Trading Social Forex Forum

S&P comments on the situation in the euro area
2011-12-13 11:13

Reuters cites the comments of Standard & Poor's chief economist on the situation in the euro area made yesterday: «There is probably yet another shock required before everybody in the euro zone reads from the same page, for instance a major German bank experiencing some real difficulties on the markets, which is a genuine possibility in the near term». According to S&P, EU summit agreement was a significant step forward, but not enough.

Last week the ratings agency put 15 European nations on watch for potential downgrade. It usually takes the agency about 3 months to act after a warning. The agency said, however, that this time it may make the decision more quickly.

S&P intends to urge the European authorities to solve the crisis as the next year the region is facing significant risk of recession and credit crunch.

Analysts at Commerzbank claim that though much of the potential negative outcome has already been priced in, the downgrade by S&P would seriously hit the markets.

http://www.fbs.com/analytics/news_markets/view/11409


Citigroup, BoA: expectations ahead of SNB meeting
2011-12-13 12:07

The Swiss National Bank meets on Thursday, December 15. The Libor rate is released at 8:30 a.m. GMT and is followed by the central bank’s press conference.

The market’s widely expecting the SNB to do something to weaken franc as the officials have expressed concerns about the strength of the national currency.

Currency strategists at Citigroup note that the leveraged funds turned short on franc for the first time in 13 months.

Analysts at Bank of America Merrill Lynch claim that the market is estimating the possibility of the SNB raising floor for EUR/CHF from 1.20 to 1.25 by 25%. Some traders even talk about the floor raised to 1.30.

The specialists say that for further hints about Swiss monetary policy one should analyze the micro survey of Swiss business that appears in the bank's quarterly bulletin (the one for the fourth quarter is released on December 23, the previous are available here). According to Merrill Lynch, the survey deterioration in September triggered the SNB’s intervention as well as verbal interventions in January and December 2010.

http://www.fbs.com/analytics/news_markets/view/11411


UBS: forecasts on the Fed, the SNB and the ECB will act
2011-12-13 12:43

Analysts at UBS believe that the Federal Reserve won’t announce the third round of quantitative easing at today’s meeting as the nation’s economic data has so far been rather strong. In their view, the Fed may reduce its discount rate and reinstate the Term Discount Window Facility in order to increase liquidity available to US banks.

The specialists think that the Swiss National Bank will raise the floor for EUR/CHF from the current level of 1.20 to 1.25 as Swiss CPI declined for 2 months and the nation’s monetary authorities will try to diminish the risks of prolonged deflation.

As for Europe, the UBS economists think that the European Central Bank will cut its benchmark interest rate by another 25 bps at its next meeting on January 12 and then once again on March 8. As a result, the borrowing costs in the euro area will slide from the current level of 1% to 0.5%. The strategists don’t rule out the possibility that the central bank will lower rated to 0.5% even earlier and that the ECB could be forced to consider such option as the quantitative easing. UBS underlines that the European economy will be under pressure from austerity measures and debt problems, so the ECB will probably be able to justify bond purchases by its mandate of maintaining price stability rather denying potential accusations in deliberate monetizing of the European debt.

http://www.fbs.com/analytics/news_markets/view/11413


SocGen: technical levels for USD/JPY
2011-12-13 13:01

Technical analysts at Societe Generale expect that the level of 77.15 yen will be able to support the greenback. The specialists note that for the pair USD/JPY could experience growth in the medium term, it should overcome resistance in the 78.30/55 yen area.

http://static.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/9d4cf9143d60ec3888ee0e04c679a5c4_500_0_0.jpg
Chart. Daily USD/JPY

http://www.fbs.com/analytics/news_markets/view/11415

Mizuho: short-term recommendations for majors
2011-12-13 13:40

EUR/USD (bullish, target $1.3525, stop below $1.3135)

Resistance: $1.3250, $1.3310 and $1.3360

Support: $1.3145 and $1.3055

http://static.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/a5aa6eaaa2e2a32ee3342d333c892a41_500_0_0.jpg
Chart. H4 EUR/USD

GBP/USD (bullish, target $1.5795, stop below $1.5495)

Resistance: $1.5665, $1.5735 and $1.5770

Support: $1.5525 and $1.5465

http://static2.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/f66b86268380e30c90d86c33b9defd3b_500_0_0.jpg
Chart. H4 GBP/USD

USD/JPY (bearish, target 76.95, stop above 78.58)

Resistance: 78.00, 78.15 and 78.29

Support: 77.49, 77.12 and 76.96

http://static2.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/f6a2822160a7077908dd027c99b3bc68_500_0_0.jpg
Chart. H4 USD/JPY

http://www.fbs.com/analytics/news_markets/view/11417


J.P. Morgan on trading EUR/USD
2011-12-13 14:46

Analysts at J.P. Morgan believe that the EU summit on Friday passed as usual – the policymakers achieved some results, but the markets didn’t feel relieved.

The specialists doubt that the European nations will be able to come up with the final by March as the previous ones took 1-2 years to prepare.

J.P. Morgan believes that the crisis will keep on and the European Central Bank will be finally forced to do more. As a result, the economists expect EUR/USD to decline and recommend selling the pair on rallies.

The specialists underline that with all the events affecting the market such as the FOMC and OPEC meetings it’s very difficult to find where to enter the market. In their view, one open shorts on euro if it reaches $1.36 targeting $1.31/30 and placing stops at $1.3820.

http://static2.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/d401bc49c20e3135d4a0edb21a5442b4_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11420


BIS: following trend vs. carry trades during crisis
2011-12-13 15:53

Economists at Bank for International Settlements claim that during the times of the crisis it’s better to use so-called momentum strategies or, in other words, to follow trends than doing carry trades.

The latter is borrowing in currencies with low rates to investing in the higher-yielding ones. The market players usually fund their portfolio by US dollars and buy assets in Australian dollar, New Zealand’s dollar, emerging markets’ currencies.

According to BIS calculations, carry traders lost 12% in January 1998 (Asian crisis) and 6% in October 2008 (global financial crisis) and suffered severe losses in August and September this year. On the other hand, those who applied momentum strategies gained during the same periods.

BIS specialists note that though carry trade is popular because most of the time investors are getting small but stable gains, these positions may lead to large losses – you can lose all you’ve gained in 1-2 years of average returns in 1 month when the situation becomes unfavorable.

http://www.fbs.com/analytics/news_markets/view/11422


CME Group: technical comments for EUR/USD
2011-12-13 16:25

The single currency is trading versus the greenback around 2-month minimum in the $1.3160 area.

Technical analysts at CME Group claim that the pair EUR/USD will consolidate in the short term as it’s currently a bit oversold, while in the medium term the specialists are bearish on euro thinking that the crisis is far from being over. Such forecast is confirmed by the negative picture on the daily Ichimoku chart.

According to CME, support for euro is situated at $1.3142, $1.3070 and $1.2965, while resistance is found at $1.3215, $1.3280 and $1.3335.

http://static.fbs.com/upload/image/technical_analis/December2011/13_12_11/.thumbs/d929d237d9dd1471f96cdbe111e6a4e1_500_0_0.jpg
Chart. H4 EUR/USD

http://www.fbs.com/analytics/news_markets/view/11423

JPMorgan Chase: euro may renew 2011 low
2011-12-14 12:04

The single currency fell versus the greenback diving below October minimums to the levels in the $1.3010 area.

Technical analysts at JPMorgan Chase claim that EUR/USD breached important support at $1.3047 (61.8% Fibonacci retracement from a 4-year minimum reached in June 2010) and may retest 2011 low at $1.2873 hit on January 10.

In their view, the pair’s trading within downtrend and the outlook for euro will remain negative as long as it stays below $1.3145/3212.

http://static.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/dc5a5ac05908a7b09a95bc6d43b902b1_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11427


Westpac: advices on trading euro
2011-12-14 12:41

Analysts at Westpac believe that the single currency is on the way down to $1.2860. In their view, euro will weaken versus US dollar due to the risk that the rating agencies downgrade European nations and high probability of the region’s falling into recession.

At the same time, the specialists underline that there are now too many short positions on euro, so they don’t recommend selling euro at the current levels. According to the bank, it’s necessary to wait for a short squeeze back toward $1.3400 before going short on EUR/USD.

In addition, Westpac advised selling Australian dollar against its New Zealand’s counterpart as the Reserve Bank of Australia is more likely to reduce the interest rates.

http://static2.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/c4ec60c2a1d19018aa36c510b00dbe80_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11429


Commerzbank: technical comments for the majors
2011-12-14 13:28

EUR/USD: the pair went below the October 4 minimum at $1.3145, the next downside target lies at $1.2860 (2011 minimum) and at $1.20 in the longer term. The key resistance is situated at $1.3355.

http://static2.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/bcf9a77b5d96dc73e2ab043202617365_500_0_0.jpg
Chart. Daily EUR/USD

USD/JPY: the pair recovered from support in the 77.11/21 area (55- and 100-day MA). Resistance is found in the 78.28/30 zone (last week maximum and 8-month resistance line), 78.66 (4-year downtrend resistance line) and 80.12 (55-week MA).

http://static.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/c72fb77dd5831c2a44ce6da2262eb1f9_500_0_0.jpg
Chart. Daily USD/JPY

USD/CHF: the pair reached the maximal levels in 10 months and managed to rise above 0.9399 (50% Fibonacci retracement of the decline in 2010-2011). If US dollar closes above 0.9400, it will be able to advance to 0.9776/84 (2011 maximum) and then to 0.9950 (61.8% Fibonacci retracement of the decline from 2010).

http://static2.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/8ad3f3a62508d3ce178be0c3d1389682_500_0_0.jpg
Chart. Daily USD/CHF

http://www.fbs.com/analytics/news_markets/view/11431

BoA: sell Aussie versus loonie
2011-12-14 14:17

Analysts at Bank of America Merrill Lynch advise traders to sell Australian dollar against its Canadian counterpart.

In their view, AUD will weaken as the prospects of Australian currency for the next few weeks seem rather dim:

- Shanghai Composite Index has breached important support levels (Aussie is extremely vulnerable to the deterioration of the economic situation in China as the latter is Australian key trading partner).

- Continuous Commodity Index has also dropped below key support (commodities represent the key part of the Australian economy, so AUD will likely suffer).

The specialists propose to sell Aussie versus loonie because though Canadian dollar is also a commodity currency, it’s not affected by the dynamic of commodity prices as Australian dollar is. Moreover, AUD/CAD is facing the long-term resistance level which has been in place since the 1980s.

According to the bank, it’s necessary to open shorts on the pair at 1.0440 stopping above 1.0660 and targeting 0.9840.

http://static.fbs.com/upload/image/technical_analis/December2011/14_12_11/.thumbs/fee3c7752a320fd94691120e23dc719b_500_0_0.jpg
Chart. Daily AUD/CAD

http://www.fbs.com/analytics/news_markets/view/11433


FOMC: results of the meeting and analysts' comments
2011-12-14 16:36

FOMC (Federal Open Market Committee) repeated its pledge to keep the interest rates at the minimal level near zero at least until the middle of 2013 and maintained Operation Twist, the operation which allows the central bank to lengthen the maturity of Treasuries in its $400 billion portfolio. Note that Chicago Fed President Charles Evans once again called for additional easing.

The Fed’s Chairman Ben Bernanke claimed that the European debt crisis may affect US economy, so that further monetary stimulus measures will be needed.

Despite the fact that the unemployment level unexpectedly dropped in November to the minimal level since March 2009 of 8.6%, the FOMC said that this number is still “elevated” and that the jobless rate will decline “only gradually”. Although some recent data was quite positive (CB consumer confidence, ISM Manufacturing PMI), the Fed underlined that the pace of business fixed investment growth is still low and housing market “remains depressed”.

Analysts’ comments

Analysts at BNP Paribas expect that the central bank could unveil measures aimed to support growth and improve the public understanding of Fed’s policy already at the next meeting on January 25-26. In their view, the Federal Reserve will launch QE3 in the second quarter or even earlier, in January or March, in case economic conditions worsen. The specialists also expect the central bank to publish their forecasts for the federal funds rate and define the levels of economic growth and unemployment which would allow it to tighten monetary policy.

Strategists at ING also point out that due to the annual rotation the hawks – Federal Reserve presidents Charles Plosser of Philadelphia, Richard Fisher of Dallas, and Narayana Kocherlakota of Minneapolis – and their place will be taken by the doves – San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart and Cleveland Fed President Sandra Pianalto.


Some analysts think that the Fed is already conducting QE (that explains low yields of the Treasuries) without announcing that officially. At the same time, economists at UBS, Barclays, Citigroup, Deutsche Bank и JP Morgan Chase believe that the central bank will be buying only mortgage bonds. Anyway the Fed’s decision will likely be based on the inflationary expectations and the fact that last month the inflation forecasts were lowered speaks in favor of the potential QE.

Pay attention to the fact that Bernanke will hold press conference on January 26 after the meeting, an event that occurs quite rarely.

http://www.fbs.com/analytics/news_markets/view/11435

December 15: key economic events and data
2011-12-15 11:39

Released data:

- Tankan survey: business sentiment deteriorated;

- China’s HSBC Flash Manufacturing PMI rose from 47.7 in November to 49.0 in December.

Market’s talk:

- Investors are speculating about potential downgrade of France’s credit rating. All euro zone’s nations are exposed so such outcome after the warnings of S&P and Moody’s, but France is considered to be especially vulnerable. French Foreign Minister Alain Juppe claimed today that for France to lose its triple-A debt rating would be bad news but “not a cataclysm”. Be cautious during today’s US session.
To watch today:

- The SNB’s 3-month Libor rate and press conference at 8:30 GMT. According to Goldman Sachs, the central bank could lift EUR/CHF floor from 1.20 to 1.30 due to deflationary risks, though not at today’s meeting. The analysts say SNB’s statement “will leave the door open for such a move at a later stage during the first quarter of next year”. One can’t rule out the possibility of surprises;

- European flash PMIs;

- British retail sales (9:30 a.m. GMT);

- US data (1:30 p.m. GMT);

- Spanish bond auction;

- 11:00 GMT — ECB President Mario Draghi speaks in Berlin on «Last Resort ECB? Monetary Policy Leeway In The Social Market Economy».

http://www.fbs.com/analytics/news_markets/view/11438


Westpac, E&Y: Europe’s heading to recession
2011-12-15 14:13

The majority of experts sound pessimistic on the prospects of the euro area's economic growth. Analysts at Westpac claim that the austerity measures will lead the region into a “fully blown recession”.

Economists at Ernst & Young also believe that European economy’s going to contract and add that the actions of the EU authorities haven’t completely eliminated the risk of the euro area’s breakup.

In their view, the currency union’s GDP will drop in the current and next quarters and the rebound will begin only by the end of the next year, while the 2012 growth won’t exceed 0.1% (in 2013 the situation might improve – the analysts project 1.5-2% growth). The unemployment level is seen above 10% until 2015.

E&Y reminds that the next year the large amounts of sovereign debt will require refinancing. As a result, the debt turmoil is likely to continue and the ECB will likely have to consider acting as a lender of last resort and keep buying government bonds.

http://www.fbs.com/analytics/news_markets/view/11443


Nomura: EUR/USD is sliding to $1.20
2011-12-15 15:17

Analysts at Nomura who have been bearish on euro this year still think that the single currency is going to weaken versus its US counterpart.

The specialists note that if in the longer term it’s possible to see some light ahead, the short-term picture looks rather dim.

According to the bank, EUR/USD will hit $1.20 by the end of the first quarter of 2012. Nomura says that the pace of euro’s decline will depend primarily on the results of the upcoming bond auctions in Europe and the 3-year ECB money tender which is launch on December 21.

In addition, the strategists claim that one shouldn’t rule out the possibility of the pair’s drop to the parity level the next year.

http://static.fbs.com/upload/image/technical_analis/December2011/15_12_11/.thumbs/b1b9aa1201cc0822487f3e42a7ae9a7d_500_0_0.jpg
Chart. Weekly EUR/USD

www.fbs.com/analytics/news_markets/view/11445



SNB meeting: results, comments, EUR/CHF
2011-12-15 16:47

Swiss National Bank left today the left the floor for EUR/CHF at 1.20 and repeated to defend it will all efforts amid the pressure from the Swiss exporters to lift up this level (franc has been pegged to euro during already 3 months). The SNB has also left its key interest rate at 0%.

The SNB’s President Philipp Hildebrand claimed that the central bank is ready to act in case deflation risks emerge, though today deflation isn’t yet a danger for the Swiss economy. According to the SNB’s forecast, consumer prices will fall by 0.3% the next year, but we won’t see sustained decline in the general price level. Swiss central bank expects the nation’s GDP growth to slow from 1.5-2% this year to 0.5% in 2012.

Analysts’ comments

Credit Agricole: the SNB is going to stay on hold watching the dynamic of the economic indicators. In other words, the central bank won’t raise the limit for franc preferring verbal interventions. The pressure on Swiss exporters has eased a bit as franc has so far weakened versus US dollar.

Swissquote Bank, Capital Economics: as the situation in the euro area may deteriorate, the upward pressure on franc risks strengthening.

Goldman Sachs: the SNB is in a very difficult position due to the low inflation and poor economic growth.

Rabobank: the central bank is still likely to increase EUR/CHF floor. Swiss economy is affected by slowing economic growth of the euro area. Franc is overvalued and the deflation is at the door. The analysts advise buying euro on the dips.

UniCredit: SNB's growth and inflation forecasts don’t change much. If the central bank lifts the EUR/CHF floor to 1.25, that won’t be enough to help the exporters. If the SNB raises the limit to 1.30, it will face strong market’s pressure as well as the accusations of currency manipulation. As a result, the analysts expect the floor to stay at the current level. Swiss franc is seen slowly depreciating in 2012.

EUR/CHF

Bloomberg survey: EUR/CHF will trade in the 1.23 area in the first quarter of 2012 and then rise to 1.26 in the last 3 months of the next year.

Bayern LB: euro has upward potential against franc. If EUR/CHF manages to get above 1.2475, it will be able to climb to 1.26 even without any actions on the part of the SNB.

http://static2.fbs.com/upload/image/technical_analis/December2011/15_12_11/.thumbs/0cc24a14a24bc596aaf95e83ef383a8c_500_0_0.jpg
Chart. Daily EUR/CHF

http://www.fbs.com/analytics/news_markets/view/11447

Danske Bank: forecast for ECB and Fed’s rates
2011-12-15 17:19

Analysts at Danske Bank think that at its next meeting in January the European Central Bank will reduce its benchmark rate by 25 basis points to 0.75%.

The specialists note that the euro area risks falling into recession during the next few months, the European policymakers still haven’t solved the crisis and the periphery bond yields remain high while the ECB is reluctant to extend its purchases of the European debt.

Danske claims that the outlook for US economy seems to be much better and expect American GDP to show decent growth in the coming quarters. As a result, the Federal Reserve is seen keeping the rates unchanged with the prospect of increase as the economic conditions improve.

So, make your conclusions.

http://static.fbs.com/upload/image/technical_analis/December2011/15_12_11/.thumbs/4b8c4cbaafa6b2cc53476d279907cc3a_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11450

December 16: economic events and data releases
2011-12-16 10:38

Events:

- Troika ends their 4-day visit to Greece.

Important data: US CPI (1:30 p.m. GMT).

Bond auctions: none (keep in mind, however, that France plans to sell 7 billion euro ($9.1 billion) of bills on December 19. Spain and Greece will also offer short-term government securities next week – these upcoming events weight on euro as the market seems pessimistic on the euro zone’s prospects).

Elsewhere in the world:

- The Reserve Bank of India announced measures to curb speculation in the foreign-exchange market (companies won’t be allowed to enter into multiple forward contracts to cover a single overseas transaction, the amount of open positions dealers can maintain overnight will be reduced). As a result, rupee climbed to more than 2 ½-year maximum.

- Russia joins the World Trade Organization. The world’s biggest energy exporter is set to receive the final approval to join the WTO after 18 years of negotiations. Joining the WTO should drive bigger investment inflows, trade and higher competition. It may improve Russia’s credit rating. (14:30 GMT).

http://www.fbs.com/analytics/news_markets/view/11457



Danske Bank: outlook for 2012
2011-12-16 18:01

Analysts at Danske Bank shared their expectations about global economic development in 2012. The specialists advance several assumptions:

- Concerns about recession are exaggerated – an overly negative economic and financial outlook is priced into financial assets;

- The world’s central banks will keep easing monetary policy;

- Euro zone crisis will continue, though the currency union won’t break up;

- Volatility will remain high;

- US dollar will experience structural weakness;

- Currency interventions will continue.

Danske give several arguments against euro zone’s break-up:

- It’s consequences would be worse than those of Lehman Brothers’ collapse;

- The costs of the break-up would be enormous both peripheral and core economies4

- The single currency is secured by political support as most of the member nations seem ready to give up more sovereignty.

The strategists, however, don’t rule out the possibility that the euro area may split, the exit would be very risky and potentially very costly for any country.

As for US dollar’s structural weakness, the analysts note that the greenback has been steadily depreciating during the last decade (with only a few interruptions like due to the introduction of the homeland investment act in 2005 and the global financial crisis in 2008). Among the reasons of such USD dynamics the specialists cite:

- Euro’s initial strong undervaluation versus the greenback;

- America’s persistent current account deficit;

- Rising commodity prices;

- On average easier monetary conditions.

In the absence of a global recession the dollar will lose to stronger currencies, such as Australian, New Zealand’s and Canadian dollars. The Dollar Index may decline in such case by about 4%, though not more as Danske isn’t bullish on riskier assets, but expects weak US fundamentals to drive a dollar depreciation trend in a “normal” risk environment.

As for EUR/USD, the analysts see the pair below $1.30 during the next few months until the market prices in new ECB monetary policy regime and then rebound end 2012 higher.

http://www.fbs.com/analytics/news_markets/view/11459

December 19: new trading week starts
2011-12-19 12:06 | Send to e-mail Send to facebook Send to twitter Send to Livejornal Send to Google Reader Send to Yandex Send to Yahoo bookmarks RSS analytics from the FBS company Print

News:

The market became concerned about increased instability in North Korea as the nation’s leader Kim Jong-il died. His little-known third son, Kim Jong Un, is likely to succeed to the power that may cause tensions. As a result, save haven currencies strengthened.
ECB President Mario Draghi signaled in an interview to the Financial Times that the central bank won’t step up bond purchases to tame the sovereign debt crisis.
Bank of England released quarterly bulletin:

- disposable income of the households keeps declining due to the austerity measures;

- assessment of financial markets pointed to worsening conditions due to the euro zone's debt crisis;

- Chief Economist Spencer Dale wrote that the recovery “has been disappointing and there are signs that output growth has slowed in recent months”.

Data:

New Zealand’s consumer confidence declined from 112 in the third quarter to 101 in the final 3 months of the year.
Commodity Futures Trading Commission: futures traders increased net bearish bets on EUR/USD from 95,814 to 116,457 in the five-day period ended December 13.

Market’s talk:

Market's expecting Standard & Poor's to downgrade France sometime this week. On Friday, December 16 Fitch Ratings lowered its outlook for France’s AAA credit rating from stable to negative.

Watch today:

French debt auction: the nation plans to sell 7 billion euro ($9.1 billion) of bills.
Bloomberg reports citing the unnamed officials that European finance ministers will hold a conference call today to discuss funding of the euro zone’s indebted nations through the IMF.
Draghi is speaking in Brussels at 3:30 p.m. GMT.

http://www.fbs.com/analytics/news_markets/view/11460

Ichimoku. Weekly forecast. GBP/USD
2011-12-19 14:53

Weekly GBP/USD

British pound keeps gradually moving down versus its US counterpart though it still managed to hold above November lows.

Tenkan-sen and Kijun-sen are going sideways (1, 2), while bearish Ichimoku Cloud retains its side (4) – the signs that the consolidation is likely to continue.

On the upside, sterling is capped by the strong resistance provided by the Turning line (1), the Standard line (2) and Senkou Span “B” (3). On the downside, the prices are supported by November and October minimums.

http://static.fbs.com/upload/image/technical_analis/December2011/19_12_11/8cef02b325016351ce89c51908c11f26.gif
Chart. Weekly GBP/USD

Daily GBP/USD

At the beginning of the last week GBP/USD breached Tenkan-sen (1) and consolidated below this line which is currently action as a resistance.

It’s necessary to note that here as well as on the weekly chart the Turning and the Standard lines (1, 2) are horizontal that means the trend is flat.

The Ichimoku Cloud has so far rather often changed its mode and is thin so that it can’t be viewed as a serious obstacle, though to get to Kumo the prices will need to overcome Tenkan-sen (1) and Kijun-sen (2). In addition, descending Cloud has recently begun widening showing that the bears become stronger.

Pound’s likely to stay below Tenkan-sen.

http://static.fbs.com/upload/image/technical_analis/December2011/19_12_11/be1dc45b895cee43579b35f6bbc48078.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/news_markets/view/11465

Ichimoku. Weekly forecast. USD/JPY
2011-12-19 15:10

Weekly USD/JPY

The pair USD/JPY is consolidating inside Tenkan_Kijun channel: the Turning line acts as support (1), while the Standard line from which the prices have been staying away since March provided resistance (2).

It’s difficult not to note that the pair is stuck in the narrow range. The position of the lines on the chart doesn’t change much: Tenkan-sen (1) and Kijun-sen (2) are horizontal, the descending Cloud retains its size (3, 4).

The fact that the greenback has been able to stay above Tenkan-sen means that the position of bulls is slowly but surely strengthening. The outlook for the pair will significantly improve, when the US currency will finally manage to overcome Kijun-sen (2).

One would be able to speak about the pair’s future with more certainty in a few weeks when the lagging Chinkou Span, which is marked green on the chart, approached the price chart. In the near future the pair will keep trading sideways.

http://static.fbs.com/upload/image/technical_analis/December2011/19_12_11/eae3a29654613dde72c704d7b2c43073.gif
Chart. Weekly USD/JPY

Daily USD/JPY

On the daily chart the prices were holding above Tenkan-sen during the entire last week (2) – the Turning line has so far provided the pair good support. In addition, a bit lower stays Kijun-sen (1) which will also help to hold bears if they strengthen. The extremely thin Cloud itself (3) is unlikely to be much of a support.

Neither bulls, nor bears have enough strength to change the situation to their profit: Kumo is till almost a line.

The Standard line (1) keeps moving horizontally, so the general sideways trend isn’t over and won’t be at least until the end of the month.

http://static2.fbs.com/upload/image/technical_analis/December2011/19_12_11/f467602fc7842c2d19ad3a2383283f45.gif
Chart. Daily USD/JPY

http://www.fbs.com/analytics/news_markets/view/11466

Ichimoku. Weekly forecast. USD/CHF
2011-12-19 15:24

Weekly USD/CHF

There are no surprises on the USD/CHF chart: the prices are still inside the Cloud, while the bulls are patiently trying to overcome this obstacle. It’s quite likely that in a few weeks Kumo will be left behind.

The lines Tenkan-sen (1) and Kijun-sen (2) climbed a bit higher and then once again turned horizontal. The pair is supported by the Turning line (1) and Senkou Span A (4). The Ichimoku Cloud, which has so far switched upwards, isn’t wide, though stable (3). Tenkan-sen (1) and Kijun-sen (2) are holding weak, but still “golden cross”.

It’s necessary to note that the prices managed to get above resistance provided by October maximums. The next target of the bulls is Senkou Span B (5).

http://static2.fbs.com/upload/image/technical_analis/December2011/19_12_11/1bf2b7d1b72f83ca25a9b8de2cbff211.gif
Chart. Weekly USD/CHF

Daily USD/CHF

On the daily chart one may see that last week the greenback managed to set a new high, but then it slid lower, though is still trading above October highs.

The pair USD/CHF is testing support provided by the Turning line (1). The next support for US currency will be the Standard line (2).

Strong “golden cross” (3) remains in place, rising Ichimoku Cloud is widening (4), while the lagging Chinkou Span (5) finds itself above the price chart – the bullish signal.

Taking into account the horizontal state of Tenkan-sen (1) and Kijun-sen (2), it’s possible to expect some consolidation of the pair. The general technical picture is still positive.

http://static.fbs.com/upload/image/technical_analis/December2011/19_12_11/ad5959dc65084e040977b86f5ad099a2.gif
Chart. Daily USD/CHF

December 20: news and data to watch
2011-12-20 11:32

News:

RBA meeting minutes (full text here):

-comments are less dovish than expected;

-Australian economy will keep expanding even though euro zone’s debt crisis has a negative impact on the global economic growth.

So, RBA rate cuts in the near future are unlikely. Australian dollar has managed to gain a bit on the news rising from $0.9890 to $0.9950.

UK consumer confidence improved in November (40 vs. 36 in October).

Watch today:

Germany: Ifo Business Climate (decline is expected);
Spain: 3- and 6-month bills auction;
The ECB begins longer-term refinancing operation (LTRO) in which banks can borrow unlimited funds in return for eligible collateral, including euro-region government bonds. The banks will be able to decide what to do with the funds on their own.

The single currency may find some support in the short term as the LTRO may provide a new source of demand by banks for euro-zone sovereign debt.

http://www.fbs.com/analytics/news_markets/view/11468


BofA: sell EUR/USD on the rallies
2011-12-20 17:17

Technical analysts at Bank of America believe that the single currency may fall to 1-year minimum versus the greenback at $1.2510 (last visited in July 2010).

The specialists make such forecast as on December 14EUR/USD went below October minimum at $1.3145 sliding to $1.2945. In their view, support in the $1.2901/2859 area will be the last obstacle ahead of $1.2533.

In their view, the pair is with no doubts trading within the downtrend. The analysts note that as the market's sentiment about euro is extremely bearish, short squeezes are possible and the pair has chances to rise to $1.3250. At that point Bank of America recommends opening short positions.

http://static2.fbs.com/upload/image/technical_analis/December2011/20_12_11/.thumbs/3cb8818073ec4585d1892e935b9adc9e_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11477


NAB: forecast for AUD/USD in 2012
2011-12-20 17:50

Analysts at National Australia Bank believe that Australian dollar will be fluctuating in 2012 between $0.9000 and $1.0500 versus its US counterpart.

The specialists note that the pair AUD/USD, which has set this year’s maximum at $1.10 on July 27, will be capped by this level during the next year.

According to the bank, in the first quarter of 2012 Aussie will drop to the $0.9600 zone as the global growth prospects deteriorate and then stay around parity in the second half of the next year. In the worst case, if some European nation defaults and the euro zone falls into recession making the global economy contract as well, AUS/USD will drop to $0.8500.

http://static.fbs.com/upload/image/technical_analis/December2011/20_12_11/.thumbs/d3a8c02f863afd4f932b2855536c49d7_500_0_0.jpg
Chart. Daily AUD/USD

http://www.fbs.com/analytics/news_markets/view/11479

BBH: euro will decline to $1.24
2011-12-21 14:29

Analysts at Brown Brothers Harriman expect the single currency to decline versus the greenback in the coming months to end the first 3 months of the next year at $1.24.

The specialists note that euro is still overvalued as its fair value is in the $1.20 zone. The fact that EUR/USD was trading rather high may be explained by the repatriation and the ongoing diversification of reserve inflows which supported the European currency. At the same time, BBH says that these processes may slow down euro’s slump, but won’t stop it.

According to the bank, the pair will find itself under pressure due to the euro area’s economic weakness amid tough austerity measures and the tensions at the peripheral band markets. Such outlook increases euro risk premium and the possibility of further rates cuts by the ECB.

http://static.fbs.com/upload/image/technical_analis/December2011/21_12_11/.thumbs/f488d096c58a6cc11119a7e81eb9f647_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11481



GBP/USD: MPC minutes and technical comments
2011-12-21 16:48

Bank of England Monetary Policy Committee members voted unanimously at their December meeting to keep policy unchanged as uncertainty over the economic outlook remained high.

All nine members of the MPC voted to continue with the current 275 billion pounds of asset purchases and to leave the benchmark interest at 0.5%. Divisions on the MPC remained over the outlook, with some members saying the November Inflation Report projections meant more quantitative easing was likely to be needed.

UK Borrowing turned out to be lower than expected in November: 18.1 billion pounds versus the forecast of 19.6 billion.

Although UK central bank left door open for more easing in February, pound strengthened versus the greenback. GBP/USD tested the levels in the $1.5773 zone. Support for British currency is situated at $1.5650. Watch the bullish “double bottom” pattern: it will be confirmed if sterling overcomes resistance in the $1.5768/77 area.

http://static.fbs.com/upload/image/technical_analis/December2011/21_12_11/.thumbs/cce4009745bf9cc4c77e24ae308cdc6a_500_0_0.jpg
Chart. Daily GBP/USD

http://www.fbs.com/analytics/news_markets/view/11486

ECB conducted first 3-year LTRO, analysts’ comments
2011-12-21 17:01

The ECB has reported a strong demand for its 3-year longer term refinancing operation allotment. The central bank lend more than 489 billion euro to 523 financial institutions at the fixed rate of 1% and to be paid January 2015. The analysts were expecting the amount of about 300 billion euro.

It was the first of the two 3-year loan auctions announced ECB president Mario Draghi at the central bank’s last meeting on December 8. The next one will be allotted on 29 February 2012.

Reuters sited the following analysts’ comments:

Societe Generale: “This is good. It's a positive number, at the top end of expectations. You have to regard it as a positive result. This is at least a solid 240 billion euro (net) increase for banks. But it is still short of covering all of the banks' financing for next year. So, it could ease fears of a credit crunch somewhat.”

ING: “…the lower number of participating banks (523 versus 1121 previously) suggests that the take-up is currently less widespread — and probably more concentrated in banking systems in peripheral euro zone countries. We will be keeping a close eye on national central bank data over the next few weeks for further clues on which countries' banking systems tapped the three-year facility.”

Analysts at UBS claim that though the LTRO will provide breathing space for banks it won't improve the long-term outlook for the European financial sector.

The pair EUR/USD climbed to the weekly maximum in the $1.3200 area on the ECB’s announcement before sliding back to $1.3090.

http://static.fbs.com/upload/image/technical_analis/December2011/21_12_11/.thumbs/6c57f9c72bd865b37639dd8fd4f9d720_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11487



Japan: monetary policy and efforts to stem yen
2011-12-21 18:13

Bank of Japan: monetary policy unchanged

The Bank of Japan kept monetary settings unchanged at today’s meeting, but cut its economic assessment saying that the nation’s GDP growth will stagnate at least until spring next year. Japan's economy recovered from a recession triggered by the March earthquake but is expected to slow sharply in the fourth quarter as the initial rebound driven by companies restoring supply chains and production facilities dies out and the overseas demand decreases.

BOJ Governor Masaaki Shirakawa underlined that the euro zone’s debt crisis and economic weakness have negative impact on the global economy in general and on Japan in particular.

The central bank left the key interest rate below 0.1%. The BOJ didn’t increase asset purchases after 2 months of doing so, trying to save this option for future action.

Analysts at Nomura expect more easing in January-March referring to the risk of a credit rating downgrade for European sovereign debt and the possibility of more stimulus from the Fed and the ECB.

Japan’s government: intervention fund increased

Yesterday Japanese government decided to boost its currency market intervention fund by 30 trillion yen ($385 billion) from 165 to 195 trillion yen – that’s the second biggest* increase and the sign that Japan’s officials are keen to prevent sharp advances of the national currency. Finance Minister Jun Azumi announced that Japan is ready to act at any moment if necessary.

The increase was included in a fourth extra budget approved by the government Tuesday. The extra budget is aimed to revive Japanese economy and will be submitted to the regular parliamentary session starting January along with a main budget for the next fiscal year.

Japanese authorities had to lift up the intervention fund as they spent 9.092 trillion yen between October 28 and November 28 trying to stem yen’s appreciation and support exporters, so it was needed to replenish it.

Japanese government kept its economic assessment intact in its monthly report issued on Wednesday but cut its view on business sentiment, reflecting worsening confidence among big manufacturers in the BOJ's December Tankan survey.

*The biggest one was 40-trillion increase in 2004 fiscal year which was conducted after yen-selling intervention campaign of 2003-2004.

According to the estimates of Barclays Capital, the actual amount available to the central bank for selling yen may increase from about 40 to 70 trillion yen. The analysts say that taking into account the general strengthening of US dollar seen so far and better economic data, the intervention fund will be able to satisfy the need for selling yen during several months.

http://static2.fbs.com/upload/image/technical_analis/December2011/21_12_11/.thumbs/adb7006be636d31b2d2440fd3ea9ae8c_500_0_0.jpg
Chart. Daily USD/JPY

http://www.fbs.com/analytics/news_markets/view/11488

Europe: event to watch today
2011-12-22 12:25

-Italy's government will hold confidence vote on austerity in Senate around 2 p.m. GMT: the lawmakers are set to give final approval today to Prime Minister Mario Monti’s 30 billion-euro ($39 billion) emergency budget plan, including a pension overhaul and a levy on primary residences.

The draconian austerity measures will affect the nation’s weak economy. Data released yesterday showed that Italy’s GDP shrank contracted by 0.2% in the third quarter after 0.3% growth in the previous 3 months. The government forecasts contraction in the fourth quarter, 0.6% growth in 2011 and a 0.4% contraction in 2012.

-European Central Bank President Mario Draghi speaks today in Frankfurt after a meeting of the European Systemic Risk Board which begins at 4 p.m. GMT.

Yesterday the ECB made the region’s banking sector a Christmas present – the central bank lend a record sum of 489 billion euro ($638 billion) to 523 euro-area banks in 3-year loans. That was the first of ECB’s LTROs announced on December 8. The second one will be allotted on February 29, 2012. According to Goldman Sachs, the borrowings equal about 63% of the European bank debt maturing in 2012.

The majority of analysts argue that the ECB’s move won’t be efficient as the region’s banks can decide on their own where to invest the obtained funds and they aren’t very likely to invest in the peripheral debt.

http://static2.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/7f4e9183382265a7a529463b330a66d0_500_0_0.jpg
Chart. Daily EUR/USD

http://www.fbs.com/analytics/news_markets/view/11490


St. George: 2012 forecast for AUD/USD
2011-12-22 13:37

Analysts at St. George believe that although Australian dollar will be affected in 2012 by the euro zone’s problems and potential slowdown in China, it will fall, but not much.

The specialists note that Aussie has shown greater resilience during bouts of risk aversion this year in comparison to previous episodes of risk aversion due to its strong underlying fundamentals.

The bank expects AUD/USD to trade around $1.0000 in March, in the $0.9900 area in June and near $1.0100 at the end of 2012.

http://static.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/0f87987b01e1cc2396067affcc7bff25_500_0_0.jpg
Chart. Daily AUD/USD

http://www.fbs.com/analytics/news_markets/view/11494


Japan: government revised economic forecasts
2011-12-22 14:01

Japanese government reduced forecast for the nation’s real GDP growth in 2012 fiscal year which begins in April from 2.7%-2.9% to 2.2% (y/y). The estimate of this year’s growth were lowered from +0.5% to -0.1%.

As the reason of the revision the officials cited negative impact of the yen's appreciation and the ongoing sovereign debt crisis in the euro area. At the same time, the next fiscal year Japan’s economy is expected to “recover moderately” on the assumption that the global situation starts improving.

Consumer prices will add 0.1% in fiscal 2012 (y/y) after showing declines in the previous three years, says the government. In fiscal 2011 CPI will drop by 0.2% (previous forecast was the 0.2% rise).

http://www.fbs.com/analytics/news_markets/view/11495

Citigroup: warning for USD bulls
2011-12-22 16:00

Currency strategists at Citigroup say that US economic data has so far been surprising the markets in a positive way referring to the recent labor, housing and trade figures. As a result, the Economic Surprise Index designed by the bank has risen from the record minimum in June almost reaching the record maximum at present.

According to Citigroup’s experience, the upside moves of the index correspond to US dollar’s selling periods. It happens as the market becomes more optimistic and risk sentiment improves making the demand for US currency decline.

The analysts don’t think that dollar will weaken this year as many traders have already closed their books for the year and others may be reluctant to take on big new positions right before the end of a quarter. At the beginning of 2012, however, if the economic data remains favorable, investors may decide that they have overestimated the negative effects of the euro zone’s crisis on the global economy. “The surge in data flow itself may be insufficient to reverse recent risk aversion, but it does suggest that dollar’s weakness could reassert itself more quickly and forcefully than many anticipate once conditions settle down,” says the bank.

http://www.fbs.com/analytics/news_markets/view/11498


Analysts expect Aussie to weaken early in 2012
2011-12-22 17:25

Analysts at Commonwealth Bank have so far lowered forecast for AUD/USD to $0.9800 by March 2012 and to $0.9500 by June 2012.

Reasons:
-general strength of US dollar due to improved US economic data (opposite views to Citigroup);

-funding demand for the US dollar in response to Basel III capital requirement;

-central banks slow down their diversification efforts out of US dollar into euro as the European debt problems persist.

Strategists at TD Securities expect Aussie to slide to $0.9500 by the end of the first half of 2012.

Reasons:

-slowing growth in the global economy with the deep recession in the euro zone and the United States;

-China’s economic slowdown.

Westpac economists think that AUD/USD will rise to $1.0200 in the near term as it’s supported by foreign direct investment inflows. Never the less, Aussie has been trading above its fair value in the $0.91 area for a long time and the odds are that it will depreciate.

Analysts at National Australia Bank also claim that Australian currency will end December at $1.0200, then drop to $0.9600 by March before rising gradually to $0.9800 by June and then to parity by September.

Barclays thinks that AUD/USD will weaken to $0.9800 by the first quarter and then rise to $1.0100 by June. In the short term Aussie will stay under pressure as the euro zone governments failed to commit to faster fiscal consolidation and the ECB refused to extend bond purchases. In the medium term, however, the bank retains a constructive view due to many factors including limited impact on Australia's macro fundamentals from deteriorating euro zone’s growth, expectations of more easing from China, stability in local-currency commodity prices which are helped by weaker currencies.

http://static2.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/c10a4663568c7138fd0594270b863bba_500_0_0.jpg
Chart. Daily AUD/USD

http://www.fbs.com/analytics/news_markets/view/11500


UniCredit: forecasts for EUR/USD and GBP/USD
2011-12-22 18:24

EUR/USD: the single currency will keep weakening in the first quarter of 2012. The pair may slide to $1.25. If the tensions at the market ease, euro will be able to rebound, though sustainable rally seems unlikely.

GBP/USD: British pound may decline versus the greenback in the first half of the next year as US currency will keep enjoying strong demand, while the bank of England will continue asset purchases. In the second part of 2012 the outlook for pound is less negative, though UK economic growth will remain sluggish. As a result, the pair GBP/USD will be capped by the levels in the $1.60 area.

http://static2.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/b7c57c002d92f9c66c51592e287f21a7_500_0_0.jpg
Chart. Daily EUR/USD

http://static.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/93678584cefab3c7e8435649e77bea34_500_0_0.jpg
Chart. Daily GBP/USD

http://www.fbs.com/analytics/news_markets/view/11504

The FOMC will become dovish the next year
2011-12-23 15:33

The Federal Open Market Committee is expected to become more dovish due to the annual rotation. As a result, the Federal Reserve Chairman Ben Bernanke will get chance to pursue his active loose monetary policy if he thinks that American economy needs help.

The FOMC consists of 12 members – 7 Fed board governors and the president of the New York Federal Reserve Bank have – permanent vote, while the 4 remaining seats are shared by the other 11 FRB presidents which change places on the annual basis.

This year 3 out of the 4 rotating seats was occupied by the hawks – Richard Fisher, the president of the Dallas Federal Reserve Bank, Charles Plosser of Philadelphia, Narayana Kocherlakota of Minneapolis. That means that these policymakers don’t think that monetary policy can be used to stabilize economic conditions and would prefer setting long-term target for inflation. Doves, on the other hand, believe that the central bank has to keep interest rates low to support the national economy. Fisher, Plosser and Kocherlakota voted against the pledge to keep short-term rates close to 0 until the middle of 2013 and against the Operation Twist.

The old distinction, with hawks concerned about inflation and doves worried about weak growth, has subsided over the past 20 years. Fed officials agree that keeping inflation low and stable is a necessary precondition of good economic performance.

This year, a “tough group” of hawks occupied. These officials had little sympathy for the Fed’s innovative efforts to try to lower long-term interest rates, said Brian Bethune, a Fed expert at Amherst College in Massachusetts.

In 2012, the Fed is losing 3 hawks and only getting one: Jeffrey Lacker, the president of the Richmond Fed. The other 3 new members: John Williams, the president of the San Francisco Fed, Dennis Lockhart, the president of the Atlanta Fed, Sandra Pianalto of Cleveland are viewed as more consensus-minded and likely to vote with Bernanke.

http://static2.fbs.com/upload/image/technical_analis/December2011/22_12_11/.thumbs/bef19055a37d2ddeda3ac3be72d1540a_500_0_0.jpg
http://www.fbs.com/analytics/news_markets/view/11506

BBH: demand for yen will remain high next year
Tuesday, December 27, 2011 - 15:30

Analysts at Brown Brothers Harriman believe that in the first quarter of 2012 the demand for Japanese yen will remain high.

In their view, yen will remain among the top performers in the G10 in the first quarter of the next year due to such factors as:

- demand for safe havens;

- Japan’s inability to recycle its current account surplus.

According to BBH, the Bank of Japan could conduct new currency interventions. At the same time, the specialists don’t expect the BOJ to establish a definitive floor in the USD/JPY.

BMO: 2012 forecast for Canadian dollar
Wednesday, December 28, 2011 - 09:45

Analysts at BMO Capital Markets say that Canadian dollar has been influenced by 2 things:
- investors' risk sentiment;
- outlook for Bank of Canada’s policy.
The specialists think that Canadian dollar will weaken versus its US counterpart. In their view, the pair USD/CAD will rise to 1.0600 in the first half of the next year as the market will be dominated by the risk aversion and significant possibility of BoC rate cuts.
In the second part of 2012 risk sentiment will improve and prospects for BoC rate hikes mount, so that loonie will likely get chance to reverse and USD/CAD will slide to the parity level.

http://www.fbs.com/analytics/2011-12-28/16319-bmo-2012-forecast-canadian-dollar


Raiffeisen: 2012 prospects for EUR/USD
Wednesday, December 28, 2011 - 10:15

Analysts at Raiffeisen think that the single currency will fall versus US dollar in the first quarter of the next year below $1.30, staying around this level by the middle of 2012.

Then EUR/USD will rise and its average rate in the second half of the year will be at $1.35.

The specialists say that the exchange rate will likely overshoot or undershoot the targets by up to 10 cents in between due to renewed escalation in the euro-zone debt crisis and/or further Fed’s monetary policy easing. In their view, these deviations from the path of the interest rate differential will be only temporary and offer good trading opportunities.

http://www.fbs.com/analytics/2011-12-28/16321-raiffeisen-2012-prospects-eurusd


ANZ: euro under negative pressure
Wednesday, December 28, 2011 - 10:30

Technical analysts at ANZ claim that as the European currency didn’t manage to rise to $1.33/1.35 during the past week, it’s now under severe technical pressure and risks sliding lower to $1.25 or even to $1.23.

The specialists claim that euro’s rate versus the greenback has so far been relatively high in comparison with the single currency’s fair value.

The bank underlines that years there were some aggressive selloffs over the past few years. In their view, the same may happen now. According to ANZ, EUR/USD may hit the minimums of late 2008 or even 2010 (at $1.1875). The strategists also expect euro to weaken versus Australian dollar heading down towards 1.20.

http://www.fbs.com/analytics/2011-12-28/16323-anz-euro-under-negative-pressure

SocGen: comments on euro ahead of the year-end
Wednesday, December 28, 2011 - 11:00

Analysts at Societe Generale talk about the prospects of the single currency.

Kit Juckes, chief currency strategist: “There will be reticence to put money to work in anything as risky as a BTP this side of the year-end, at least. This is the time for window-dressing, if nothing else. Positioning data Tuesday showed euro shorts down a touch but still extreme, while the price action and news flow won't really shake anyone out. There is not much about to help euro as the market is focused on Italian auctions on Wednesday and Thursday. New Year spike can't start until EUR/USD closes above $1.3150 or so.”

Willie Williams, director of institutional derivative sales: “At this time of year, it's important to be looking at tactical trades. As the European Central Bank has provided close to 500 euro of financing to the European banks, and another money tender on tap for early 2012, that removes a lot of the short-term disorderly risk in Europe. Apart from the financing aid, plenty of the bad news for the euro is already out there. While it's possible that a recession in Europe could hurt the single currency, investor positioning should help. On a short-term basis, given how short the market is on euro, I think a rally from $1.30 to $1.33 is perfectly reasonable, in particular as we go into the end of the year. Buy euro at $1.30 with a stop at $1.29 and a target of $1.33.”

http://www.fbs.com/analytics/2011-12-28/16324-socgen-comments-euro-ahead-year-end


ING: Swiss economy in a poor state
Wednesday, December 28, 2011 - 12:00

According to the data released today, Switzerland's KOF Economic Barometer, which measures the level of a composite index based on 12 economic indicators, was equal to only 0.01 in December versus the forecast level of 0.25.

Analysts at ING claim that the figures signal negative in the fourth quarter. In their view, the “double-dip” scenario for the Swiss economy can't be excluded any more. As a result, the Swiss National Bank is extremely unlikely to tighten policy in the foreseeable future.

http://www.fbs.com/analytics/2011-12-28/16327-ing-swiss-economy-poor-state


Italian bond auction went well
Wednesday, December 28, 2011 - 12:00

Italy has managed to sell today 9 billion euro ($11.8 billion) of 6-month bonds at an average yield of 3.25%. The nation’s funding costs declined from 6.5% at November auction.

The country also sold 1.733 billion euro of 2013 notes to yield 4.853%, compared with a yield of 7.814% at the last auction on November 25.

Be ready as tomorrow Italy will auction 4 different securities, including a 10-year bond.

The yield on the 10-year Italian benchmark fell from the levels above the critical point of 7% to 6.80%.

http://www.fbs.com/analytics/2011-12-28/16328-italian-bond-auction-went-well

ECB balance extended to the record maximum
Thursday, December 29, 2011 - 10:15

The pair EUR/JPY fell to 10-year minimum at 100.30 yen, the pair EUR/USD dropped to the minimal level since January at $1.2887.

Investors are concerned that European Central Bank will inject more cash into the financial system to avoid a credit crunch from the region’s debt crisis. The ECB announced yesterday that after last week’s lending to the euro zone’s banks its balance sheet climbed to the record level of 2.73 trillion euro.

Analysts at Westpac think that euro will stay under pressure due to the signs of more formal quantitative easing.

http://www.fbs.com/analytics/2011-12-29/16333-ecb-balance-extended-record-maximum



UBS: euro’s unlikely to rebound
Thursday, December 29, 2011 - 11:45

Analysts at UBS give several reasons why they think that the single currency won’t be able to rebound at the beginning of 2012 as it has done this year gaining several thousands of pips.

The ECB is likely to cut rates to a new historic low of 0.50% and might well then embark on outright QE.

Greek PSI will last till March 20. However, revenue shortfalls due to the deeper-than-forecast recession may result in additional financing needs, which in the absence of new official money might mean a larger haircut and hence the need of more PSI.

If Greece is forced to impose an involuntary restructuring on investors, the crisis will spread to other problem economies – Portugal, Spain and Italy. The measures conducted by the European authorities are arguably not yet powerful enough to stop the contagion.

The above Greek scenario would result in Greece’s default. This will trigger credit default swaps (CDS) which imply payouts of more than 80 billion euro. This alone would make the market highly stressed.

High possibility of resistance to ESM ratification in some countries as well as more serious social unrest in both debtor and creditor nations.


http://www.fbs.com/analytics/2011-12-29/16335-ubs-euros-unlikely-rebound

UBS, Commerzbank: bullish on EUR/CHF

Analysts at UBS advise investors to buy the single currency versus Swiss franc expecting the pair EUR/CHF to rise to 1.25. According to the bank, “the franc is now largely flat on a structural basis” and “the SNB should take note of this before they manage their next step”. As a result, the specialists think that the odds that the Swiss national Bank increases floor for EUR/CHF are now higher.

Analysts at Commerzbank also think that the speculation about EUR/CHF floor-raising will help to strengthen euro ahead of the important inflation data release in February.

[IMG]http://static1.fbs.com/sites/default/files/image/analysis/January2012/04_01_12/daily_eurchf_13-23.gif[/IMG]

http://www.fbs.com/analytics/2012-01-04/16347-ubs-commerzbank-bullish-eurchf

Yen: comments and forecasts

Japanese yen has strengthened this year versus all major currencies gaining 4.2% against the US dollar and 6.7% against euro, although Japanese authorities have sold at least 14.3 trillion yens ($183 billion) trying to stem the appreciation of the national currency.

It’s necessary to remember that the fiscal year in Japan ends on March 31. Usually yen tends to rise in the first months of the year. The advance of Japanese currency accelerates through March. Then in early April the trend changes in the opposite direction as Japanese companies finish seasonal repatriation of profits and the funds start flowing out of Japan.

This time, given the prevailing risk aversion environment, Japanese companies may decide to leave their money at home in April. However, if risk sentiment improves, the outflow from yen will strengthen. Until that happens, yen will remain strong and continue to consolidate. So, the future of Japanese currency depends on investors’ risk sentiment and on whether the greenback will be attractive as a safe haven.

The pair USD/JPY still stays within the longer-term downtrend which has been developing since the middle of 2007. During the last few months US dollar has been consolidating between 75 and 80 yen. One will be able to speak about the long-term trend reversal only if the pair consolidates above the psychologically important point of 80 yen and then overcomes 100-week MA in the 84 yen zone.

[IMG]http://static1.fbs.com/sites/default/files/image/analysis/January2012/04_01_12/weekly_usdjpy.gif[/IMG]

http://www.fbs.com/analytics/2012-01-04/16348-yen-comments-and-forecasts

Pound: comments and forecasts
Wednesday, January 4, 2012 - 14:00

According to Bloomberg Correlation-Weighted Indexes, this year British currency added 0.7% versus the developed nations’ currencies (US dollar increased by 1.1%, while euro lost 1.4%, the Index shows). Sterling added 2.3% against euro and ended the year almost unchanged versus the greenback.

Pound will be helped by the fact that the effects from the VAT increase are disappearing and, consequently, the inflation pressure might decrease. In addition, Olympic Games 2012 will encourage tourism and consumer spending.

Among sterling-negative factors one should name the consequences of the severe austerity measures, the slump of the world’s business activity and the negative effects of the European debt crisis on British economy.

The pace of wage growth in Britain falls behind the pace of the price growth. As a result, disposable income of British people is declining and causes contraction of retail sales provoking general economic weakness of the United Kingdom.

This year the pair EUR/GBP was steadily declining under the influence of debt problems in Europe. The European currency fell from the year maximums in the 0.9080 area to the levels in the 0.8300 area hit so far. For now pound’s appreciation doesn’t bother UK monetary authorities. Most likely, the Bank of England will think of taking some measures to curb sterling only if the pair drops to the 3-year minimum at 0.8000.

The pair GBP/USD has been trading in a more volatile way: during the past 6 months the British currency has reached the maximum at $ 1.66 and hit the minimum at $ 1.53. Pound is expected to stay above support at $ 1.52. If this level is broken, the pair may test $ 1.50. The rebound may take the pair to $ 1.6150.

Depending on what course the things will take in the first quarter of 2012, both Britain and the United States may get into another round of quantitative easing. The experts think that British central bank will increase its asset purchase program in February when the current stage of the purchases is finished. Until that moment the currency moves will be determined by the market forces.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/04_01_12/weekly_gbpusd.gif
Chart. Weekly GBP/USD

http://www.fbs.com/analytics/2012-01-04/16349-pound-comments-and-forecasts

Citigroup: emerging markets will rebound in 2012
Thursday, January 5, 2012 - 10:45

2011 was an unhappy year for the emerging markets: MSCI emerging markets index slumped by 20%.

Analysts at Citigroup, however, believe that in 2012 the situation will be different and expect 25-30% rebound in emerging markets’ equity. In their view, negative factors which affected these markets – much sharper interest rate cycle and inflation cycle – will ease.

The specialists forecast soft landing in China: inflation will decline to the average level of 4.1%, so that Chinese monetary authorities will be able to conduct more loose monetary policy. The bank thinks that China will make as eight 50-basis point cuts in the reserve requirement ratio this year, with the first coming before Chinese New Year. According to Citigroup, the country’s growth rate will decrease to 7.5-8% in the first quarter before rebounding by the end of the year.

The outlook for the emerging markets will be influenced by the global economic environment, particularly Europe. Citi isn’t expecting a worst-case scenario in the euro area. The bank thinks that the emerging market currencies will stabilize against the greenback.

http://www.fbs.com/analytics/2012-01-05/16351-citigroup-emerging-markets-will-rebound-2012

Byron Wien: forecasts for 2012
Thursday, January 5, 2012 - 11:45

Byron Wien, vice chairman of Blackstone Advisory Partners, sees Europe’s future this way: Italy and Greece will default but stay in the European Union, because Europe “has much too much to lose if the European Union dissolves”. Wien says that European authorities will likely manage to come up with a long-lasting plan to solve its financial problems.

The specialist is optimistic about US economic prospects expecting the S&P 500 index to get above 1400. In his view, the unemployment rate will fall below 8%, while the economic growth will top 3%. If these predictions come true, Barack Obama will likely win president elections.

The economist claims that oil price will drop to $85 a barrel as the supply increases due to the extraction from shale and rock in the United States. Wien remains bullish on gold and says it will trade at $1,800 a troy ounce.

Note that last year 8 out of 10 Wein’s predictions were right, reports CNBC. Wein predicted the S&P would end the year at 1500 and the yield on the 10-year Treasuries would close out 2011 at 5%.

http://www.fbs.com/analytics/2012-01-05/16353-byron-wien-forecasts-2012

RBS: loonie will strengthen against yen
Friday, January 6, 2012 - 09:45

Analysts at Royal Bank of Scotland advise investors to buy Canadian dollar versus Japanese yen.

The specialists justify such recommendation but the fact that US economic outlook is getting better, while the prospects of Japanese economy seem rather dim.

It’s also necessary to note that the bank’s fair-value model, which takes into account the 5-year bond yield difference, oil prices and the S&P 500 Index, also indicates that Canadian currency has upward potential against yen. Japan’s current account surplus is moderating, weakening the outlook for yen.

According to RBC, loonie may rise to 79.5 yen in 3 months where it traded last time on October 31.

http://www.fbs.com/analytics/2012-01-06/16356-rbs-loonie-will-strengthen-against-yen


BBH on trading EUR/USD
Friday, January 6, 2012 - 11:15

Analysts at Brown Brothers Harriman are bearish on the single currency versus the greenback.

The specialists think that the pair EUR/USD will drop to $1.20 by the middle of 2012.

At the same time, the bank doesn’t recommend investors to sell euro at the current levels noting the large number of euro shorts: US economic outlook is gradually improving, so the demand for US dollar as the safe haven will decline.

According to BBH, it’s necessary to wait for euro’s rebound to $1.2900 and then start selling EUR/USD with a stop in the $1.3050 zone and targeting $1.2600 and $1.2000.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/06_01_12/daily_eurusd_14-41.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-06/16359-bbh-trading-eurusd

Merrill Lynch: sell EUR/CAD, AUD/CAD
Friday, January 6, 2012 - 12:45

Analysts at Bank of America Merrill Lynch note that oil prices have been range bound for 8 months. If they resume growth, that would be a very positive factor for Canadian dollar.

The bank thinks that oil prices may gain $20. Bank of America suggests selling EUR/CAD stopping at 1.3250 and targeting 1.2775 or even 1.24. The specialists note that the pair is trading within a very strong downtrend.

In addition, the analysts recommend going short on AUD/CAD as Aussie may be affected by the base metal prices.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/06_01_12/daily_eurcad_16-48.gif
Chart. Daily EUR/CAD

http://www.fbs.com/analytics/2012-01-06/16361-merrill-lynch-sell-eurcad-audcad


JCER: Japan’s economy may have contracted in Q4
Friday, January 6, 2012 - 13:15

Economists at Japan Center for Economic Research (JCER) think that Japan’s GDP fell by 0.1% in the fourth quarter of 2011.

In their view, negative effects from the euro zone’s debt crisis which expressed in stronger yen and declining demand for Japanese product in Europe outweighed the support from reconstruction spending.

A third contraction in four quarters risks deepening public opposition to Prime Minister Yoshihiko Noda’s plan to double the nation’s 5% sales tax by 2015. This plan was approved today by the cabinet. The critics of the plan warn that a higher levy would undermine Japan’s fight against more than a decade of deflation.

According to JCER, Japanese economy will start gradually recovering in the first quarter of 2012 as more of the 20 trillion yen ($259 billion) in reconstruction money is deployed to the disaster-stricken northeast. The specialists note that the development of the situation in Europe will also have great impact on Japan’s economic outlook.

Japanese GDP figures will be released on February 13.

http://www.fbs.com/analytics/2012-01-06/16362-jcer-japans-economy-may-have-contracted-q4

George Soros on euro zone’s future
Friday, January 6, 2012 - 13:45

Famous billionaire investor George Soros says that collapse of the single currency and break-up of the European Union would have catastrophic consequences for the global financial system.
Here are the comments of the economist cited by CNBC:

“Today, the euro is potentially endangering the political cohesion of the European Union”

“If the common currency were to break down, it will lead to the breakup of the European Union itself. And this will be catastrophic not only for Europe but also for the global financial system.”

“Unfortunately, they haven't yet solved the acute financial crisis and that is causing the situation to deteriorate...and (it) is not at all clear it will have a solution”.

http://www.fbs.com/analytics/2012-01-06/16364-george-soros-euro-zones-future


Nomura: on the possibility of euro area’s breakup
Friday, January 6, 2012 - 14:00

Analysts at Nomura have lined up possible scenarios of euro’s collapse. At the same time, the specialists say that although the risk of breakup rose significantly in 2011, it’s not their central case. All in all, the specialists expect hard year for Europe.

Anyway, there may be following breakup scenarios:

1. The big bang breakup (full-blown breakup): the single currency ceases to exist.

2. Sequential breakup: the euro zone comes apart in drips and drabs. The analysts don’t think it's likely to happen as such process, during which weaker euro zone countries gradually exit will come to a halt when the process reaches one of the larger euro zone countries, such as Italy or Spain. At this point, the process would likely become uncontrollable and lead to a big bang collapse, including the core countries.

3. Consensual withdrawal: if member nations quits euro in a legally accepted way, possibly using a clause in the Lisbon Treaty.

4. Unilateral withdrawal: if a country exits the currency union without waiting for legal approval.

http://www.fbs.com/analytics/2012-01-06/16365-nomura-possibility-euro-areas-breakup

Top forecasters are bearish on euro
Monday, January 9, 2012 - 10:00

Bloomberg reports that the accurate foreign-exchange forecasters expect the single currency to fall versus the greenback for the third consecutive year as the euro zone will likely to fall into recession.

Wells Fargo: EUR/USD will fall to $1.24 by the middle of the year and then keep sliding to $1.20 as the ECB’s actions will fail to constrain the debt crisis from spreading.

Westpac: euro zone’s economy will underperform due to deleveraging, austerity, huge confidence shock and tight financial conditions. Euro will be weakening as the ECB may lower the borrowing costs to about 0 and the risk of Greece’s leaving the currency bloc continues worrying the markets.

National Australia Bank: EUR/USD will end the first quarter at $1.25. The differential between US and European economic growth rate in favor of the United States and looser monetary policy of the ECB will keep euro under pressure.

Analysts at JPMorgan Chase seem to be more optimistic. According to them, the European currency will rebound by June as the ECB keeps the debt crisis from worsening – the European Central Bank will extend European bond purchases. Euro will rise to $1.34 by the end of the second quarter.

Bloomberg surveys: EUR/USD will trade at $1.30 by 2013; European economy will decline by 0.1% in each of the first 2 quarters of 2012; ECB will leave rates unchanged on January 20.

Coming events

French President Nicolas Sarkozy and German Chancellor Angela Merkel meet today in Berlin to discuss the situation in the region and the future of the currency union.

ECB meeting and Mario Draghi’s Press Conference will take place on [B]January 12[/B].

Euro-area finance ministers meet in Brussels on [B]January 23[/B], while government leaders gather a week later.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/09_01_12/daily_eurusd_13-47.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-09/16367-top-forecasters-are-bearish-euro

Nomura: recommendations for EUR/CHF traders
Monday, January 9, 2012 - 11:45

Analysts at Nomura believe that the Swiss National Bank won’t increase the floor for the pair EUR/CHF.

According to the bank, it’s necessary to buy euro at $1.2145 targeting $1.2450 and stopping at $1.1990. The specialists claim that the pair has come close enough to $1.20 for going long.

Nomura notes that if euro slides below $1.2100/25, traders should double the position keeping stop at $1.1990.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/09_01_12/daily_eurchf_15-41.gif
Chart. Daily EUR/CHF

http://www.fbs.com/analytics/2012-01-09/16369-nomura-recommendations-eurchf-traders

Westpac, J.P.Morgan: recommendations for euro traders
Monday, January 9, 2012 - 13:00

Last week EUR/USD fell from above $1.3000 to test the levels below $1.2700. Euro was affected by crisis in Hungary, European government bond sales, the risk of sovereign downgrades and discouraging economic figures.

Currency strategists at Westpac are looking for another hared week for the single currency. The specialists think that ECB won’t reduce interest rates on Thursday, January 12. In their view, any efforts of the central bank won’t be able to help euro.

Analysts at J.P. Morgan share this opinion and underline that though in recent months, when the ECB cut interest rates euro fell, when policy makers are seen as not acting fast enough to stem the crisis, the single currency falls anyway. The situation in the United States seems quite opposite: the specialists think that the comments from Federal Reserve officials next week are likely to highlight the differences between the prospects for the U.S. and European economies. The bank recommends selling euro at the current levels, stopping at $1.2830 and expecting EUR/USD to fall to $1.2500.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/09_01_12/daily_eurusd_16-53.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-09/16371-westpac-jpmorgan-recommendations-euro-traders

UBS: bullish outlook for US dollar in 2012
Monday, January 9, 2012 - 13:30

From a broad perspective the greenback keeps trading at historically weak levels. It happens as for the last 10 years US fund managers, foreign central banks and sovereign wealth funds have been diversifying their holdings decreasing the share of assets denominated in American currency.

Analysts at UBS claim that there are signs of a pause if not an end of this trend. As US economy starts to pick up showing better results than the other major economies dollar-based investors will likely cease buying foreign assets.

The specialists cite the results of the latest IMF Composition of FX Reserves report, according to which the world’s central banks increased their holdings of US dollars back above 61% of their portfolios. In addition, during their trip to Middle East last month UBS strategists have found out that official asset managers are cautious in diversifying significantly out of new petro-dollar revenues.

As a result, the bank is bullish in the greenback this year.

http://www.fbs.com/analytics/2012-01-09/16373-ubs-bullish-outlook-us-dollar-2012

Danske Bank is negative on GBP/USD
Monday, January 9, 2012 - 14:15

Analysts at Danske Bank are bearish on British pound versus the greenback claiming that GBP/USD is on its way down to December minimum at $1.5361 and then to 2011 minimum at $1.5270.

In their view, the pair GBP/USD won’t be able to overcome January 5 maximum at $1.5628.

The specialists say that only a break above $1.5888 would improve the outlook for sterling.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/09_01_12/daily_gbpusd_18-05.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/2012-01-09/16375-danske-bank-negative-gbpusd

Societe Generale: forecast for GBP/USD
Tuesday, January 10, 2012 - 08:00

Analysts at Societe Generale claim that if British pound breaches support at $1.5360 (December minimum) trading versus the greenback, GBP/USD will weaken to $1.5270 (October 6 minimum) in 1-3 weeks and then slide to $1.5130 during the next 3 months.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/daily_gbpusd_11-50.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/2012-01-10/16377-societe-generale-forecast-gbpusd

BMO: 2012 forecast for USD/CAD
Tuesday, January 10, 2012 - 09:30

Analysts at BMO Capital Markets note that for the past 2 months the pair USD/CAD has been trading between the levels above the parity and 1.0523 reflecting swings between risk-on and risk-off.

The specialists expect the greenback to strengthen to the levels around 1.0640 as the negative risk sentiment’s likely to prevail during the first quarter of 2012 and there is some chance of Bank of Canada’s easing its policy.

In the second half of the year as the risk appetites revives and the prospects for the BoC’s rate hikes build up, the pair may reverse down returning to the parity level by the end of 2012.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/daily_usdcad_13-17.gif
Chart. Daily USD/CAD

http://www.fbs.com/analytics/2012-01-10/16379-bmo-2012-forecast-usdcad

Merkel and Sarcozy warned Greece
Tuesday, January 10, 2012 - 09:45

Germany chancellor Angela Merkel and French President Nicolas Sarkozy claimed yesterday that Greece will be denied a crucial 130 billion euro bailout unless it can reach an agreement with its bondholders.

Under the terms of the second bailout, investors are being asked to write down 50% of the value of their holdings of Greek government bonds. There has been speculation that the size of this writedown may yet increase.

“We must see progress on the voluntary restructuring of Greek debt,” said the leaders of euro zone’s biggest economies.

Merkel added that “the second Greek aid package including this restructuring must be in place quickly. Otherwise it won't be possible to pay out the next tranche for Greece.”

Germany insisted that no country should be excluded of the euro zone, while France underlined that the new treaty implying tighter fiscal integration will be signed on March 1.

Merkel and Sarkozy met ahead of the EU summit which takes place on January 30. Today Germany’s chancellor meets the IMF managing director Christine Lagarde.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/daily_eurusd_13-52.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-10/16380-merkel-and-sarcozy-warned-greece

FBS analytical review 2011-2012
Tuesday, January 10, 2012 - 11:30

Main events of 2011. Outlook for 2012. Comments and forecasts for the single currency, Japanese yen and British pound.

Financial challenges of 2011

2011 was expected to be the year of global economic recovery after the recession of 2008-2009. The year began rather well: the Federal Reserve had launched the second round of quantitative easing, while Europe managed to take a breath amid the tensions caused by the Greek debt issues. Nevertheless, the results of 2011 seem dismal: instead of moderate economic rebound the developed economies are now facing the risk of stagnation and even contraction.

The problems started with the surge of the oil prices due to the turmoil in the Northern Africa and the Middle East. Then Japan suffered from the strongest earthquake and tsunami in its history which led to the Fukushima nuclear disaster. This resulted in the disruption of the supply chains which, in its turn, made commodities more expensive.

The situation in the euro area has deteriorated: Portugal was forced to ask Troika – the IMF, the EU and the ECB – for bailout. It became evident that Greece is tormented not by the crisis of liquidity, but by the crisis of solvency and confidence.

The response from the euro zone’s leaders came too late and was limited. The crisis began to spread across the region. Large European economies as Spain and Italy got under the market’s pressure and had to conduct austerity measures.

Summer was marked with US drama: as American debt exceeded the limit of 14 trillion dollars, Democrats and Republicans were debating on increasing the nation’s debt ceiling and managed to come to the agreement only in time of the deadline. The problem was temporarily resolved, but the whole mess has cost the country the loss of its highest credit rating.

Autumn has brought both good and bad news. On the one hand, despite the deterioration of the expectations during the summer the economic situation in the US began improving. On the other hand, the debt crisis kept spreading over Europe seizing more and more nations: the bond yields rallied even in the AAA-rated countries. At the same time, the policymakers on the either side of Atlantics still don’t hurry with the decisive steps aimed to resolve the problems which keep building up.

Of course, the world has managed to avoid the worst outcome – the single currency is still in place, while the US government shutdown was fortunately left out of the way. At the same time, the situation remains quite difficult. In 2012 the developed economies and the whole global economy will face serious challenges.

Europe may be facing the turning point in its history: the currency union will either have to make a rapid integration progress or begin disintegrating. Now it’s much more difficult for the European states to start recovering than it was a year ago.

The recovery would take substantial, but credible and accomplishable fiscal consolidation plans, stable liquidity supplies to the banking sector and much more efficient collaboration of all stakeholders.

Global economy will surely increase due to the economic growth of the emerging markets such as China and Brazil, though the lower demand in the developed world will affect these nations as well, so possibility of the global economic slowdown is high.

Euro: comments and forecasts

The majority of the analysts are bearish on EUR/USD. The European currency keeps trading within the downtrend despite some positive news, such as the ECB’s massive 3-year credit auction.

The single currency has little chance to repeat the advance it managed to make at the beginning of 2011, when it gained several thousand pips. The ECB is expected to cut rates to a new historic minimum of 0.50% or even lower and might as well embark on outright QE.

The pair EUR/USD may fall to $1.2550 in the first quarter of the year and then slide to $1.2000.

One might benefit from selling euro versus Australian dollar as the latter will be supported due to Australia’s trade connections with China, which aims to encourage the national markets with more loose monetary policy.

The yield spread between 2-year US and German bonds is holding close to -12 – it’s a positive factor for US dollar. Last time the negative reading was posted in March 2010 and held till July 2010 – this period corresponds to the slump of the pair EUR/USD from the levels in the $1.3300 zone to the multi-year minimum of $1.1875.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/weekly_eurusd_(2).gif
Chart. Weekly EUR/USD

Pound: comments and forecasts

According to Bloomberg Correlation-Weighted Indexes, British currency added 0.7% versus the developed nations’ currencies (US dollar increased by 1.1%, while euro lost 1.4%, the Index shows) in 2011. Sterling gained 2.3% against euro and ended the year almost unchanged versus the greenback.

Pound will be helped by the fact that the effects from the VAT increase are disappearing and, consequently, the inflation pressure might decrease. In addition, Olympic Games 2012 will encourage tourism and consumer spending.

Among sterling-negative factors one should name the consequences of the severe austerity measures, the slump of the world’s business activity and the negative effects of the European debt crisis on British economy.

The pace of wage growth in Britain falls behind the pace of the price growth. As a result, disposable income of British people is declining and causes contraction of retail sales provoking general economic weakness of the United Kingdom.

Last year the pair EUR/GBP was steadily declining under the influence of debt problems in Europe. The European currency fell from the year maximums in the 0.9080 area to the levels in the 0.8300 area hit so far. For now pound’s appreciation doesn’t bother UK monetary authorities. Most likely, the Bank of England will think of taking some measures to curb sterling only if the pair drops to the 3-year minimum at 0.8000.

The pair GBP/USD has been trading in a more volatile way: during the past 6 months the British currency has reached the maximum at $ 1.66 and hit the minimum at $ 1.53. Pound is expected to stay above support at $ 1.52. If this level is broken, the pair may test $ 1.50. The rebound may take the pair to $ 1.6150.

Depending on what course the things will take in the first quarter of 2012, both Britain and the United States may get into another round of quantitative easing. The experts think that British central bank will increase its asset purchase program in February when the current stage of the purchases is finished. Until that moment the currency moves will be determined by the market forces.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/weekly_gbpusd.gif
Chart. Weekly GBP/USD

Yen: comments and forecasts

Japanese yen has strengthened in 2011 versus all major currencies gaining 4.2% against the US dollar and 6.7% against euro, although Japanese authorities have sold at least 14.3 trillion yens ($183 billion) trying to stem the appreciation of the national currency.

It’s necessary to remember that the fiscal year in Japan ends on March 31. Usually yen tends to rise in the first months of the year. The advance of Japanese currency accelerates through March. Then in early April the trend changes in the opposite direction as Japanese companies finish seasonal repatriation of profits and the funds start flowing out of Japan.

This time, given the prevailing risk aversion environment, Japanese companies may decide to leave their money at home in April. However, if risk sentiment improves, the outflow from yen will strengthen. Until that happens, yen will remain strong and continue to consolidate. So, the future of Japanese currency depends on investors’ risk sentiment and on whether the greenback will be attractive as a safe haven.

The pair USD/JPY still stays within the longer-term downtrend which has been developing since the middle of 2007. During the last few months US dollar has been consolidating between 75 and 80 yen. One will be able to speak about the long-term trend reversal only if the pair consolidates above the psychologically important point of 80 yen and then overcomes 100-week MA in the 84 yen zone.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/weekly_usdjpy.gif
Chart. Weekly USD/JPY

http://www.fbs.com/analytics/2012-01-10/16383-fbs-analytical-review-2011-201

UBS: another recommendation to sell euro
Tuesday, January 10, 2012 - 11:45

Everybody is bearish on euro, so does UBS. Analysts advise investors to open shorts on EUR/USD at $1.2755, stopping at $1.3050 and targeting $1.2250.

In their view, by the end of the first quarter the European Central Bank will lower its benchmark interest rate to 0.5%. As a result, euro will lose support of the yield differentials. In addition the bank thinks that euro will stay under pressure due to the compulsory Greek debt restructuring. Moreover, it’s necessary to note that US economy is outperforming the European one, so that the Federal Reserve won’t launch the third round of quantitative easing – the factor positive for the greenback.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/daily_eurusd_15-48.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-10/16384-ubs-another-recommendation-sell-euro

Citigroup: ECB won’t cut rates until February
Tuesday, January 10, 2012 - 13:30

Analysts at Citigroup believe that the European Central Bank will definitely cut interest rates, but this won’t happen until February as the euro zone’s monetary authorities need to wait for the confirmations of declining inflation and weaker economic growth.

According to Citigroup, on Thursday the ECB will take a pause in the borrowing costs reduction and reaffirm their support for the region’s economy.

As a result, the single currency will stay under pressure. The bank expects EUR/USD to drop to $1.25 in the next 3 months and then to $1.20 by the end of 2012.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/10_01_12/daily_eurusd_17-25.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-10/16388-citigroup-ecb-wont-cut-rates-until-february

Nordea: be bearish on euro
Wednesday, January 11, 2012 - 08:00

Analysts at Nordea Bank advise investors to go short on EUR /USD at $1.2779 placing stops at $1.3820.

In their view, euro will be affected by the difficulties the European governments will surely face trying to raise funds and implement new budget rules.

According to the bank, “the question is not if you are bearish on the single currency, but rather, are you bearish enough?”

The specialists claim that one should buy back the single currency when it hits $1.20.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/11_01_12/daily_eurusd_12-04.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-11/16392-nordea-be-bearish-euro



EUR/USD: main events and data releases
Wednesday, January 11, 2012 - 09:00

On Monday the European currency tested the weakest level since September 2010 at $1.2665. Today the moves of EUR/USD seem limited on both sides.

On the upside, euro is under pressure ahead of Spanish and Italian securities auctions this week as investors are worrying that the nations won’t be able to raise enough funds to meet their funding needs.

Spain will offer 5 billion euro ($6.4 billion) of bonds due 2015 and 2016 tomorrow, while Italy plans to sell 12 billion euro of bills. Yesterday Fitch Ratings warned that Italy faces a “significant chance” of a downgrade. The agency is going to make decision on Italy’s and Spain’s ratings by the end of January.

In addition, Reuters reported that hedge funds may resist a 100 billion-euro plan to restructure Greece’s debt which will be outlined next week by Lucas Papademos.

On the downside, there’s some support as US dollar is constrained before China’s inflation report. According to the forecasts, the pace of consumer prices growth might have slowed down in December. As a result, Chinese monetary authorities may get more liberty in spurring growth easing their monetary policy.

In addition, demand for US currency as a safe haven may decline as America’s economic performance seems to be improving.

The longer-term forecast for euro is bearish with plenty of experts seeing the pair drift down to $1.20 during the next few months.

Today:

- German 5-year notes auction aimed to raise 4 billion euro. Euro will likely be vulnerable even to the slightest signs of weak demand for the debt of the euro zone’s leading economy.
- US Beige Book (7:00 p.m. GMT) – Summary of Commentary on Current Economic Conditions.

Tomorrow:

- Chinese CPI (1:30 a.m. GMT) – Prev. 4.2% y/y; Forecast 4.0% y/y;
- Euro zone’s Industrial Production (10:00 a.m. GMT) – Prev. -0.1% m/m; Forecast -0.2% m/m;
- US unemployment claims (1:30 p.m. GMT) – Prev. 372K; Forecast 370K;
- Also watch the ECB meeting, but that’s a separate story.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/11_01_12/h4_eurusd_12-59.gif
Chart. H4 EUR/USD

http://www.fbs.com/analytics/2012-01-11/16393-eurusd-main-events-and-data-releases



RBC on trading EUR/CHF and EUR/USD
Wednesday, January 11, 2012 - 10:45

Swiss National Bank Chairman Philip Hildebrand resigned on Monday due to the scandal over his wife’s currency trading.

Franc strengthened after Hildebrand’s announcement as the investors began questioning the SNB’s resolve to keep EUR/CHF floor at 1.20.

Analysts at RBC Capital Markets think that the market has overreacted. The specialists advise buying euro at 1.2000 stopping at 1.1975 and expecting the pair to rise to 1.2400.

It’s necessary to note that the bank isn’t exactly bullish on the single currency versus other peers. According to RBS, euro is likely to make a corrective bounce next week as the EUR/USD shorts are currently too large, but eventually euro will drop to the levels in the $1.25. As a result, the recommendation is to sell euro on the rallies.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/11_01_12/daily_eurchf_14-30.gif
Chart. Daily EUR/CHF

http://www.fbs.com/analytics/2012-01-11/16396-rbc-trading-eurchf-and-eurusd

ANZ: USD/JPY will face strong resistance
Wednesday, January 11, 2012 - 11:30

Analysts at ANZ underline that the greenback is trading versus Japanese yen within a very narrow range between 76.50 and 78.50.

The specialists note that even though an eventual break of the downtrend seems almost inevitable, the bulls will have to overcome strong resistance at 79.35/50 and 80.55/81.00. In their view, major moves of the pair will likely be only “elusive” as it turned out to be before.

According to the bank, the downtrend will reverse only if USD/JPY rises above 81.00 and holds above this level on a sustainable basis. If dollar slips below 76.50, it will risk falling to 74.50 or even 71.50.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/11_01_12/daily_usdjpy_15-31.gif
Chart. Daily USD/JPY

http://www.fbs.com/analytics/2012-01-11/16397-anz-usdjpy-will-face-strong-resistance



Morgan Stanley: comments on EUR/USD
Wednesday, January 11, 2012 - 12:30

Analysts at Morgan Stanley believe that the European Central Bank will lower its benchmark rate to 0.5% and keep it at this level through 2012 in order to support the weak European economy. As a result, money market rates will decline; euro will become more attractive as a funding currency and depreciate.

The market will be pessimistic on the euro zone’s outlook, so the greenback will enjoy safe haven support this year. While the markets may worry about potential QE3, its impact is expected to be limited. According to Morgan Stanley, when the rest of the world is not outperforming, “bad news” in the United States will be more supportive for the American currency in the flight to safety.

The bank says that EUR/USD will end the year at $1.2000.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/11_01_12/daily_eurusd_16-34.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-11/16399-morgan-stanley-comments-eurusd



Analysts on the ECB monetary policy
Wednesday, January 11, 2012 - 14:30

Analysts at BofA Merrill Lynch, Citigroup, JPMorgan Chase and Barclays Capital believe that by the middle of the year the European Central Bank will reduce borrowing costs to the record minimum of 0.5%.

“The ECB is being more preemptive and aggressive now,” points out JPMorgan.

Citigroup expects euro zone’s economy to contract by 1.2% this year and 0.2% in 2013 after 1.5% growth in 2011. As a result, inflation rate will fall from 2.8% in December to 1.1% in the second quarter of 2013, while the ECB’s target lies just below 2%. JPMorgan Chase thinks that fiscal squeeze of almost 2 percentage points of GDP this year will push unemployment above the record 11% level.

Specialists at UniCredit, however, seem more optimistic. In their view, European economy will add 0.6% in 2012 as cheaper euro encourages trade. Consequently, the ECB will be able to keep its rate at 1%.

Economists at Societe Generale claim that the central bank will be unwilling to pare its benchmark too close to 0 to maintain a corridor between it and the smaller deposit rate as the much lower benchmark would make it unattractive for money-market funds and banks to lend. The bank says that the ECB will stop cutting rates at 0.75%.

Analysts at Jefferies note that if European economy keeps deteriorating even after the rate cuts, the ECB may decide to follow the Federal Reserve and the bank of England conducting direct quantitative easing. In their view, such an initiative may come as soon as March and initially involve promising to buy as much as 500 billion euro of bonds across the region over 3 months.

At the same time, it’s necessary to remember that Bundesbank strongly opposes purchases of Spanish and Italian bonds. Taking into account the strong influence of German central bank at the ECB, one may assume that quantitative easing will be an option for the European monetary authorities only if their price-stability mandate is at risk.

Some experts think that the ECB is already conducting indirect QE lending to banks, which in their turn use these funds to buy government debt. Others don’t agree with such opinion saying that the central bank is currently trying to save banks and keep open the channel through which lower interest rates are transmitted rather than actively aid growth and governments.

http://www.fbs.com/analytics/2012-01-11/16401-analysts-ecb-monetary-policy

BoA: pound's slipping into downtrend
Thursday, January 12, 2012 - 09:30

Analysts at Bank of America Merrill Lynch believe that British pound will trade within downtrend versus the greenback all year.

The specialists claim that if GBP/USD breaks below support at $1.5272 (October minimum), the pair will complete 15-month “head & shoulders” breaking through the neck line. As a result, the long-term trend will become bearish and sterling will be condemned to failure to $1.3908 and $1.3825.

Analysts at Commerzbank are also bearish on pound, though not as strongly yet. In their view, the pair will fall to $1.5272 and then to $1.5135, where it should hold first time around before resuming decline.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/12_01_12/weekly_gbpusd_13-25.gif
Chart. Weekly GBP/USD

http://www.fbs.com/analytics/2012-01-12/16403-boa-pound-slips-downtrend



BoA: Canadian dollar will fall in Q1
Thursday, January 12, 2012 - 10:00

Analysts at Bank of America Merrill Lynch believe that by the end of the first quarter the greenback may reach peak at 1.09 versus its Canadian counterpart and then return to the lower levels.

The specialists underline that loonie keeps depending on the market’s risk sentiment. Canada’s currency is highly sensitive to the market volatility stemming from Europe and the situation in the euro area, in their view, will get worse before it gets better.

Moreover, the bank points out that Canada's housing market is overvalued. Although Merrill Lynch doesn’t expect a crash, this situation may кeinforce any large external shock if prices fall rapidly.

In addition, China remains the object of investors’ concerns.

All these factors contribute to increasing the possibility of an interest rate cut by the Bank of Canada, negative for CAD.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/12_01_12/daily_usdcad_14-06.gif
Chart. Daily USD/CAD

http://www.fbs.com/analytics/2012-01-12/16405-boa-canadian-dollar-will-fall-q1

MIG Bank: negative outlook for Aussie
Thursday, January 12, 2012 - 10:15

Technical analysts at MIG Bank are bearish on the prospects of Australian dollar versus its American counterpart.

In their view, the pair AUD/USD will go down to the parity level and then drop to $0.9862 (December 15 minimum) and $0.9664/20 (November 23 minimum).

According to the bank, the pair won’t be able to overcome 200-day MA which has been has been holding steady around $1.0413 during 3 months.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/12_01_12/daily_audusd_14-19.gif
Chart. Daily AUD/USD

http://www.fbs.com/analytics/2012-01-12/16407-mig-bank-negative-outlook-aussie



Citigroup: USD/JPY is facing resistance
Thursday, January 12, 2012 - 11:30

Analysts at Citigroup think that US dollar will be imprisoned in range between 75 and 80 yen in 2012.

The specialists claim that USD/JPY will face resistance of the weekly Ichimoku Cloud which is situated in the 78/80 yen area.

In their view, the greenback will trade with a slight downside bias unless and until the Federal Reserve shifts to tighter monetary policy.

Strategists at ANZ are bearish on USD/JPY in the long-term as Japan switches away from direct currency intervention tools. In addition, they say that the private sector is likely to have a continued bias to repatriate offshore assets because of the global deleveraging cycle. As yen is strengthening in most of its crosses, it would be very difficult for Japanese policymakers to encourage large outflows of private sector capital.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/12_01_12/weekly_usdjpy_15-41.gif
Chart. Weekly USD/JPY

http://www.fbs.com/analytics/2012-01-12/16409-citigroup-usdjpy-facing-resistance

ECB: rates unchanged, analysts’ comments
Friday, January 13, 2012 - 08:15

As it was expected, yesterday the European Central Bank left its benchmark rate unchanged at 1%.

Here are the main points of the euro zone’s monetary authorities:

- There are “tentative signs of stabilization” in the European economy, yields at Spanish and Italian bond auctions decline.
- Still euro zone’s economic outlook in 2012 seems alarming, the region’s financial market is in the state of “high uncertainty and substantial downside risks”.
- During the next few months euro area inflation will remain at 2% before declining.
- European leaders have to encourage job creation without slippage in austerity measures and reforms.
- The new European fiscal compact, which is currently under negotiation, must be characterized by “unambiguous and effective wording”.
- The central bank’s decision to provide 489.2 billion euro in low-cost 3-year loans to the European banks has prevented a credit contraction.
- The ECB was pleased that euro zone leaders had confirmed that the involvement of private creditors in the second Greek bailout was “unique and exceptional.” The ECB has persistently argued against private sector involvement warning that it would increase contagion risks.

Analysts’ comments

Nomura underlines that the central bank wants to assess the latest data in order to judge the magnitude and depth of the recession in the region.

Societe Generale claims that further rate cuts will only be forthcoming in case of the signs of an outright credit crunch.

The single currency picked up versus the greenback returning above $1.28.

Never the less, UBS thinks that the overall negative outlook for euro didn’t improve after the ECB meeting. The specialists lowered forecasts for the pair EUR/USD from $1.25 to $1.15 by the end of this year and from $1.20 to $1.10 by the end of 2013.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/13_01_12/daily_eurusd_12-15.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-13/16413-ecb-rates-unchanged-analysts-comments



Morgan Stanley: sell EUR/CAD and EUR/AUD
Friday, January 13, 2012 - 09:30

Analysts at Morgan Stanley recommend selling the single currency versus Australian and Canadian dollars.

In their view, traders will be using euro as funding currency investing money in higher-yielding currencies such as Aussie and loonie. Such move of the market may be explained by high risk aversion in the euro area, low yield especially in key European economies and the risk of ECB’s easing policy, says the bank.

According to Morgan Stanley, one should open shorts on EUR/CAD at 1.3150 stopping at 1.3260 and targeting 1.2740 and on EUR/AUD at1.2660 targeting 1.1925 and stopping in the 1.2860/2905 area.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/13_01_12/daily_eurcad_13-31.gif
Chart. Daily EUR/CAD

http://www.fbs.com/analytics/2012-01-13/16416-morgan-stanley-sell-eurcad-and-euraud

Commerzbank on trading EUR/USD
Friday, January 13, 2012 - 10:00

Technical analysts at Commerzbank claim that resistance for the pair EUR/USD lies at $1.2860 and $1.2933. While the single currency holds below the latter, the outlook for it will be negative.

The specialists recommend going short on euro at $1.2760 stopping at $1.2935 targeting $1.2588.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/13_01_12/h4_eurusd_14-07.gif
Chart. H4 EUR/USD

http://www.fbs.com/analytics/2012-01-13/16417-commerzbank-trading-eurusd



ING, Lloyds: EUR bearish trend will stay intact
Friday, January 13, 2012 - 11:30

The single currency has been trading within downtrend since November, when the possibility of Greece exiting the euro zone was mentioned officially for the first time.

Analysts at ING claim that no matter whether the European policymakers including the ECB reach agreement to stabilize the government debt crisis or not, the single currency will fall. In their view, the Europe’s credit crunch is a reality, and the euro zone requires softer monetary conditions, including a weaker euro.

At the same time, the specialists underline that euro’s shorts are too large now, so if the currency is to fall further from here, a “different community of sellers” – corporations, institutional investors and FX reserve managers – must emerge.

According to ING, US dollar, demand for which will be supported by the euro zone’s debt problems, will keep strengthening versus commodity and emerging market currencies. The recovery of American currency will go on for 3-6 months, says the bank.

Strategists at Lloyds Bank claim that though excessive euro shorts may allow the European currency to experience short-term runs, euro's reaction to the improved global data will be limited as the markets realize that European economy is severely weakened by the austerity measures and it would take a long time for the region’s growth to become strong enough so that the ECB would be able to tighten its monetary policy.

http://www.fbs.com/analytics/2012-01-13/16420-ing-lloyds-eur-bearish-trend-will-stay-intact

Italy: mixed results of the debt auction
Friday, January 13, 2012 - 12:45

Italy managed to raise 4.75 billion euro meeting the target level. The nation sold 3-year notes at an average yield of 4.83% down from 5.62% at a prior auction in December.

The single currency declined versus US dollar and Japanese yen as the demand wasn’t as high as the market’s expected: investors bid for 1.2 times the amount allotted, down from 1.36 last month.

Italy will soon face a more serious challenge – 10-year bond auction which is set to take place in 2 weeks. In the first quarter the country will have to pay off more than 100 billion euro.

Analysts at Morgan Stanley claim that any rebound of EUR/USD is going to remain limited and the medium-term outlook for the pair is limited.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/13_01_12/daily_eurusd_15-50.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-13/16424-italy-mixed-results-debt-auction




Rabobank: comments on EUR/GBP
Friday, January 13, 2012 - 13:45

Analysts at Rabobank believe that the single currency will decline to 0.82 versus British pound in 3 months.

The specialists say that though UK monetary authorities will likely do more quantitative easing in February, in the coming months the pair EUR/GBP will be driven by the euro zone’s fundamentals which seem to be in poor condition.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/13_01_12/daily_gbpusd_17-47.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/2012-01-13/16425-rabobank-comments-eurgbp

France will offer bills amid the downgrade
Monday, January 16, 2012 - 09:00

The weekend was marked by the dim news for the euro area: Standard & Poor’s downgraded France and Austria by one level from top AAA rating to AA+ with “negative” outlooks. The agency also reduced credit ratings of Italy, Portugal, Spain and Cyprus by 2 steps and cut Malta, Slovakia and Slovenia by one notch. The ratings of Germany, Belgium and the Netherlands were affirmed.

In this light one has to watch French debt auction the result of which will be due around 13:55 GMT. The nation plans to sell 8.7 billion euro ($11 billion) in bills.

The yield on France’s 10-year bonds rose by 3 basis points to 3.055%. The yield spread between French and German 10-year bonds increased from less than 50 points a year ago to about 130 basis points.

France’s finance minister Francois Baroin claimed that “it’s not a catastrophe” and “it’s still an excellent grade.” Never the less, the downgrade will likely have a dreadful impact on the image of French president Nicolas Sarkozy. According to the polls conducted last week, Sarkozy, the leader of the ruling UMP party, has the backing of 23.5% of voters versus 21.5% who support anti-euro candidate Marine Le Pen, the leader of the nationalist National Front, while Socialist Party candidate François Hollande leads with 27%.

Coming auctions

Tuesday, January 17: EFSF, Greece, Spain
Wednesday, January 18: Portugal
Thursday, January 19: Spain

http://static1.fbs.com/sites/default/files/image/analysis/January2012/16_01_12/daily_eurusd_13-01.gif

Chart. Daily EUR/USD
http://www.fbs.com/analytics/2012-01-16/16427-france-will-offer-bills-amid-downgrade



J.P.Morgan: sell GBP/USD
Monday, January 16, 2012 - 10:45

Analysts at J.P. Morgan recommend selling British pound versus the greenback at $1.5295 stopping at $1.5530 and targeting $1.4800.

The specialists remind that the European crisis has strong negative impact on British economy as about 40% of UK exports go to the euro area and a large percentage of the nation’s banks have claims on the euro zone.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/16_01_12/daily_gbpusd_14-46.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/2012-01-16/16429-jpmorgan-sell-gbpusd



Barclays Capital: comments on British pound
Monday, January 16, 2012 - 11:15

Analysts at Barclays Capital claim that as British pound may be able to hold at current levels for a while as so far it has managed to close above $1.5270 – the neckline of a multi-week pattern.

If GBP/USD closes below this level, it will fall to $1.5150 and $1.4950 later in January. The fact that sterling spiked below this mark on Friday means that the bears will ultimately pull the rate lower.

According to the bank, the outlook for pound will remain negative as long as it’s trading below $1.5410.Barclays Capital: comments on British pound.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/16_01_12/weekly_gbpusd_15-25.gif
Chart. Weekly GBP/USD

http://www.fbs.com/analytics/2012-01-16/16431-barclays-capital-comments-british-pound

Westpac: recommendations for EUR/USD
Monday, January 16, 2012 - 12:45

Analysts at Westpac recommend selling EUR/USD at $1.2650 stopping at $1.2800 and expecting the pair to fall to $1.2350.

The specialists don’t expect much of an upward correction amid sovereign downgrades and a breakdown in talks over the Greek debt restructuring. In their view, it seems that the single currency has shifted into a clear downtrend regardless of more supportive signals from stocks and euro basis swap.

In addition, the specialists underline that euro’s current decline doesn’t seem excessive as during the past 20 years EUR/USD survived at least 8 sustained, multi-week large slumps when it fell by about 20% peak to trough, while euro has lost only 11% dropping from October 2011 maximum at $1.4250.

According to Westpac, from the fundamental point of view, there are only 2 main factors which may reverse euro’s downtrend: another round of QE by the Fed and/or aggressive steps by EU policymakers to bring more definitive coherence to EU finances. Never the less, neither of these outcomes is likely to realize in the short term.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/16_01_12/daily_eurusd_16-50.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-16/16434-westpac-recommendations-eurusd



UBS: recommendations for EUR/USD
Monday, January 16, 2012 - 14:00

Analysts at UBS recommend selling euro at $1.2755 stopping at $1.3050 and targeting $1.2250. The specialists remind that the European Central Bank is expected to cut 2 more times rates in the next few months from1.00% to 0.50%. In their view, Greece may suffer a disorderly default in March.

According to the bank, downgrades of European economies by S&P will have a greater impact on the euro than just one day's price action would suggest – the strategists think that the downgrades still aren’t fully priced in yet. UBS claims that euro’s fair value is in the $1.15/$1.20.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/16_01_12/daily_eurusd_18-04.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-16/16436-ubs-recommendations-eurusd



HSBC: Germany is vulnerable to crisis
Monday, January 16, 2012 - 15:00

Analysts at HSBC note that that fact that S&P downgraded European economies on Friday wasn’t unexpected as in December the ratings agency warned the region’s policymakers.

The specialists claim that the euro zone’s officials are guilty of 3 sins: optimism, inaction and omission.

Firstly, too many countries are too optimistic about recovery when all the evidence is now pointing towards recession in both the periphery and the core. Secondly, inaction is inevitable for politicians faced with a difficult trade-off between political expediency and fiscal reality. Thirdly, the idea of a fiscal pact doesn’t deal with the shortfall of income which led to today’s crisis.

According to HSBC, euro zone’s difficulties in the coming months will likely strengthen. The economists think that Germany will get under pressure as its exports to other nations of the currency union will shrink, while its financial institutions are exposed to the region’s debt.

As a result, the leading European economy will be forced into recession. HSBC expects that the ECB will have to step in and start quantitative easing. That would make the crisis easier to solve, though the ultimate way out may be provided only by the political action.

http://www.fbs.com/analytics/2012-01-16/16438-hsbc-germany-vulnerable-crisis

January 17: data and comments
Tuesday, January 17, 2012 - 08:30

Yesterday Standard & Poor’s reduced the rating of the EFSF, the euro area’s 440-billion-euro bailout fund, from AAA to AA+ after earlier downgrades of France and Austria as the fund’s obligations are no longer fully supported either by guarantees from EFSF members rated AAA by S&P, or by AAA rated securities.

The downgrade of the EFSF was no big surprise after Friday's mass downgrade of nine euro-zone countries.

Klaus Regling, chief executive officer of the facility, claimed that “EFSF has sufficient means to fulfill its commitments” until the launch of permanent ESM (European Stability Mechanism) in 2012.

According to the data released today, China’s GDP added 8.9% y/y in the fourth quarter versus 8.7% expected. As a result, EUR/USD managed to rise to $1.2750 on the short squeeze. Even EUR/CHF backed away from the 1.20 danger zone. Asian equity markets added 1.5% on average; gold and oil also rise 1.5% to $1663/oz and $100.30/bbl respectively.

Later today:

• British CPI (9:30 a.m. GMT);
• BOE Gov King Speaks (9:45 a.m. GMT);
• German ZEW Economic Sentiment (10:00 a.m. GMT);
• Bank of Canada’s meeting: overnight rate release (2:00 p.m. GMT);
• EFSF, Greece, Spain: debt auctions.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/17_01_12/daily_eurusd_12-35.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-17/16439-january-17-data-and-comments



Merrill Lynch: forecasts for euro and pound
Tuesday, January 17, 2012 - 09:15

Analysts at Bank of America Merrill Lynch think that the single currency may drop to $1.2510 versus the greenback in the near term. In the medium term the specialists see EUR/USD falling to $1.12 and even $1.08 due to both fundamental issues and technical patterns.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/17_01_12/weekly_eurusd_13-18.gif
Chart. Weekly EUR/USD

According to the bank, euro zone’s problems are also weighing on the British pound. Merrill Lynch claims that the pair GBP/USD will ultimately slide to $1.38. The specialists recommend selling sterling at $1.5300 stopping at $1.5425 and targeting $1.4250.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/17_01_12/weekly_gbpusd_13-16.gif
Chart. Weekly GBP/USD

http://www.fbs.com/analytics/2012-01-17/16440-merrill-lynch-forecasts-euro-and-pound



UBS: how SBN will possibly act
Tuesday, January 17, 2012 - 10:15

The single currency declined versus Swiss franc from December 7 maximum in the 1.2445 area. At the beginning of this year euro’s decline accelerated after the resignation of the SNB’s president Philipp Hildebrand, who promoted EUR/CHF peg. On Friday the pair EUR/CHF hit 1.2061.

Analysts at UBS claim that if the Swiss National Bank holds EUR/CHF at 1.20, deflation pressure in 2012 will strengthen due to strong franc and recession in the euro area. As a result, Switzerland’s monetary authorities will eventually have to raise EUR/CHF minimal level to 1.30 during 2012 in order to offset falling consumer prices.

At the same time, the specialists really think that Hildebrand’s departure will make the central bank less willing to increase EUR/CHF floor. So, the bank expects SNB to keep the floor at 1.20 during the next few months before lifting it higher as the nation’s economy won’t be able to deal with franc’s strength on its own.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/17_01_12/daily_eurchf_14-20.gif
Chart. Daily EUR/CHF

http://www.fbs.com/analytics/2012-01-17/16443-ubs-how-sbn-will-possibly-act

EUR/USD on the upside, but outlook still bearish
Thursday, January 19, 2012 - 09:00

The single currency keeps going up versus the greenback on the positive sentiment about US economic prospects.

There’s a bunch of important data released today in the United States which is projected to be better than forecasts. US unemployment claims are thought to have declined in the week before January 14 from 399K to 387K.

At the same time, demand for euro may be regarded as limited as the talks between Greece and its private creditors represented by the Institute of International Finance on a debt-swap plan continue for the second day.

France will offer debt later today with maturities from 2014 to 2040. Spain will also sell notes and bonds maturing in 2016, 2019 and 2022 today.

EUR/USD rose from Friday’s minimum of $1.2624 to the levels in $1.2860 area. Never the less, analysts at Citigroup and Nomura are bearish on the pair citing the euro zone’s weak economy and the poor state of the region’s finance.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/19_01_12/daily_eurusd_13-07.gif
Chart. Daily EUR/USD

http://www.fbs.com/analytics/2012-01-19/16446-eurusd-upside-outlook-still-bearish

Commerzbank: bearish forecasts for GBP, AUD
Thursday, January 19, 2012 - 09:45

GBP/USD

Although British pound has strengthened this week rising versus the greenback from Friday’s minimum of $1.5233 to the levels around $1.5450, the longer-term outlook for GBP/USD remains negative.
Sterling won’t be able to rise above $1.5633 (55-day MA) and $1.5672 (5-month resistance line) and will trade in the $1.4260/29 area in the longer term.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/19_01_12/daily_gbpusd_13-46.gif
Chart. Daily GBP/USD

AUD/USD

Australian dollar gained this week against its US counterpart trading within larger uptrend which started in December. However, AUD/USD hasn’t managed to break through the 5-month downtrend line yet. The decline will be confirmed if Aussies goes down below $1.01946 (6-week support line). That will make the pair drop to $1.0000 heading to $0.9818 and $0.9664/80.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/19_01_12/daily_audusd_13-41.gif
Chart. Daily AUD/USD

http://www.fbs.com/analytics/2012-01-19/16447-commerzbank-bearish-forecasts-gbp-aud

Lloyds expects EUR/CHF to rise
Friday, January 20, 2012 - 08:30

Analysts at Lloyds advise investors to buy the single currency versus Swiss franc.

The specialists think that the Swiss National Bank won’t let EUR/CHF to get below 1.20: the SNB has an unlimited supply of francs and serious intentions. The strategists think that the current situation will stay intact until the nation’s monetary authorities decide that franc’s peg to euro is economically unjustified.

Swiss economic growth is slowing down, while inflation rate is negative. As a result, the nation’s central bank is unlikely to change its monetary policy in the short term, claims Lloyds.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/20_01_12/daily_eurchf_12-17.gif
Chart. Daily EUR/CHF

http://www.fbs.com/analytics/2012-01-20/16450-lloyds-expects-eurchf-rise



Gaitame.com: NZD will fall by 5%
Friday, January 20, 2012 - 09:00

Technical analysts at to Gaitame.com Research Institute believe that New Zealand’s dollar may fall versus the greenback by almost 5%.

The specialists note that NZD/USD didn’t manage to hold above 200-day MA and is now going to survive downward correction. In addition, the RSI (relative strength index) returned below 70 signaling that kiwi may reverse direction.

According to the specialists, NZD/USD may go down to $0.7876 (20-day MA) in January and then probably to $0.7640. Analysts surveyed by Bloomberg News expect the pair to drop to 0.7500 by the end of March.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/20_01_12/daily_nzdusd_12-59.gif
Chart. Daily NZD/USD

http://www.fbs.com/analytics/2012-01-20/16452-gaitamecom-nzd-will-fall-5

Why BoE may decide to wait with QE?
Friday, January 20, 2012 - 09:45

While the marker’s expecting to see more quantitative easing from the bank of England in February, Ben Broadbent, external member of the Bank of England’s Monetary Policy Committee (MPC), says that the central bank probably won’t be so quick to act.

The economist justifies this assumption be several points. To begin with, during the past half a year the downside risks for British economy have slightly subsided. The odds are that UK economic growth picks up in the second half of the year and the household income growth improves.

Moreover, UK will gain from the positive effects of loose ECB policy. Broadbent underlines that the quarterly pace of economic growth in 2012 is likely to be volatile. Such events as the Olympics in the third quarter will contribute to growth volatility.

“I would say very, very near term (output looks) slightly weaker. In the slightly less near term Q1 is marginally stronger. Over six months, the downside risks have been lessened slightly - partly because of what the ECB has done, partly because of QE itself and you can see that in risk asset markets - quite clearly”, claims the policymaker. Broadbent adds that the decline in headline CPI inflation from 4.8% in November to 4.2% in December should help to maintain inflation expectations.

The BoE meeting will take place on February 9.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/20_01_12/daily_gbpusd_13-48.gif
Chart. Daily GBP/USD

http://www.fbs.com/analytics/2012-01-20/16453-why-boe-may-decide-wait-qe



Westpac recommends selling EUR/NZD
Friday, January 20, 2012 - 11:00

The single currency has managed to strengthen versus the greenback this week. Euro was supported by the successful bond auctions in Spain and France and positive US labor market data. The number of people seeking unemployment benefits plummeted last week to 352,000, the fewest since April 2008.

However, analysts at Westpac see the advance as EUR/USD only as the selling opportunity. In their view, liquidity in the market “is supporting risk seeking”, which should lead investors out of currencies like the euro and into things like commodity currencies.

As a result, the bank recommends going short on EUR/NZD around $1.6000 stopping at $1.6180 and targeting $1.5650.

Westpac notes that the Reserve bank of New Zealand is one of the few which is unlikely to cut borrowing costs. Low inflation data creates an attractive entry point for the trade: New Zealand’s CPI declined by 0.3% in the fourth quarter (q/q).

http://www.fbs.com/analytics/2012-01-20/16455-westpac-recommends-selling-eurnzd



SocGen: buy CAD/JPY
Friday, January 20, 2012 - 11:45

Analysts at Societe Generale believe that US economy will keep outperforming the European one. Never the less, they think it would be wise to protect oneself from the deterioration of the risk sentiment. To do that the bank recommends buying Canadian dollar versus Japanese yen at 76.00 targeting 79.00 and stopping at 75.00.

The specialists have studied the dynamics of Canadian dollar and other more volatile currencies like Mexican peso and Australian dollar against key stock and volatility indexes and found out that the correlation with CAD/JPY is close to zero.

As a result, those who choose this pair will enjoy the profits of bullish trade on the positive economic data, while if the situation deteriorates the decline of CAD/JPY won’t be as strong as the drop of other risky crosses, so one will be able to minimize losses.

http://www.fbs.com/analytics/2012-01-20/16457-socgen-buy-cadjpy

Commerzbank: comments on EUR/USD
Monday, January 23, 2012 - 09:00

The single currency opened earlier today, but then managed to reach Friday’s close rising to $1.2940.

Technical analysts at Commerzbank claim that the short-term outlook for EUR/USD is positive as long as it’s trading above $1.2800. In their view, euro may rise to resistance in the $1.3077/3145 area or even to $1.3245.

If the pair drops below $1.28, it will likely decline towards August 2010 minimum in the $1.2588/30 zone.

Later today:
• German and French debt auctions;
• Euro zone finance ministers meeting;
• EU foreign ministers also assemble, with possible further sanctions against Iran’s nuclear program on the agenda.

http://static1.fbs.com/sites/default/files/image/analysis/January2012/23_01_12/daily_eurusd_13-11.gif
Chart Daily EUR/USD

http://www.fbs.com/analytics/2012-01-23/16460-commerzbank-comments-eurusd

Euro has become a funding currency
Tuesday, January 24, 2012 - 10:45

Analysts at UBS claim that the European Central Bank will cut interest rates twice more by 25 bps each in March and April. As a result, the bank maintains bearish longer-term forecast on EUR/USD.

Economists at Citigroup think that the ECB will reduce the borrowing costs in the second quarter, while strategists at Bank of Nova Scotia say that the central bank will cut rates to 0.5% by the end of the first quarter.

Analysts at Morgan Stanley see a very clear breakdown in the correlation between the euro and risky assets. Euro is increasingly becoming a funding currency – one may significantly benefit from borrowing in euro and investing in Australia’s dollar, Brazil’s real, Mexico’s peso, South Africa’s rand and South Korea’s won.

Specialists at Australia & New Zealand Banking Group claim that other currencies which have effectively low or 0 rates, such as the dollar and yen, are facing a slightly better growth profile.

According to the World Bank, euro zone’s economy will contract by 0.3% in 2012, while the global economy will add 2.5%.

Chart. Daily EUR/USD

Morgan Stanley: recommendations for USD/CHF
Tuesday, January 24, 2012 - 10:00

Strategists at Morgan Stanley recommend buying the greenback versus Swiss franc in the 0.9280 area stopping at 0.9180 and targeting 0.9770.

The specialists note that even after Philipp Hildebrand’s resignation the Swiss National bank will maintain the floor for EUR/CHF. In addition, Swiss franc will be used as a funding currency due to Switzerland’s unfavorable growth outlook and SNB’s policy.

Chart. Daily USD/CHF

Commerzbank: negative longer-term outlook for euro
Tuesday, January 24, 2012 - 08:45

Technical analysts at Commerzbank claim that as the single currency managed to consolidate in the $1.3000 area, it may rise to $1.3077/3145 versus the greenback this week. In that area, however, EUR/USD will face strong resistance which will cap the pair’s rate.

The specialists note that euro is vulnerable to any unexpected shift in the talks between the IIF and Greece indicating a stall in the negotiations or disappointing data from the euro zone. In their view, the longer-term outlook for EUR/USD is bearish: the pair will decline to the downtrend line in the $1.2083 region.

Chart. Daily EUR/USD

CFTC trader positioning data
Monday, February 13, 2012 - 09:15

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• Euro shorts declined for the second consecutive weak. Net shorts account for around 141K contracts, down from the previous week’s total of 158K.
• British pound shorts increased from 26K contracts on January 31 to 33K contracts on February 7 after 2 weeks of improvement.
• Japanese yen net longs declined from 57K contracts reported on January 31 to 55K as the data on February 7 showed. Yen speculative positions are still just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K.
• Swiss franc net shorts declined from 11K net short contracts on January 31 to 9.7K contracts on February 7. The shorts decrease for the third consecutive week.
• US dollar long positions were reduced from a total long position of $14.22 billion on January 31 to $10.63 billion on February 7.

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound.

http://www.fbs.com/analytics/2012-02-13/16615-cftc-trader-positioning-data

UBS: short-term outlook for USD/JPY
Monday, February 13, 2012 - 10:15

Analysts at UBS note that the greenback has posted its biggest weekly advance versus Japanese yen since the Bank of Japan’s record intervention at the end of October 2011.

USD/JPY rose from the 76.50 area on Monday to Friday’s peak at 77.80 yen. The pair went up due to the general strengthening of US dollar as well as on the speculation of potential intervention of Japan’s monetary authorities.

Never the less, the specialists claim that USD/JPY may find itself under pressure in the upcoming weeks. According to UBS, the outlook for the pair is mixed: on the one hand, the economists expect inflows into yen from semi-annual coupon payments of US T-bonds holders and some kind of repatriation due to the Japanese financial year-end; on the other, the Bank of Japan may further ease its monetary policy.

The bank thinks that USD/JPY isn’t likely to rise above 80 yen unless US Treasury yields can break significantly higher.

[IMG]http://static1.fbs.com/sites/default/files/image/analysis/February2012/13_02_12/daily_usdjpy_14-09.gif[/IMG]
Chart. Daily USD/JPY

http://www.fbs.com/analytics/2012-02-13/16618-ubs-short-term-outlook-usdjpy

New Zealand: mixed data released
Monday, April 30, 2012 - 07:15

Statistics New Zealand reported on Monday that the trade surplus declined in March to NZ$134 million against NZ$202 million in February and NZ$445 million surplus expected. The decline is caused by an 8.7% fall in the value of exports; meanwhile, imports rose 1.2%

Building consents improved 19.8% in March after a 6.2% fall in February. NBNZ Business Confidence index increased to 35.8 in April against 33.8 in March, indicating strengthening business optimism.

The Reserve Bank of New Zealand (RBNZ) has consistently warned that the high national currency hurts the tradable sector and puts a downward pressure on economic activity. Bank officials remarked last week that if the NZD remains high the economy may to look towards a monetary policy easing.

Nomura: The RBNZ has stepped up its rhetoric on the level of the NZD. We think this is just another attempt to talk the currency lower. We doubt any FX intervention will take place. We continue to look for opportunities to enter NZD long positions.

The NZD/USD continues a sideways movement in a $0.8060-0.8280 channel since March 2012.

http://www.fbs.com/sites/default/files/image/analysis/April2012/30_04_12/daily_nzdusd_30.04_11-11.gif
Chart. Daily NZD/USD

http://www.fbs.com/analytics/2012-04-30/17492-new-zealand-mixed-data-released