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Jean-Claude Trichet proposes the single euro zone’s government European Central Bank President Jean-Claude Trichet claimed today that the governments of the European nations should consider the possibility of creating euro zone’s finance ministry. Trichet underlined that the euro area already has the single market, the single currency and the single central bank, so establishing the single ministry of finance seems to be both natural and vital step taking into account the current problems of the region. According to the ECB head, though such body as the single finance ministry wouldn’t necessarily administer a large federal budget, it would act in 3 spheres: firstly, supervise both fiscal policies and competitiveness policies and direct responsibilities for countries in fiscal distress; secondly, it would carry out all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; thirdly, it would represent the union confederation in international financial institutions. Analysts at Daiwa Capital Markets draw investors’ attention to the fact that Trichet didn’t propose to enable the institution to issue common bonds and have a budget, so it won’t actually be a proper treasury. As for bailing out indebted euro zone’s nations, particularly Greece, Trichet said that financial aid is justified only when the country makes real efforts to conduct severe austerity measures. All in all, the necessity of some sort of fiscal governance in Europe is becoming more and more evident. Famous billionaire investor George Soros warned about the lack of a common European fiscal authority as far back as in 2009.

Analysts about the possibility of QE3 in the US As US labor market and housing data is quite discouraging many analysts start wondering whether American monetary authorities will extend monetary stimulus to promote the rebound of the nation’s economy in form of the third round of quantitative easing. The greenback was under pressure this year as the QE2 made the interest rates in the United States decline, while the other nations in the world were tightening monetary policy. So, the market has been looking forward to the end of the Fed’s $600-billion bond purchase program to see some relief in US currency. However, the weak macroeconomic data made brought serious doubts to the market. Analysts at MF Capital think that declining bond yields point at the weakness of American economy. In their view, the Federal Reserve will find it necessary to act and continue buying Treasuries. Economists at Citigroup note that the fact that US stocks are bringing better revenues than bonds. The specialists reminded that the last time it happened in a sustained way was when markets were pricing in the current round of easing. That time dollar was also weakening. Although the greenback’s trading not as weak as at the end of April, the pace of its depreciation during the last week was high enough, so it’s possible to assume that forex markets is preparing to the new stimulus program. According to the bank, Federal Reserve’s chairman Ben Bernanke will be able to persuade the FOMC to support QE3 only if US GDP posts negative dynamics in at least one quarter. As a result, Citi estimates the probability of new round of QE as low. Economists at JPMorgan Chase are sure that the QE2 will be the last as additional monetary stimulus will lead to rather bad political consequences.

Australian dollar gained on less negative GDP data Australian dollar rose today to the 3-week maximum versus the greenback in the 1.0750 area gaining nearly 1%. Aussie was encouraged by the news that the nation’s GDP fell in the first quarter only by 1.2% from the previous 3 month – though it was the biggest quarterly drop in 20 years, some economists were looking to much more dramatic figures. For example, analysts at Goldman Sachs expected the slump of more than 2%. Support for the pair AUD/USD is situated at $1.0637, while resistance is found at $1.0757. The Reserve Bank of Australia’s meeting is taking place on June 7. The central bank will likely keep the benchmark rate unchanged at the current level of 4.75%.

Rating agencies warn about Japan’s problems Yesterday Moody's Investors Service began reviewing Japan’s Aa2 credit rating as the negative consequences of March 11 earthquake may turn out to be greater than expected and the measures to reduce the nation’s huge budget deficit aren’t efficient enough because of the political tensions between the opposition and the current government. According to the ratings agency, Japanese debt will keep rising unless spending is cut or revenue’s increased. It’s necessary to note that Japan's gross debt burden is already above 200%, that’s the highest level among major economies. On February 22 Moody’s changed the outlook for Japan's bond rating to negative. The last time the country’s rating was changed on May 18, 2009. Currently Japan is at the same step in rating as Italy and Spain. The opposition has refused to support Prime Minister Naoto Kan’s government decision to issue deficit-covering bonds for the fiscal year that began April 1. As a result, there’s a more than 40% gap in revenue in relation to planned spending even before extra spending related to the devastating disaster is taken into account. Other major ratings agencies are as well pessimistic about the situation in Japan: Fitch Ratings said last week that it was assigning a negative outlook to its AA- rating, which is one notch below Moody's level. Standard & Poor's also has a negative outlook on its AA- rating.

UBS: short-term bullish outlook for euro Technical analysts at UBS claim that euro’s rebound versus the greenback from last week’s minimum at 1.3970 paused ahead of resistance in the 1.4455 area. In their view, the pair EUR/USD will manage to break above this zone. In this case the bullish pressure on the single currency will increase encouraging it for an advance to 1.4569.

Commerzbank: EUR/JPY is moving up to 123.33 The single currency surged yesterday versus Japanese yen. Today the pair EUR/JPY is testing resistance of the 55-day MA at 117.45. Technical analysts at Commerzbank claim that if euro manages to get above this level it will be poised up to 119.11 and then to the recent maximum at 123.33. According to the bank, support for the pair is situated at the 200-day MA at 113.23 and 55-week MA at 112.91. The outlook for euro is neutral/positive.

BMO, J.P.Morgan: trading on the hurricanes The Atlantic hurricane season has begun today and will last traditionally till the end of November. Weather experts in US National Weather Service’s Climate Prediction Center expect an above-normal hurricane season this year with 12 to 18 named storms, of which 6-10 could become hurricanes. Analysts at BMO Capital gave investors a piece of advice on how to trade on hurricane news. In their view, the best strategy in such case is buying oil-exporting country's currencies versus US dollar. Oil prices will go up once the storms hit areas like the Gulf of Mexico. The specialists say that the greenback lost 3% versus its Canadian counterpart after hurricanes Katrina and Rita. Strategists at J.P.Morgan Asset Management share this opinion. According to them, it may be sensible enough to start building positions in such currencies as Canadian dollar, Russian ruble and Norwegian krone now in order to be ready when a storm hits. The economists think that oil prices could move up even before a specific storm warning is issued.

BoA-Merrill Lynch: China’s economic growth forecast According to the data released today, China’s official PMI fell for the second month in a row declining from 52.9 in April to 52.0 in May. HSBC China Manufacturing PMI went down to from 51.8 in April to 10-month minimum of 51.6 in May. Economists at Bank of America-Merrill Lynch claim that although Chinese PMI figures were lower, economic slowdown will be a “soft landing”: the nation’s economic growth rate will be slowly declining after strong advance seen earlier. In their view, the nation’s annual GDP growth will ease from 9.7% in the first 3 months of the year to 9.4% in the second quarter and to about 9.0% in the second half of 2011. The specialists neither expect further monetary tightening in China, nor think that monetary policy will be eased this year.

Citigroup about US debt and dollar’s rate Analysts at Citigroup think that if US debt overcomes the critical level, the greenback will be affected much more than Treasuries as international holders of American debt may regard potential losses as greater than domestic ones. The specialists think that the foreign exchange reaction to a debt ceiling breach would be sharper and probably more permanent. As a result, foreign investors will use every chance to sell dollars. US Congress has to find a way to avoid default before August 2. The amount the government can borrow was reached May 16. Today the House of Representatives is voting on the $14.3 trillion threshold by $2.4 trillion. Republicans demand high spending cuts and no tax increases as a condition for raising the limit. According to Citigroup, if there’s US sovereign debt crisis, dollar will ultimately lose value. Taking into account the fact that the euro area is also facing great difficulties, the analysts recommend turning to such currencies as Canadian, Australian and New Zealand’s dollars, Norwegian krone and Swedish krona as these nations don’t have the same fiscal problems.

BMO Capital Markets: long-term EUR/USD forecast Analysts at BMO Capital Markets think that as the pair EUR/USD went down from maximums of early May in the 1.4900 area to 1.3970 it has formed a significant minimum. According to the specialists, the single currency will rise versus the greenback to 1.4700 in the third quarter of 2011 and to 1.4900 in the final 3 months of the year. However, the strategists expect euro to go through continuous slump next year falling to 1.4800 in the first quarter of 2012, to 1.4600 in the second one, to 1.4300 in the third quarter and to 1.4100 in the final 3 months of 2012.

Mizuho: comments on GBP/USD Technical analysts at Mizuho Corporate Bank claim that as the British currency rose from last week’s minimum at 1.6060 compensating 61.8% of May's decline and closing the week above 1.4300, the bullish pressure on the pair GBP/USD has strengthened. According to the specialists, sterling reached the long-term resistance area of 1.6500/7000. Mizuho expects pound to trade at these levels for the rest of the week and possibly for the whole summer.

BofA Merrill Lynch expects loonie to decline Canadian dollar may decline as it’s widely thought that the Bank of Canada will decide today not to raise its benchmark interest rate that’s currently at 1.00% level. The overnight rate will be released today at 1.00 pm GMT. On the one hand, Canada has very strong fundamentals such as decreasing unemployment, shrinking budget deficit and faster growth than in the United States. On the other hand, loonie reached the maximal level versus the greenback since November 2007 on April 29 at 0.9445. Canadian currency has become too strong and is affecting the nation’s exports that are already curbed by low demand from the US, Canada’s main trading partner. Canada’s central bank’s governor Mark Carney dampened the expectations of rate hike in his May 16 speech citing the risks created by CAD’s appreciation. That made loonie drop by the end of the month to 0.9800. According to Bank of America Merrill Lynch, Canadian currency will fall against its US counterpart to $1.03 by the year-end and to $1.07 by the end of 2012. The specialists think that CAD is overvalued by 20%. Analysts at Wells Fargo say, however, that investors may be underestimating the potential for rate rises as inflation in Canada is rather high and the country’s economic growth’s gaining momentum. In their view, the pair USD/CAD will finish the year at 0.90.

BlackRock: euro zone's financial sector’s in danger Analysts at BlackRock, the world's largest asset manager that’s in charge of about $3.65 trillion in assets in its stock, bond and hedge funds, believe that euro zone’s financial problems don’t amount to only Greek ones, though, of course, Greek issue is the most urgent to deal with. The specialists note that if the terms of Greek debt repayment are changed the same will become inevitable for Irish and Portuguese debt. The company underlines that European banks own the major part of the region’s debt, so restructuring in one country will put euro area’s bank under pressure. As a result, before restructuring national debts it’s necessary to restructure the banking system in Europe. According to BlackRock, Europe will need a giant TARP that stands for the Troubled Asset Relief Program like one that was conducted in the United States to rescue financial firms.

Commerzbank: EUR/USD will keep correcting upwards The single currency went up from 1.4000 versus the greenback last week overcoming the key resistance in the 1.4340/65 area. Technical analysts at Commerzbank claim that such move of euro means that its upward correction is likely to deepen. In their view, the pair EUR/USD is poised up towards 1.4568/1.4730 (61.8% and 78.6% Fibonacci retracements). According to the bank, support levels are situated at 1.4300/1.4240. While the European currency is trading higher, the market will remain bullish. If euro breached this area, it will head down to test 1.4003/1.3969 (200-week MA and the recent minimum).

Juncker: EU will decide on further Greece’s funding by the end of Jun Jean-Claude Juncker who’s leading of Eurogroup said that the European Union leaders will decide on additional aid for Greece by the end of June. In coming days the EU, IMF and ECB are finishing the review of Greece’s in meeting the terms of last year’s 110 billion-euro ($157 billion) bailout. According to the results of this examination, the EU will come up with plan for further aid to the country. Under the terms of the rescue package, Greece was to return to financial markets and sell about 30 billion euro of bonds next year. As 10-year bond yields reached 16.4% that exceeds those of the time of the bailout in more than 2 times, Greece isn’t able to finance itself on its own and will need more aid. ECB Executive Board member Lorenzo Bini Smaghi thinks that the EU and IMF will have to put up another 30 billion euro in loans to tide Greece over next year with the rest of its 2012-2013 financing needs covered by revenue from asset sales and other measures, reports Financial Times. Greek Prime Minister George Papandreou has announced an additional 6 billion euro of budget cuts for this year to meet the bailout goal of cutting the deficit to 7.5% of GDP. The government also pledged to speed 50 billion euro of state asset sales to repay part of its debt, which is set to reach almost 160% of GDP this year.

BCC revised forecast for UK GDP and BoE rate hikes The British Chambers of Commerce lowered the country’s economic growth forecasts and pushed back its forecast for the Bank of England’s rate hike. The organization reduced Britain’s GDP growth forecast from 1.4% to 1.3% in 2011 and from 2.3% to 2.2% in 2012. This year growth will be slower as in the first quarter the national economy expanded less than it was expected. In 2012 GDP advance will be limited by higher inflation rate and a faster pace of rate increases. According to BCC, UK central bank will lift up its benchmark rate from the current levels of 0.5% to 0.75% in August (in March the specialists said it would happen in May). The BoE key rate is thought to climb to 1% this year and to 2.75% by the end of 2012. Economists at BCC think that it would be much better if the BoE increased the rates later – in the fourth quarter. However, the organization believes that British businesses will manage to deal with small increases of the borrowing costs. In any case, UK policymakers have to act with great caution and mustn’t be too aggressive in monetary tightening, underlined BCC.

Jyske Bank: EUR/CHF keeps declining The single currency is trading at the record minimum versus Swiss franc in the 1.2130 area after it fell from last week’s maximums around 1.2470. Analysts at Zuercher Kantonalbank think that the pair EUR/CHF will remain under negative pressure in the short term staying today in range between 1.2200 and 1.2100. In their view, any rebounds of euro will be only temporary. Specialists at Jyske Bank think that the pair is poised down to 1.20/19 where a great number of stop losses are concentrated.

RBC: NZD/USD once again renewed maximum New Zealand’s dollar rose today’s morning to $0.8215, the highest level versus its US counterpart since its free float began in 1985. Kiwi was encouraged by the release of the nation’s trade data that showed that trade surplus in April reached the record maximum of 1.113 billion exceeding the 603-million estimate in more than 2 times. Currency strategists at RBC Capital Markets note that after hitting the maximal level, the pair NZD/USD eased down to the levels in the 0.8170 zone. The specialists note that euro is coming under a little bit of pressure that’s weighting on New Zealand’s currency. In their view, NZD/USD will remain supported as the country’s Prime Minister Key confirmed that China expresses interest in buying New Zealand’s bonds. According to RBC, support for the pair is found at 0.8125, while resistance is situated at 0.8220. As for the greenback, analysts at ANZ National Bank think it will keep weakening. The specialists advise to watch US economic data tomorrow that they expect to be quite unfavorable: S&P/Case-Shiller index of property values in 20 cities (released at 1:00 pm GMT) and Institute for Supply Management-Chicago PMI (due at 1:45 pm GMT).

Commerzbank: GBP/USD upward correction has finished British pound went up versus the greenback from last week’s minimums in the 1.6060 area (50% Fibonacci retracement of sterling’s advance this year) rising above 1.6500 on Friday. Technical analysts at Commerzbank think that the pair GBP/USD has reached the target of its upward correction and will reverse downwards in the 1.6480/6520 area (May 11 maximum). According to the bank, below these levels British currency will be poised to 1.5935 and 1.5733 (55-day MA).

Credit Agricole: negative outlook for EUR/USD Analysts at Credit Agricole claim that the outlook for the single currency versus the greenback this week seems to be negative. As the main reason for the bearish forecast the specialists cited the lingering concerns about woes of euro zone’s periphery. According to the bank, last week the pair EUR/USD managed to recover a bit, though investors still lack confidence in the region. The strategists underlined that there were no positive news to drive euro higher, just the absence of new bad events. Even though there are some factors that may encourage the European currency, investors are to be very cautious, warns Credit Agricole. The analysts expect the tough rhetoric calling on Greece to implement more austerity measures will continue ahead of the disbursement of the next tranche of aid from EU and IMF.

Deutsche Bank: EUR/USD will decline to support at $1.3500 So, EUR/USD went down from the maximums in the 1.5000 area reached at the beginning of May to the 1.4000 zone earlier this week moving within the downtrend. Analysts at Deutsche Bank expect the single currency to lose 5 or 6 big figures more trading versus the greenback. At the same time the specialists underline that euro’s decline will be limited by the 1.3500 level where it’s likely to find firm support that will hold during the weeks ahead.

Otmar Issing: euro area could have avoided the crisis Former European Central Bank Chief Economist Otmar Issing, who worked in the ECB from 1999 till 2006, came up today with rather tough comments about Greece. According to him, the nation managed to enter the euro zone using deception. Issing says that the current crisis occurred due to the lack of monitoring and the absence of adequate sanctions for the violation of the currency union’s rules. In his view, the euro area could have avoided the turmoil if the required efforts were made. The economist thinks that Greece won’t be able to repay its debts on its own even after the country approved an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout. As a result, Issing forecasts that the single currency will survive the crisis, but some nation may have to leave the euro area.

Commerzbank: euro’s advance is a correction The single currency has recovered from Monday’s minimum at 1.3970 to the levels above 1.4200 trading versus the greenback. Technical analysts at Commerzbank regard the upward move of the pair EUR/USD as correction, though they expect euro to climb a little higher before failing at 1.4340/65 or 1.4570 representing 38.2% and 61/8% Fibonacci retracement. According to the bank, the general outlook remains bearish. The European currency is poised down to 1.3770 (38.2% retracement of the pair’s advance from 2010 to 2011) and then 1.3463/1.3390 (55-week MA and the 11-month support line).

UBS, BoT-Mitsubishi: US dollar will strengthen US dollar bears are reducing their short positions on American currency ahead of the end of the Fed’s QE2 in June, reports Financial Times. The Federal Reserve’s bond purchases flooded the county’s financial system with the excessive amount of the national currency. The greenback has weakened becoming widely used as a funding currency in carry trades. The stock of money in the US has tripled from $844 billion in August 2008 before the Fed’s first round of quantitative easing began to more than $2,390 billion. Economists at Standard & Poor’s think that the expiration of QE2 will ease the fundamental pressure on dollar seen during the recent years. In their view, there may be a wave of short covering as investors buy back dollars that they sold earlier and this could mean that the USD downtrend’s over. According to CME data, during the week before May 17 speculators cut the value of their US dollar shorts by $8 billion to $25.5 billion, the minimal level since January. Specialists at UBS note that pension funds have also been reducing bearish bets on American currency so far. According to the bank, dollar will be able to get higher as the Fed’s decision to finish QE will reduce the usage of dollar in carry trades and improve the confidence of Asian central banks and reserve managers in the US currency. Strategists at Bank of Tokyo-Mitsubishi UFJ pointed out that investors are worried about the inability of US Parliament to push through the legislation that would increase US debt ceiling. As the risk sentiment deteriorates due to this matter and also because of the euro zone’s debt crisis, the demand for safe havens such as Swiss franc, Japanese yen and also US dollar is going to increase in the coming months. However, one should remember that if US debt limit isn’t lifted by the beginning of August, the United States will face the danger of default.

BNZ: NZD/USD may rise to $0.8213 Analysts at BNZ claim that New Zealand’s dollar is currently one of the most demanded currency in the world: it surged versus its US counterpart from $0.7990 yesterday approaching today the $0.8200 area. The specialists note that kiwi is helped by the reports that China Investment Corp., Chinese sovereign wealth fund, has planned to invest 1.5% of its foreign-exchange reserves to in New Zealand’s assets. According to BNZ, NZD/USD is poised up to the post-float maximum at $0.8213 hit in February 2008. The strategists think, however, that as there are too many bulls on kiwi right now, the pair may pause for some time. The bank says that resistance for New Zealand’s currency is found at $0.8214, while support lies at $0.8110.