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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. Chart. Daily AUD/USD MIG Bank: negative outlook for Aussie // FBS Markets Inc. 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. Chart. Weekly USD/JPY Citigroup: USD/JPY is facing resistance // FBS Markets Inc.

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. Chart. Weekly GBP/USD BoA: pound's slipping into downtrend // FBS Markets Inc. 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. Chart. Daily USD/CAD BoA: Canadian dollar will fall in Q1 // FBS Markets Inc.

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. Chart. Daily USD/JPY ANZ: USD/JPY will face strong resistance // FBS Markets Inc. 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. Chart. Daily EUR/USD Morgan Stanley: comments on EUR/USD // FBS Markets Inc. 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. Analysts on the ECB monetary policy // FBS Markets Inc.

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. Chart. Daily EUR/USD Nordea: be bearish on euro // FBS Markets Inc. 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. Chart. H4 EUR/USD EUR/USD: main events and data releases // FBS Markets Inc. 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. Chart. Daily EUR/CHF RBC on trading EUR/CHF and EUR/USD // FBS Markets Inc.

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. Chart. Daily EUR/USD Citigroup: ECB won

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. Chart. Daily EUR/USD UBS: another recommendation to sell euro // FBS Markets Inc.

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. 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. 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. Chart. Weekly USD/JPY FBS analytical review 2011-2012 // FBS Markets Inc.

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. Chart. Daily EUR/USD Merkel and Sarcozy warned Greece // FBS Markets Inc.

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. Chart. Daily USD/CAD BMO: 2012 forecast for USD/CAD // FBS Markets Inc.

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. Chart. Daily GBP/USD Societe Generale: forecast for GBP/USD // FBS Markets Inc.

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. Chart. Daily GBP/USD Danske Bank is negative on GBP/USD // FBS Markets Inc.

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. UBS: bullish outlook for US dollar in 2012 // FBS Markets Inc.

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. Chart. Daily EUR/USD Westpac, J.P.Morgan: recommendations for euro traders // FBS Markets Inc.

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. Chart. Daily EUR/CHF Nomura: recommendations for EUR/CHF traders // FBS Markets Inc.

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 January 12. Euro-area finance ministers meet in Brussels on January 23, while government leaders gather a week later. Chart. Daily EUR/USD Top forecasters are bearish on euro // FBS Markets Inc.

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”. George Soros on euro zone 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. Nomura: on the possibility of euro area

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. Chart. Daily EUR/CAD Merrill Lynch: sell EUR/CAD, AUD/CAD // FBS Markets Inc. 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. JCER: Japan

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. RBS: loonie will strengthen against yen // FBS Markets Inc. 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. Chart. Daily EUR/USD BBH on trading EUR/USD // FBS Markets Inc.

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%. Byron Wien: forecasts for 2012 // FBS Markets Inc.

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. Citigroup: emerging markets will rebound in 2012 // FBS Markets Inc.

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. Chart. Weekly GBP/USD Pound: comments and forecasts // FBS Markets Inc.

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. Yen: comments and forecasts // FBS Markets Inc.

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. UBS, Commerzbank: bullish on EUR/CHF // FBS Markets Inc.

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. ECB balance extended to the record maximum // FBS Markets Inc. 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. UBS: euro

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.” SocGen: comments on euro ahead of the year-end // FBS Markets Inc. 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. ING: Swiss economy in a poor state // FBS Markets Inc. 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%. Italian bond auction went well // FBS Markets Inc.