 2009 at 9%.
Analysts at UBS reduced their forecast for US unemployment by the end of the year from 9% to 8.8%. In addition, the bank said that American first quarter GDP forecast may be revised upwards from 4.2%.
The specialists note that the greenback will turn from the safe heaven to the growth currency. UBS expects the pair EUR/USD to trade at $1.30 in a month and at $1.25 in 3-month time.

EU February 4 summit results
On the EU summit that took place in Brussels on February 4, European leaders set the deadline for the ultimate agreement on the package of measures counter the debt crisis on March 25. The measures may include stiffer sanctions against budget deficits higher than 3% of GDP, lower interest rates on loans and entitle the EFSF to buy debt directly from member states.
German Chancellor Angela Merkel claimed that there was “broad consensus” on reaching an accord to boost competitiveness, including debt-limitation rules. According to Merkel, 2010 was a year of trials for euro, but Germany and France “are firmly committed that 2011 will be the year of new confidence” for the single currency.
Analysts at Commerzbank, however, claim that these things are costly for German taxpayers and highly unpopular. Such approach will only be politically feasible when everyone sees this is the only way out. European crisis will continue and this will limit the European Central Bank’s room for maneuver, believes the bank.

Mizuho: weekly outlook for EUR/USD
Technical analysts at Mizuho Corporate Bank note that last week the pair EUR/USD formed second in a row weekly “shooting star” figure above the top of the weekly Ichimoku Cloud. According to the specialists, this underlines euro’s struggle to overcome the 1.3800 zone.
However, Mizuho strategists draw investors’ attention to the fact that the single currency hasn’t given up too much, so consolidation of the pair EUR/USD this week may be more cautious as the market’s trying to get used to these higher levels.
The bank advises to open small longs at 1.3600 stopping below 1.3540 and looking forward to euro’s advance to 1.3800/1.3860.

Danske Bank: forex trade recommendations for this week
Currency strategists at Danske Bank advise investors to avoid risk this week and buy save heaven currencies such as Swiss franc, Japanese yen and US dollar. The specialists recommend selling Swedish krona, British pound and Australian dollar.
According to Danske, franc and yen have strong upward potential. Switzerland’s currency looks especially undervalued. Swedish krona is confronted by the interest rate dynamics, while pound is under pressure due to the technical factors. As for Aussie, it’s necessary to be short at the currency as last week its rate surged.

Mizuho: weekly forecast for USD/JPY
Technical analysts at Mizuho Corporate Bank note that the pair USD/JPY is still trading within the “triangle” pattern.
The specialists underline that last week the greenback formed small “hammer” on the weekly candle chart against the bottom edge of the “triangle”. As a result, it’s possible to assume that this week the rate will hold above these levels.
Mizuho strategists advise to watch the weekly MA to see whether they manage to cap prices and send them lower later this month. In their view, it’s necessary to open small short positions at 82.25 stopping above 82.55 and looking for US currency’s decline to 81.85 and possibly to 81.35.

Rabobank: Bank of England won’t raise rates until December
Currency strategists at Rabobank believe that British currency will be supported versus the greenback until Bank of England’s MPC meeting that’s scheduled on Thursday as at the January meeting 2 MPC members voted for a rate hike from the current 0.50% level.
After the meeting, however, the pair GBP/USD will likely weaken as the market’s expectations about the rate increase seem to be exaggerated.
Higher food and energy prices on consumer disposable income lead to the weak consumer confidence and retail sales which will further be impacted by the VAT hike. As the demand is expected to stay low, Rabobank analysts say that British central bank won’t lift up interest rates at least until December.


ING: euro will climb to $1.40-$1.45 in 2011
Analysts at ING Commercial Banking claim that as the US demand and global activity are rebounding, commodity prices will find themselves under bullish pressure. In general, the greenback’s expected to continue slightly weakening as long as the Federal Reserve is keeping the interest rates at the record minimum and the US yield curve is steep. The specialists believe that the situation will stay unchanged for the major part of 2011. US yield curve won’t flatten downwards until the end of this year or the beginning of 2012.
According to ING, the European currency may start to catch up with some of the other currencies that are currently trading at the multi-decade maximums versus US dollar such as Australian dollar, Canadian dollar and Swiss franc.
ING forecasts that the pair EUR/USD will climb this year to $1.40-$1.45.
 
Societe Generale: buy euro at 1.34/38

Analysts at Societe Generale advise to buy the pair EUR/USD at 1.34 and a sell at 1.38 in the short term. The specialists note that the single currency keeps rebounding from 1.34 helped by the central bank demand.

As the Fed’s chairman Bernanke doesn’t regard inflation as the problem for the United States, the country’s monetary authorities are free to promote weak dollar. This, in its turn, will encourage Asian central banks for further euro purchases in order to diversify their currency reserves.

BofT-Mitsubishi UFJ: euro under pressure of Ireland's elections

Analysts at Bank of Tokyo-Mitsubishi UFJ claim that the single currency may get under negative pressure due to the approaching Ireland's general elections that will take place on Friday. The victory of the opposition Fine Gael party would affect euro’s rate. The specialists think that the pair EUR/USD may fall this week to 1.3450.

As the Fine Gael leader Enda Kenny said so far, the senior bondholders within other banks aside from the nationalized Anglo Irish Bank and Irish Nationwide Building Society could be asked to engage in “burden-sharing” that may lead to the spreading of Ireland's woes elsewhere in Europe.

It’s necessary to take into account that German Chancellor Angela Merkel's party was defeated in the regional election in Hamburg on Sunday as the population doesn’t approve that tax money are used to bailout indebted euro area’s nations.

Mizuho: sell USD/JPY

Technical analysts at Mizuho Corporate Bank claim that the greenback went down from this year’s maximum at 83.98 that’s below December’s maximum at 84.51 and closing at the 26-week MA.

The specialists note that all aspects of the weekly chart indicate the necessity to sell US dollars as the pair USD/JPY is consolidating within the “triangle” formation since November.

If American currency drops today below 83.00, it will fall to 82.20/82.00, says Mizuho. The bank advises investors to try small shorts at 83.25, adding to 83.55 and stopping above 84.05.

Daiwa SB: yen’s rate will weaken

Japanese yen may weaken as the global economy rebounds encouraging the country’s investors to look forward for higher yielding assets abroad reducing their demand for the national currency, claim the analysts at Daiwa SB Investments Ltd.

The pressure on yen is created due to the widening differential between yields on Treasuries and Japanese government bonds. Investors begin returning to the carry trades borrowing in Japan where the yields are low in order to buy assets in higher-returning countries.

In 2011 carry trades with yen as a funding currency brought the profit of 23.8%, while from dollar-funded trades investors gained only 2.8%. Rising popularity of the yen-carry trades means that the Japanese currency to be sold.

According to the data from Commodity Futures Trading Commission, for the first time since June futures traders are betting on a drop in yen versus dollar – net shorts for yen were 18,548 February 15, compared with net longs of 36,731 a week earlier.

So, the general trend has reversed from what we’ve seen at the beginning of 2010 when investors were looking for a refuge from Europe’s sovereign-debt crisis propelled yen to 15-year maximum versus the dollar.

According to the Bloomberg’s data, yen lost 8.1% from its August maximum versus the basket of it 9 developed-nation counterparts. In February the pair USD/JPY has gained 1.3%. Economists surveyed by Bloomberg News claim that yen will fall to 86 per dollar by the end of the second quarter and 90 by the end of the year. Currency strategists at Daiwa SB believe that the pair USD/JPY has already hit its lowest point and is now on its way up.

Yen’s depreciation will be very positive for Japanese exporters and may help the Prime Minister Naoto Kan to improve his approval rating that declines last month to 17.8%.

Commerzbank: USD/CHF will rise to 1.0067

Last week the pair USD/CHF declined almost by 3% falling to 0.9425 earlier today, the minimal level since February 3.

Technical analysts at Commerzbank note that the greenback may reverse after last week’s decline versus Swiss franc and gain 6% climbing to December maximum at 1.0067.

The specialists believe that US currency will test resistance at 0.9774 centimes (61.8% Fibonacci retracement of the drop from December and January 11 maximum).
 
Demand for franc and yen keeps growing

As the tensions situation in the Middle East escalate, investors keep buying so-called safe haven currencies – Japanese yen and Swiss franc. Analysts at Bank of Tokyo-Mitsubishi UFJ underline that the uncertainty is now too high and it's unknown what will happen from now. The specialists say that if Libyan leader Moammar Gaddafi steps down, the situation may briefly return to normal. However, the things may get even worse if oil refinery equipment is destroyed, note the strategists.

According to Bank of Tokyo-Mitsubishi, the pair USD/JPY may fall below 82, but it's unlikely to deviate from the recent range between 81 and 84.

Currency strategists at Commerzbank believe that as the pair USD/CHF fell below the key support at 0.9309, it’s poised for further declines lowering to 0.9120 and then possibly 0.9000.

Commerzbank: short-term GBP outlook

The pair EUR/GBP managed to get above resistance in the zone between 0.8448 and 0.8482. Technical analysts at Commerzbank note that downside momentum for the single currency is decreasing. Euro’s trying to recover versus sterling and resistance is found at 0.8530 and 0.8588.

The pair GBP/USD stalled ahead of 1.63. The specialists say that as pound went down below support at 1.6160, it risks falling down to 1.61. Below that level support will lie at 1.5963 and 1.5822 (the 55-day MA).

WestLB: Aussie will gain on carry trades

Analysts at WestLB note that Australian dollar performed surprisingly well despite the natural disasters that were tormenting the continent since the end of last year.
The specialists believe that even though RBA assistant governor Philip Lowe claimed that the country’s GDP could be about 1% lower this quarter, the total 2011 growth will still be almost 4.25% – more than in other developed nations.

WestLB underlines that such growth will be obtained while the Reserve bank of Australia’s benchmark rate is already at 4.75%, that’s 450 basis points above the Fed’s one, 425 bps above British rates and 375 bps above ECB’s rate. It’s also necessary to note that the Bank of Japan is unlikely to tighten its policy and lift the rates from current 0.1% level.

As a result, the analysts expect that Aussie is going to strengthen getting strong stimulus from the carry trades: investors will borrow in countries with lower interest rates investing in higher-yielding Australian assets.

BNP Paribas: EUR, GBP, AUD and CAD will grow

Currency strategists at BNP Paribas note that Brent crude is positively correlated with the value of euro, British pound, Australian dollar and Canadian dollar.

As the technical outlook for Brent is bullish, the specialists believe that the pair EUR/USD may reach 1.3950/1.4000, the pair GBP/USD can go up towards 1.6460, the pair AUD/USD will come back to resistance in the 1.0200/55 area and the pair USD/CAD may retest strong support at 0.9820/00.

RBC: USD/CAD is trapped between 0.98 and 1.00

Currency strategists at RBC Capital Markets note that the pair USD/CAD had peaked on Wednesday just below 0.9960 before falling back to last week's minimums in the 0.9817 area. The specialists think the greenback will find firm support at these levels. According to RBC, the range between 0.98 and 1.00 within which US dollar is trading versus its Canadian counterpart this year seems hard to break.

MIG Bank: USD/CHF under bearish pressure below 0.9506

Technical analysts at MIG Bank note that as the greenback dropped below 0.9400 versus Swiss franc it lost the support of practically all positive technical factors. The specialists believe that only if the pair USD/CHF manages to rise above the week’s maximum at 0.9506, it will be able to experience some sort of rebound. According to the bank, as long as US currency’s trading below this level, it risks slumping to 0.9100 and 0.9000.

Mizuho: GBP/USD may rise to 1.6500

British pound went down from 1.6255 to the support at 1.6140 and then rose back to 1.6200. Technical analysts at Mizuho Corporate Bank note that sterling’s consolidating below November maximums at 1.6300.

The specialists claim that the pair GBP/USD will get support from the 9-day MA. According to Mizuho, pound’s rate will get higher before a significant short-covering occurs.

The bank advises investors to buy on the rate’s decline to 1.6160 stopping below 1.6100 and expecting pound to climb to 1.6260/1.6300 and then to 1.6500.
 
Citigroup: EUR/USD will rise to 1.4283

Technical analysts at Citigroup claim that the single currency may rise above 1.4000 versus the greenback after it formed the reverse “head-and-shoulders” pattern that consists of 3 bottoms with the deepest in the middle. The figure began on February 2.

According to Citigroup, the pair EUR/USD may climb to 1.4030 and 1.4283.

The specialists note that the expectations of the ECB’s rate hike made the market players reconsider their previous bearish sentiment of euro.

Morgan Stanley: upward revision of euro forecast

Analysts at Morgan Stanley increased their forecasts for the European currency versus US dollar and Japanese yen.

As the reason for the forecast revision the specialists named more hawkish comments that keep coming from the European central bank. The ECB officials have spoken so far about the necessity to tighten monetary policy in order to fight rising inflation. In addition, the bank underlines that the European authorities have shown more efforts to solve the euro area’s debt problems and managed to reduce the risk of the region’s contagion.

Morgan Stanley changed target for the pair EUR/USD from $1.25 to $1.32 by March 31 and raised euro forecast from $1.20 to $1.24 by the end of the year. The pair EUR/JPY will trade at 111 yen at the end of March, while the previous estimate was at 108 yen. The year-end target for euro against yen was switched from 112 to 115 yen.

It’s also important to note that the economists reduced their March-end prediction for the pair USD/JPY from 86 to 84 yen keeping the year-end forecast at 93 yen.

Sumitomo Mitsui: euro may climb to $1.4200

Currency strategists at Sumitomo Mitsui Banking Corporation believe that the single currency may keep gaining in the next few weeks.

The specialists expect that the oil prices will remain very strong due to the tensions in the Middle East driving euro’s rate up as inflation in the euro area will increase encouraging the expectations that the European Central Bank will lift up interest rates.

Of course the inflationary pressure in the United States will strengthen as well. The analysts, however, think that the Fed will fall behind the ECB in the monetary tightening as higher oil prices could have a very negative impact on the American economy and the US monetary authorities will remain keen on the stimulus policy to support the country’s economic rebound. In addition, there are the political concerns affecting the greenback: investors are worrying that the popular protests against pro-US governments in countries like Egypt and Saudi Arabia signal that US global power is waning.

According to Sumitomo Mitsui, the pair EUR/USD may climb above 1.4150 and, possibly, even above 1.4200.

Commerzbank: comments on EUR/GBP

The single currency rose from Friday’s minimum at 0.8360 to new month maximum at 0.8575 just below the resistance of the middle-term trend line connecting October 2010 to January 2011 maximums.

Technical analysts at Commerzbank believe that the pair EUR/GBP has already reached its peak. In their view, it will ease down to support at the levels between 0.8530 and 0.8490. Above these levels the near-term outlook for euro will be bullish.

Zuercher Kantonalbank: comments on EUR/CHF

The European currency went down this week from Monday’s maximum versus Swiss franc at 1.2975 to yesterday’s minimum at 1.2705.

Analysts at Zuercher Kantonalbank claim that in order to obtain a chance of recovery the pair EUR/CHF has to close this week above 1.2800. In such case euro will be able to rise to 1.2890.

On the contrary, if the pair ends today’s trade below 1.2730, next week it’ll be poised for declines.

Mizuho: euro will rise in case of weekly close above $1.38

The single currency rose versus US dollar from the 1.3430 zone in the middle of February to new 3-week maximums in the 1.3840 region today.

Technical analysts at Mizuho Corporate Bank note that the pair EUR/USD has closed on Wednesday and Thursday above 61% Fibonacci retracement resistance at 1.3740 and above the upper edge of the “flag” pattern that indicates continuation of the trend.

The specialists claim that momentum is bullish and euro may keep appreciating if it manages to close the week above 1.3800. In such case there will be the second round of short-covering.

HSBC: RBA rate forecast

Economists at HSBC believe that the Reserve Bank of Australia won’t raise the interest rates in March. However, the specialists note that the risks of inflation surge remain. In their view, in 2011 the RBA will increase its benchmark rate by 50 basis points from the current levels of 4.75%.

Although the markets are currently pricing in the rate hike in November, HSBC thinks that it will happen earlier. According to the analysts, Australian inflation has constrained by the strong national currency and low consumer demand. Now the situation’s changing and these factors won’t be holding down inflation anymore.

While the global inflation is going up, the country has an undersupply of housing and power stations that’s boosting rents and electricity prices. In addition, wages in Australia are also increasing.

Taking into account the current strength of the country’s economy, the central bank’s policy may be not tight enough. RBA is aware of these risks, HSBC. As a result, there a bunch of factors that that can justify the next rate hikes.

UBS: use yen and franc to fund carry trades

Analysts at UBS AG claim that it became profitable to use Japanese yen and Swiss franc as funding currencies for carry trades to invest in higher-yielding assets.

The specialists advise investors to borrow in yen and franc to buy Swedish krona, Norwegian krone, euro and Canadian dollar. Norwegian krone and euro are included in this list as because the potential move in yields is going to be bigger because they’re coming from a lower base.

As exchange rates volatility may derail benefits from carry trade, it’s necessary to wait until turmoil in the Middle East and North Africa fades before elaborating such strategy.

Borrowing in yen and selling it to buy SEK, NOK, CAD and EUR has returned 33% this year. The same trade, funded by the franc, has returned 17%. Last year carry traders lost 11% on yen and 7.6% on franc.
Economists surveyed by Bloomberg News expect the EBC to increase the rate by 25 basis points in the fourth quarter and Canada’s and Norway’s central banks to raise rates by the same amount in the second quarter. Sweden’s Riksbank that has already lifted up borrowing costs for 5 times since the beginning of July may hike by 25 bps 4 more times this year.

S&P: New Zealand’s rating won’t be lowered for now

New Zealand’s dollar gained versus its US counterpart for the second day in a row as the Standard & Poor’s claimed that in the near term at least the country’s credit rating isn’t affected by the earthquake that broke out on February 22.

The rating agency said that it’s too early to make judgments about the extent of damage to New Zealand’s economy. According to S&P specialists, New Zealand’s financial system remains operational and will support an inevitable period of increased activity associated with the extensive reconstruction and repair work.

The pair NZD/USD went up from Wednesday’s minimum in the 0.7430 area rising above 0.7500. Strategists at ANZ National Bank expect that kiwi’s rate will get support from the coming short-covering.

Never the less, the bank says that the county’s GDP will lose minimum 0.5 percentage points because of the earthquake. The analysts at CMC Markets note that from growth and interest-rate point of view, New Zealand’s will likely remain under pressure. 4 out of 8 economists surveyed by Bloomberg News predict that the Reserve Bank of New Zealand will cut its 3% benchmark rate by at least 25 points. A central bank spokesman yesterday refused to comment on speculation about the unscheduled meeting that may be held to consider potential rate change.
 
UBS: EUR/CHF will rise to 1.3500 in 3 months

Analysts at UBS recommend buying the single currency versus Swiss franc at 1.2800 with 3-month target at 1.3500.

The specialists believe that the interest-rate gap between Switzerland and the EU may widen as the Swiss National Bank’s official keep giving dovish comments while the European Central Bank’s authorities seem to be rather hawkish so far.

Franc was boosted by risk aversion over the past few days. According to UBS, however, unless the political tensions spread to some of the larger countries in the Middle East, market may calm down and demand for Swiss currency will decrease.

Commerzbank: USD/CHF under bearish pressure

Swiss National Bank President Philipp Hildebrand claimed yesterday in an interview to the newspaper Der Sonntag that in his view Swiss economic growth may positively surprise the market. The policymaker added that he doesn’t think that rising commodity prices will affect price stability in the short term. According to Hildebrand, there’s nothing new in the moves of the currency market as investors as usual increase demand for franc due to high uncertainty. It’s important how long this is going to last, said the SNB head.

Analysts at Commerzbank believe such comments from Switzerland’s central bank mean that the country’s monetary authorities seem to be comfortable with the current situation. As the Hildebrand expects to see strong economic growth this means that the impact of franc’s appreciation on the real economy is limited. Consequently, the SNB may not regard franc as the most important factor formulating its further monetary policy, note the specialists.

From the technical point of view, the pair USD/CHF finds itself near the record minimum at 0.9233 hit on February 24. The greenback is under bearish pressure. The only remaining target is 0.9120 and, possibly, the psychological support at 0.9000, claims Commerzbank.

Commerzbank: comments on EUR/USD

Technical analysts at Commerzbank say that the European currency opened the week in a bullish mood trading versus the greenback.

In their view, the pair EUR/USD is heading up to the key resistance at February maximum of 1.3862 and further towards the 1.3950/1.4000 area representing 78.6% Fibonacci retracement of the decline from November maximums and the 200-day MA. The specialists expect that when euro reaches the target zone, it will fail.

On the downside, the single currency will find support in the near term at 1.3705/45 and then at 2-month support line at 1.3635/11.

Emerging currencies will keep outperforming

Analysts at Morgan Stanley believe that the emerging markets’ currencies will keep outperforming the currencies of the developed nations. It will happen as food prices have soared to the record maximums, while oil is trading high, at $100 a barrel. According to Barclays Capital, in emerging economies inflation is accelerating at a 6% rate, while in the developed nations this figure is equal only to 2%.

As a result, inflationary pressure in the developing countries increases and their authorities have to raise interest rates – in February rates were lifted up in Peru, China, Colombia, Indonesia and Russia. So, Morgan Stanley favors Russian ruble, Mexican peso and Malaysian ringgit.

Specialists at Nomura Holdings say that the quickest way to stem inflation is to strengthen national currency. If the country’s officials have to make a choice facing such issues as weak economic growth and high inflation, they will have to deal firstly with the latter and here comes monetary tightening.

Strategists at Citigroup believe that the first to hike will be developing countries most reliant on imported oil – fuel and mining products account for about 36% of South Korea’s imports, 25% in China, 27% for Turkey and 24% for Indonesia. These nations can’t afford to keep pursuing loose monetary policy and exchange-rate depreciation.

China: annual GDP growth target for the next 5 years is at 7%

Chinese premier Wen Jiabao announced that the economic-growth targets for the next 5 years are lower than the previous ones. China’s annual economic expansion target is set at 7% for the period from 2011 to 2015. From 2006 through 2010 the target was at 7.5%, with actual growth surpassing that each year and equal on average to 11.1%.

According to Wen, the main reason why China will target slower economic growth is its efforts to improve the quality of the growth and reduce inflationary pressures.

Analysts at Royal Bank of Canada note that it’s necessary to regard the new target as a signal of Beijing’s intentions over the medium term. In their view, during the past several years Chinese officials have underlined the need to move China away from a reliance on low-value-added and heavy-polluting export industries and to promote greater domestic consumption.

Wen also said that stronger yuan is in the interest of the country’s economy and people. However, yuan’s appreciation must be gradual because sharp gains of the currency would provoke bankruptcy of a number of Chinese enterprises. RBC economists note that although the comments on the currency revaluation were just a reiteration of what has been said before about gradual strengthening, Wen also made it clear that he sees the currency moving in only one direction.

Mizuho: USD/JPY will drop to 80.21

The greenback went down versus Japanese yen from maximum of the middle of February at 83.95 to the 3-week minimums in the 81.60 area. Technical analysts at Mizuho Corporate Bank claim that all technical indicators signal that the pair USD/JPY will keep declining. Such situation continues since July. In their view, US currency will inevitably go down to retest multi-year minimum at 80.21.

The specialists note that US dollar is trading at the lower part of a triangle and is likely to breach the pattern. According to Mizuho, the next question is how the market will react at the all time low of 79.75 hit in 1995.

US dollar under pressure because of rising oil prices

US dollar was under pressure because of the rising oil prices as investors worried that US economy will be affected more than others taking into account the fact that it strongly depends on consumer spending.

According to Deutsche Bank, a $10 increase in oil reduces US growth over two years by 0.5 percentage point. Last week crude oil reached $112.14 a barrel in London, the highest level since August 2008.

Analysts at Bank of Tokyo Mitsubishi UFJ say that rising oil prices help to widen the perceived policy divergence between the Fed and other major central banks. While the ECB regards rising crude as an upside risk to inflation, the Fed's view is that it will be negative for the economic growth. As a result, the European currency is likely to outperform the greenback in the near term. Strategists at UBS believe that the American currency will stay weak for now and advise investors buying euro, pound and Swedish krona.
The pair EUR/USD rose to 3-week maximum in the 1.3840 area. In order to get more bullish momentum euro has to overcome 2011 maximum at 1.3862.

The major events this week are the congressional testimony by Fed's Chairman Ben Bernanke on Tuesday and the ECB meeting on Thursday.
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Bernanke: inflation risk in US remains low

Yesterday’s speech of Federal Reserve Chairman Ben Bernanke allows suggesting that the Fed won’t hurry to raise interest rates after the $600 billion quantitative easing program is completed by the end of June. In his view, inflation risk isn’t high, while the situation on the labor market is still difficult.

Bernanke believes that the surge in commodity prices won’t generate a lasting rise in inflation. For the economic recovery to be sustained, the Fed’s benchmark rate will has to stay low for an “extended period”.
Bernanke pledged to act if higher commodity prices persist, spurring inflation and increasing inflation expectations, though currently the head of US central bank sees no necessity for such actions.

The Fed’s Chairman will continue his monetary policy testimony today. Bernanke will begin speaking in front of the House Financial Services Committee in Washington at 3 p.m. GMT.

Bof T-Mitsubishi: US dollar will strengthen versus euro by the year-end

Analysts at Bank of Tokyo-Mitsubishi UFJ claim that the greenback may rise to the levels at which it traded versus the European currency in September. Such forecast is based on the reviving of US economy and possibly waning expectations of the rate hikes by the developed nations’ central banks.

The specialists expect US dollar to climb to $1.27 per euro and 92 yen in a year. The dollar estimates were reduced from the previous prediction of $1.20 per euro made before a surge in oil prices in February led US currency lose 0.8% versus its European counterpart.

US economic growth is going to be strong surpassing economists’ expectations. The data so far seems to be quite encouraging – the country’s manufacturing grew in February at the fastest pace in almost 7 years. ISM factory index rose from 60.8 in January to the maximal level since May 2004 at 61.4. So, according to Bank of Tokyo-Mitsubishi, such solid performance of American economy is going to drive US dollar up.

The bank also underlines that the markets are pricing in too much in terms of the ECB rate hikes in the next 12 months and most likely will get disappointed that will be a negative factor for the single currency.
Bank of Tokyo-Mitsubishi projects that the pair EUR/USD will rise to $1.40 in 3 months due to the increase in oil prices. Japanese yen will decline to 85 per dollar during this period.

Mizuho: EUR/USD will rise in March at least to 1.4000

The single currency advanced from minimums in the 1.3425 area hit in the middle of February and met resistance at 2011 maximum at 1.3860.

Technical analysts at Mizuho Corporate Bank believe that the pair EUR/USD will finally manage to break above this level. In their view, in March euro will climb at least to 1.4000 and possibly to November’s maximum at 1.4281. The specialists underline that momentum for the pair has become bullish.
Bullish pressure will decline if EUR/USD falls below 1.3300. In such case this forecast will have to be revised.

Commerzbank: short-term outlook for EUR/USD

The European currency didn’t manage to overcome resistance at 1.3860 and went down to 1.3740.

Technical analysts at Commerzbank claim that as long as the pair EUR/USD is trading above support at 1.3650, it’s under the bullish pressure. The bank sets the target for euro’s growth at 1.3960/1.4000 where there is the 78.6% retracement of the decline from November maximum and the 200-week MA.

On the other hand, if euro breaks below support at 1.3650, it will be poised to fall to the 55-day MA at 1.3450.

Traders expect RBNZ to cut benchmark rate

New Zealand’s dollar fell today to this year’s minimum versus its US counterpart as the country’s Prime Minister John Key claimed that the potential reduction of the 3% benchmark interest rate will help the economy recover after earthquake in Christchurch that occurred on February 22. According to Key, the two quakes from which New Zealand suffered during the past half of the year caused NZ$20 billion ($14.8 billion) of damage.

Credit Suisse Group AG index based on swaps shows that traders are sure that the Reserve Bank of New Zealand will cut the rates by 25 basis points at its meeting on March 10. Some investors are even looking forward to 50-basis point reduction.

Although the government is separate from the central bank, such statements made by the Prime Minister certainly affect the national currency.

The market is currently trying to find out where the bottom is going to be. Support is found at 0.7400, while the resistance lies at 0.7439.

Mizuho: USD/CHF will fall to 0.8300

Analysts at Mizuho Corporate Bank claim that 8-month downtrend for the pair USD/CHF that has recently pushed the greenback to the record minimum at 0.9235 isn’t over yet. The specialists believe that US dollar will fall versus Swiss franc to 0.9100 next month, lowering to 0.8500 in 6 months and hitting the 0.8300 level in a year.

RBC: King won’t manage to prevent the rate hike

Analysts at RBC Capital Markets say that the fact that British pound reached yesterday 13-month maximum versus the greenback means that investors believe that the Bank of England Governor Mervyn King won’t be able to keep interest rates from rising.

The head of the Britain’s central bank is cautious about raising interest rates as it may hamper already weak country’s economic growth – in the fourth quarter of 2010 UK GDP contracted by 0.6%. However, the number of BoE Monetary policy Committee members in favor of the rate hike increases.

According to the minutes of the MPC meeting that took place on February 10, BoE Chief Economist Spencer Dale joined policy makers Andrew Sentance and Martin Weale in voting for an interest-rate hike from the current 0.5% level as British inflation pace accelerated in January to 4%, 2 times higher than the target level.

RBC specialists underline that since 2003 King has been outvoted already twice. As sterling’s strengthening the market becomes more convinced that King will either be offside again or capitulate.

Commerzbank: comments on NZD/USD

During the Asian session today New Zealand’s dollar extended its previous decline from 0.7555 slumping below 0.7400.

Technical analysts at Commerzbank believe that the pair NZD/USD will stabilize right above 0.7376/43. According to the specialists, kiwi will bottom in the area of December minimum at 0.7343 and then struggle next week to crawl up to 0.7555.

If New Zealand’s currency falls below 0.7343, it may decline to June maximum at 0.7161 and to 61.8% Fibonacci retracement of the 2010 advance at 0.7102.
 
Bank of America increased forecasts for EUR/USD

Analysts at Bank of America Corp. (BAC) increased their first-quarter and long-term forecasts for the single currency versus US dollar. The specialists explained changes in their projections by rising euro and concerns about America’s fiscal state.

BAC raised the first-quarter euro forecast from $1.23 to $1.30 due to the higher European short-term interest rates and the current surge in oil prices. By the end of 2011 the pair EUR/USD is now expected to trade at $1.35 up from the previous estimate of from $1.30. Euro’s forecast was also lifted up from $1.35 to $1.40 by December 2012. The second-quarter estimate was left unchanged at $1.20 as the market’s attention will once again focus on the euro zone’s debt problems during this period. In the longer term dollar will be weakened by the fiscal crisis in the US.

The pair EUR/USD renewed yesterday 2011 maximum reaching 1.3889.

This year the European currency gained 3.6% on the expectations of ECB rate hike. The ECB rate’s decision will be announced today at 12:45pm. The European Central Bank holds the rate at 1% since May 2009.
The BCA analysts believe that the Fed will keep its benchmark at 0-0.25% as it stays since December 2008, when it meets on March 15.

UBS: euro will face new challenges in March

Strategists at UBS expect the ECB to raise its inflation forecast from 1.7% to 2% and give hawkish comments.

According to the specialists, short-term investors will buy euro versus Swiss franc driving the pair EUR/CHF up towards 1.35. Such trade may last, however, no more than 2 weeks as later in March the ECB will have to make difficult decisions about how to deal with the indebted peripheral countries. As a result, the single currency will be hit by the reemerging event risks.

Analysts at BNY Mellon believe that the ECB will lift up interest rates in July and will certainly support euro. Never the less, the specialists also note that before that the market will inevitably focus on Europe’s debt woes. In their view, it’s necessary to impose more strict fiscal criteria on the euro zone countries, though there’s high uncertainty about what will actually happen by the end of March.

One should also take into account the fact that US dollar’s weakness also contributes to euro’s strength. So, if the greenback starts gaining at the time when investors are worried about the European debt, the outlook for the euro could quickly change.

Commerzbank: EUR/USD forecast

Today’s outlook from Commerzbank is much like what the economists said yesterday.

Yesterday the European currency jumped from 1.3740 and renewed 2011 maximums in the 1.3890 area.
Technical analyst at Commerzbank note that the pair EUR/USD broke above resistance at 1.3860 and is going up to the 1.3960/1.4000 area where there’s the 78.6% Fibonacci retracement of the decline from November maximums and the 200-day MA. The specialists expect euro to fail at these levels.

On the other hand, if euro breaks below support at 1.3675, it will be poised to fall to the 55-day MA at 1.3464/55.

BNY Mellon: US dollar needs global crisis to strengthen

Analysts at Scotiabank note that although the market’s risk aversion’s increasing and they turn to safer currencies such as yen and franc, the stage where investors are seeking the real safe havens hasn’t been reached yet. Without a serious crisis and with monetary policy in investors' sights they won’t turn to US currency.

The strategists are bearish on the greenback. In their view, during the next few months US dollar will trade sideways, but by the end of the year it will go down.

Strategists at BNY Mellon share the same views. The specialists note that though dollar's probably slightly oversold now, the geopolitical events in North Africa and the Middle East remain relatively contained. Though investors avoid assets in the Middle East and South Africa, they keep favoring higher-yielding overseas assets in Asia and Latin America. The bank reminds that investors’ demand for US dollar surged in 2008 after Lehman Brothers collapse, so in order to strengthen American currency needs a “good old-fashioned global crisis”.

The VIX, a widely used measure of investor expectations of volatility, now stands at 21-23. That's up from 16 or 17 before the Middle East turmoil began, but still below the 45-50 level reached last summer, when investors were worried about a European sovereign debt crisis.

Jyske Bank: GBP/USD will drop to 1.4700 in 3 months

Analysts at Jyske Bank, the third largest Danish bank in terms of market share, believe that the levels at which British pound is currently trading versus its US counterpart will be the highest in 2011. The specialists believe that the pair GBP/USD is going to cap its gains and survive a sharp decline during the next 3 months slumping to the year’s minimums at 1.4700.

According to the bank, the decision to tighten monetary policy will be very hard to make for the Bank of England. The strategists claim that the central bank won’t announce a hike of 25 basis points until the end of 2011. If this assumption is right, then the markets will be very disappointed.

So, Jyske Bank expects pound to remain around 1.4800 over the next 3 months. After the BoE increases rate to 0.75%, GBPUSD will climb to 1.6500.

Morgan Stanley: yen will fall versus US dollar and euro

Analysts at Morgan Stanley claim that Japanese yen may fall as the Bank of Japan may loosen its monetary policy even more making investors more concerned about the country’s fiscal state. If it happens, yen will again be used as a funding currency for carry trades and investors will sell it for higher yielding assets, for example, the ones in Australia and New Zealand.

According to Morgan Stanley, yen will fall to 93 per dollar and to 115 per euro by the end of 2011.

The BOJ has pledged to hold its benchmark interest rate at 0-0.1% until it can expect stable price gains, which board members see at about 1%. Japanese consumer prices excluding fresh food fell for a 23rd straight month in January, falling 0.2% from 2010 level.

On February 22 Moody’s Investors Service reduced Japan’s debt rating outlook noting that political gridlock will constrain the country’s efforts to tackle debt that is poised to exceed twice the size of GDP.

On March 1 Japan’s lower house of parliament approved Prime Minister Naoto Kan’s record 92.4 trillion yen ($1.1 trillion) budget. Never the less, Kan didn’t manage to persuade opposition lawmakers to authorize 44.3 trillion yen in government bonds to help fund the budget.
 
Nomura: USD/JPY may fall to 80.00

Analysts at Nomura Securities claim that the pair USD/JPY is trapped in the 82.30 area as Japanese institutional investors are buying US currency, while exporters are selling.

Although the trading has been quite so far, the specialists warn that the greenback still risks falling below 80.00. According to Nomura, many investors are ready to turn bearish if dollar starts going down towards 80.00, though many of them also say that they'll reverse their positions below that mark.

In the longer term the strategists expect USD/JPY to reach 90.00 if it manages to overcome the 85.00 level. In that case Japanese investors would unwind some of their hedging positions and sell yen.

Westpac: NZD/USD is likely to keep falling

Analysts at Westpac note that the New Zealand’s dollar remains under heavy pressure trading versus the greenback. The specialists say that the key support for the pair NZD/USD lies at 0.7350. If kiwi breaks down through this level, it will be poised to slide to 0.7200.

According to Westpac, it’s necessary to watch US nonfarm payrolls data that will be published at 1:30 p.m. GMT. The strategists expect strong figures here that will add positive momentum to US currency and increase bearish pressure on NZD.

Economists surveyed by Bloomberg News believe that US economy gained 196,000 jobs in February, the most since May 2010. In January the number of payrolls increased only by 36,000 due to the winter storms. US unemployment rate is thought to have risen from 9% to 9.1%.

BNP Paribas: EUR/USD may rise to 13-month high

Technical analysts at BNP Paribas believe that the single currency may rise to the 13-month maximum versus US dollar if it manages to overcome resistance at the $1.40 level representing 80% Fibonacci retracement of the decline from $1.4282 on November 4 to $1.2867 on January 10.

The specialists claim that after getting above $1.40 the pair EUR/USD may go up until full retracement rising to $1.43 and to $1.4450.

According to BNP Paribas, above $1.43 there is a downtrend line from the euro’s record maximum at $1.6038 in July 2008 and the 76.4% Fibonacci retracement of its decline from November 2009 to June 2010.

Commerzbank: comments on USD/CHF

US dollar recovered versus Swiss franc from Wednesday’s minimum at 0.9200 to one-week maximum at 0.9330.

Technical analysts at Commerzbank note that there a divergence on the daily RSI that means that the downside momentum for the pair USD/CHF is decreasing.

The specialists underline, however, that as long as the greenback is trading below the resistance at 0.9340 (23.6% retracement), the outlook for it remains negative and it may drop to 0.9120 and 0.9000.

John Taylor: EUR/USD forecast

John Taylor, the head of FX Concepts LLC, the world’s largest currency hedge fund, notes that by June the European currency may climb to 13-month maximum versus US dollar as the European Central Bank will soon lifts up interest rates.

Yesterday the ECB President Jean-Claude Trichet claimed that the central bank may raise next month its benchmark interest rate from 1% level for the first time since 2008 in order to stem rising inflation. That would inevitably lead to euro’s gains, at least temporary, noted Taylor. In his view, the pair EUR/USD may advance to $1.45 per dollar, the maximal level since January 15, 2010.

However, the specialist believes that then, by the third quarter, the European economic growth will slow down and euro will depreciate. In his view, “there’s a recession coming”.

Largest asset managers on US dollar’s rate

Analysts at BlackRock and Pacific Investment Management Company, the world’s biggest bond-management firms, give opposite outlooks for US currency.

BlackRock specialists favor US dollar against euro noting that the sovereign-debt crisis in the euro area will cause volatility in the region, while the European banks are in need of capital. In their view, the tensions in the Middle East will continue escalating. Political turmoil that hit Tunisia only 2 months ago, while now it has already enveloped such countries as Oman, Bahrain and Libya.

BlackRock strategists say that any disruptions in Saudi Arabia could propel the oil price to $150 per barrel in the near term. During the past week Saudi Arabia’s benchmark stock index dropped by 15%. Global equities risk slumping and investors may soon turn to the greenback as a safe haven, while American bond yields will climb by 4%.

Analysts at Pimco, on the other hand, advised investors to avoid dollars and expect US Treasury yields to decline.

Strong Aussie creates risks for the country’s economy

Australia’s Prime Minister Julia Gillard claimed that country’s economy is too dependent on commodities exports, while the domestic spending level remains relatively low. As a result, Australia is vulnerable in the current situation of commodity boom.

Australia’s dollar, the world’s fifth-most traded currency, added 12% versus the greenback in 2010. The pair AUD/USD driven by rising revenues from shipments of coal and iron ore to China has reached in December the $1.0256 level, maximum since it became floated in 1983. Strong Aussie affects Australian manufacturing and tourism industries.

It’s necessary to note that unlike the emerging countries from Brazil to China, Australian authorities refrained from steps to stem currency gains, such as through limits on capital inflows letting the market determine Aussie’s rate. So, the nation’s government doesn’t consider the possibility of conducting interventions to weaken Aussie’s rate.

Analysts at National Australia Bank believe that the performance of Australia’s economy may be weaker than expected. In their view, there’s a risk of the Dutch disease effect when the commodities industry grows driving up the national currency and hurting manufacturing as it happened in the Netherlands in 1970s.

Analysts at TD Securities claim that the performance of Australian dollar was practically unaffected by the Trichet’s comments, New Zealand’s earthquake and the oil crisis. The specialists, however, note that the pair AUD/USD will get chance to reach the post-float maximum at 1.0253 only if the RBA signals the rate hike while the central bank indicated no such intention this week. The mentioned level will act as a resistance for now.

Rabobank: EUR/USD 3-month forecast lifted

Analysts at Rabobank increased 3-month forecast for the pair EUR/USD from 1.40 to 1.42 after the European Central Bank President Jean-Claude Trichet claimed yesterday that the central bank may raise the interest rates next month. The specialists still think that the single currency will trade at 1.52 in a year.

According to Rabobank, although the market was expecting hawkish comments from the EBC, the analysts got taken by surprise by such degree of hawkishness.

The pair EUR/USD added 4.3% since the beginning of this year. The pace of euro’s advance was high despite the fact that the euro zone’s debt crisis is far from over.
 
SNB won’t raise rates in March

Analysts at UBS expect that the Swiss National Bank will keep tomorrow its benchmark interest rate unchanged at the record low of 0.25% to let interest differentials between the euro area and Switzerland widen pushing the pair EUR/CHF up. All 20 economists surveyed by Bloomberg News share this point of view.

UBS specialists think that the SNB will raise growth and inflation forecasts this week. In their view, the hiking cycle will start in June.

The SNB's rate decision is announced Thursday at 08:30 GMT.

Swiss currency has been driven so far by rising risk aversion amid the events in Japan and the Middle East. The pair USD/CHF renewed yesterday the record minimum falling to 0.9140. The pair EUR/CHF is down from February maximums in the 1.3200 area trading currently in the 1.2840 region.

Economists at Goldman Sachs note that although domestic economic situation clearly argues for a monetary tightening, recent geopolitical tensions have increased the risk of safe haven capital flows into the franc. So, the analysts continue to expect the SNB’s first hike in September.

HSBC: Japan's disaster won't affect Asian economies much

Analysts at HSBC claim that Japan's earthquake will neither derail the growth of emerging Asian economies, nor ease inflationary pressure.

The specialists note that Asian monetary authorities may be tempted to postpone any already-scheduled tightening. Such outcome, in their view, would be a mistake. The economic impact of Japanese disaster on the rest of the region will remain relatively limited, so HSBC underlines that the region’s central banks should make fighting inflation a priority.

The economists say that although Japan's consumption will certainly slow down in the coming months, it will be compensated by high government and private spending on reconstruction, especially in what concerns an housing, infrastructure, electricity generation and transmission.

Commerzbank: comments on USD/JPY

The greenback failed in the 82.45 area on Monday and went down to trade below 81.00 versus Japanese yen. Technical analysts at Commerzbank note that US currency is coming close to the lower border of last 5-months trading range.

Support for the pair USD/JPY is found at the base of a 3-month channel at 80.33 and the all time minimums in the 80.00/79.70 zone. The specialists believe that the latter levels will be able to hold the bears.
According to Commerzbank, downside pressure will ease if dollar manages to close the day above 81.15.

Mizuho: comments on EUR/USD

The European currency went down from 1.4035 at the beginning of March and then recoiled from support at 1.3750 returning in the 1.4000 area.

Technical analysts at Mizuho Corporate Bank claim that yesterday there probably was a “hanging man” candle formed on the daily chart that hints at the potential “double top”. That means that the pair EUR/USD may reverse down, though yesterday it once again closed above the 9-day MA.

The specialists warn, however, that yesterday's candle could also be the “spike low” ahead of the surge of euro’s rate. Such concept is preferred by Mizuho as it corresponds to the bank’s long-term outlook.

Commerzbank: comments on USD/CHF

The greenback is trading near the record minimum versus Swiss franc at 0.9150 as the demand for Swiss currency rose due to the concerns about Japan and the Middle East.

Technical analysts at Commerzbank note that US currency may extend declines to support line from October to March at 0.9120.

The lowest possible level for the pair USD/CHF is found at 0.9000 representing psychological Elliot wave and Fibonacci projections, believe the specialists. In their view, dollar will manage to hold at this level and reverse upwards.

Daiwa: BPJ will have to monetize fiscal deficits

Analysts at Daiwa note that yen’s rate is strengthening, while the CPI is falling and massive public debt of nearly 200% of GDP leaves Japanese monetary authorities little room for maneuver. In these circumstances the Bank of Japan will have to monetize the fiscal deficits needed to fund reconstruction.
The BOJ will be obliged to be more aggressive on asset purchases to effectively counter the tendency toward a stronger JPY, ensuring positive inflation in 2011.

Southeast Asian nation may initially suffer from reduced Japanese FDI in the second quarter of the year as Japan's corporations focus on domestic market. Korea and Taiwan may be affected by disrupted supplies of key capital goods that they import solely from Japan. However, as the period of deflation is likely to end, Japan will manage to take the road of sustainable by the second half of 2011.

BOJ has already doubled its asset purchase program to 10 trillion yen. The program will last 15 months.
Analysts at UniCredit say that although the BOJ may try to limit the impact of the earthquake on USD/JPY, the pair may still hit record minimums as long as repatriation flows continues, while risk aversion remains high and stocks weak. As a result, the bank advises investors to avoid spot JPY positions.

Moody’s cut Portugal's credit rating

Moody’s Investors Service cut Portugal’s credit rating to A3. Among the reasons for such decision Moody’s named weaker outlook for economic growth, risks to the government’s deficit- reduction plans and a possible need to recapitalize banks.

Portugal is now 4 steps from junk status. The ratings agency said that id the ECB lifts up interest rates it will become more difficult for Portugal to reduce its budget deficit. The nations funding costs as well as the private-sector borrowing costs will increase. The country’s economy has to survive rising taxes and severe spending cuts in more than three decades as the government tries to convince investors’ in its ability to pay all the debts and diminish the deficit.

According to Moody’s, Portugal’s GDP may decline this year showing weak recovery at best in 2012. The Bank of Portugal claimed on January 11 that as consumer demand is decreasing and the government is cutting spending, the country’s economy will lose 1.3% this year. Portugal’s unemployment rose to 11.1% in the fourth quarter, the highest since 1998.

Portugal intends to sell 20 billion euro of bonds in 2011 to finance its budget and cover the cost of maturing debt. Its 10-year bond yield reached euro-era record of 7.70% on March 9. Portugal has to repay 9 billion euro in April and June.

Analysts at Brown Brothers Harriman say that Moody’s negative outlook for Portugal is justified and further cuts seem to be quite likely.

Danske Bank changed 3-month forecast for EUR/GBP

Analysts at Danske Bank expect the European Central Bank to raise its benchmark interest rate in April by 25 percentage points. The Bank of England, in their view, is less likely to raise the interest rates as the UK economy is too fragile. British central bank may keep the borrowing costs at the current 0.5% level until August.

As a result, the specialists cut their 3-month forecast for pound versus euro from 0.86 to 0.89. The pair EUR/GBP rose from 0.8280 on January 10 to 0.8680.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets
 
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