Comments and Forex-analytics from FBS Brokerage Company

[FBS_Official 10]

The leading experts about the outlook for US dollar this year

 

The most accurate currency forecasters have different opinions on the future of US dollar which has lost 13% during the past year.

 

There are dollar-optimists who project the greenback to stop declining as the demand for it is likely to increase due to the euro zone’s debt concerns. In addition, the greenback may be supported by the fact that QE3 in the US seems to be unlikely.

 

Strategists at Schneider Foreign Exchange expect US currency recover to $1.40 by the end of 2011. In their view, the risk of a disorderly default in Europe is currently much higher than in the United States. Wells Fargo economists say that dollar may appreciate to $1.39 by December 31, while Credit Agricole sees dollar to end the year at $1.30.

 

Analysts at HSBC remind that dollar is still the reserve currency of the world and will be for some time to come, so it won’t continue depreciating. According their forecast, the pair EUR/USD will finish the year at $1.44.

 

The main dollar-negative factors are concerns about the weakness of US economy and US debt. Analysts at Bank of Nova Scotia underline that there’s no credible fiscal plan in the United States.

 

Strategists at Societe Generale believe that dollar will fall to $1.50 by the end of the third quarter and to $1.52 per euro by year-end. The specialists point out that US favors a weaker currency for the sake of economic growth encouragement. In their view, as long as unemployment remains high the Federal Reserve will keep its monetary policy extremely loose. JPMorgan thinks American currency will weaken to $1.48 by the year-end.

 

All in all, despite some negative opinions the overall sentiment about the greenback has significantly improves.

 

Analysts at Wells Fargo note that the safest strategy is to stay long on USD/JPY. In their view, by the end of the fourth quarter there will be a shift in interest-rate futures positive for US dollar.

[FBS_Official 10]

BNY Mellon gives outlook for USD/CAD

 

Currency strategists at Bank of New York Mellon claim that Canadian dollar may get under pressure in the near term versus its US counterpart, while its longer-term prospects are quite bullish.

 

Last week loonie got support from stronger than expected Canadian employment data, but then dropped after poor US employment figures as investors’ risk aversion strengthened. The specialists claim that Canada’s currency will be affected by US economic weakness. In their view, the pair USD/CAD may reach parity during the next 3-4 months.

 

In the longer term, however, the bank expects loonie to gain against the greenback. In their view, Canada’s dollar will benefit from rising oil prices as the nation has got some of the largest reserves in the world. As a result, BNY Mellon expects loonie to run in 2012 to 0.90 per dollar.

 

Analysts at RBC Capital Markets also see upward potential in loonie. According to them, Canadian currency will reach 0.94. The bank, however, has doubts about the near-term outlook. The specialists think that the Bank of Canada will raise the interest rates, though they aren’t as sure as earlier. In their view, it’s necessary to watch the central bank’s monetary policy report that is published on July 20.

[FBS_Official 10]

Barclays: dollar will rise to parity with Swiss frank

 

Analysts at Barclays believe that the greenback will manage to rise to the parity versus Swiss franc in 3 months as the attractiveness of US currency is increasing with the deterioration of the situation in the euro area.

 

The bank points out that if Europe’s prospects improve, demand for franc as a safe haven decreases. If the state of things in the monetary union, on the contrary, worsens, financial markets will get extremely concerned. In such case dollar will likely be able to strengthen, despite even the weak payrolls data.

 

As a result, the specialists think that it’s a good chance now to buy USD/CHF at 0.8350 stopping at 0.7900. The last time the pair was trading above the parity was on December 2, 2010. US dollar declined by 10.5% against its Swiss counterpart since the beginning of this year.

[FBS_Official 10]

Commerzbank: EUR/USD will fall to $1.3685

 

The single currency breached the uptrend support line at $1.4161, May minimum at $1.3968, the 200-day MA at $1.3908 and 50% Fibonacci retracement support at $1.3900.

 

Technical analysts at Commerzbank believe that the pair EUR/USD will slump to the 2010-2011 uptrend support line at $1.3685.

 

According to the bank, on the upside resistance is found at $1.3900, $1.4076 and $1.4161.

[FBS_Official 10]

Westpac: buy kiwi versus euro

 

New Zealand’s Q1 GBP figures are released on Wednesday, July 13, at 22:45 GMT.

 

The economy that suffered in February from the devastating earthquake is rapidly recovering.

 

Analysts at Westpac expect the nation to show accelerating economic growth gaining 0.3-0.5% in the first 2 months of the year after adding 0.2% in the final quarter of 2010.

 

The specialists believe that New Zealand’s dollar will get support from the data publication. In their view, it’s necessary to open longs on kiwi against the single currency at 1.7250 stopping at 1.7450 and targeting 1.6900.

 

Economists at Nomura Securities claim that the People’s Bank of China may be buying NZD. According to the bank, big central banks may get more interested in kiwi.

[FBS_Official 10]

The Fed is likely to keep the rates low until June 2012

 

According to the study conducted by the Federal Bank of Cleveland, the 3-percentage-point gap between yields for 3-month and 10-year Treasuries means that American economy may add 1.1% in a year through June 2012 – that is less than half of the Fed’s current forecast.

 

Taking into account pore June labor market figures, it’s becoming more and more likely that US central bank will keep interest rates extremely low in the current 0-0.25% range. The nation’s borrowing costs remain at these levels since December 2008 and may do so for the longest period since World War II.

 

In February federal fund futures showed 51% chance of increase. This percentage lowered in April to 39% and is now only at 10%.

 

The yield on the benchmark 10-year notes declined from 3.77% in February to 3.03% on July 8. Strategists at Barclays note that the 10-year yields staying in the 3% area reflect expectations that US lawmakers will reach an agreement on raising the debt ceiling, though obliging the government to conduct spending cuts that will certainly affect US economic growth in the short term.

[FBS_Official 10]

BNY Mellon: situation in Europe has gone too far

 

Analysts at BNY Mellon believe that the European currency will keep weakening against a range of currencies during the summer even though Germany's finance minister Wolfgang Schauble claimed that there is still time for the euro zone to reach a deal on Greece ahead of the next tranche of money due at the end of September.

 

In their view, the crisis has gone too far for the markets’ concerns to ease down. In addition, there are other indebted euro zone nations at stake now.

 

According to the bank, the pair EUR/USD is poised down to cross at $1.3710 the uptrend support line from June 2010 of $1.1876.

 

Economists at Rabobank warn that the longer it takes for European politicians to find a solution to the region's sovereign-debt crisis, the greater will be the risk of the region’s contagion with the debt crisis. In their view, euro will stay under pressure in the near term.

 

Strategists at RBC Capital Markets believe that the single currency will keep going down as long as the yield spread between Italian and German bond keeps widening and renewing the record maximums. The yield on 10-year Italian bonds reached today 6.02%.

[FBS_Official 10]

HSBC: euro’s decline could be much stronger

 

Analysts at HSBC note that as the negotiations of US government and the lawmakers on the debt ceiling increase gave reached a deadlock the greenback doesn’t surge versus euro undermined by the debt crisis as much as it could have.

 

The specialists claim that euro’s fair rate is found at $1.25.

 

The pair EUR/USD fell today breaching the 200-day MA at $1.3908 and hitting the 4-month minimum at $1.3837.

[FBS_Official 10]

Daiwa, RBS: pound under pressure of negative factors

 

The prospects of the Bank of England’s rate hike faded today as the annual inflation rate declined from 4.5% in May to 4.2% in June. According to the Office for National Statistics, it may have happened as the producers reduced prices of electronic goods trying to attract customers. CPI inflation has been above the 2% target for the past 18 months. Core inflation that excludes the impact of volatile food and energy prices went down last month from 3.3% to 2.8%.

 

Analysts at Daiwa note that such CPI dynamics was quite surprising. In their view, the drop, particularly reflected in the core measure, indicates the underlying economic weakness. The specialists now doubt that the BoE will raise the borrowing costs this year and even in 2012.

 

Pound was also pressures by the fact that Britain's trade deficit increased from 7.6 billion pounds to the maximal level since December of 8.5 billion.

 

Moreover, British currency suffered from external factors, particularly from the escalation of concerns about Italian debt that worsened investors’ risk aversion.

 

Analysts at RBS claim that pound will be affected by the euro-negative comments (bearish for GBP/USD), though noting that, on the other hand, as investors will be selling euro, they may regard UK as an alternative (bearish for EUR/GBP).

 

The bank economists expect GBP/USD to fall to $1.55. Sterling hit 5-month minimum versus the greenback and 3-month minimum versus Japanese yen.

[FBS_Official 10]

MIG Bank: GBP/USD может упасть до $1.5345

 

Currency strategists at MIG Bank note that British pound has breached the pattern within which it was consolidating during the past half of the year.

 

The pair GBP/USD pulled back after forming a lower maximum at $1.6442 and went down below the 200-day MA at $1.6045. The specialists think that sterling will fall to $1.5345.

 

Today pound hit 5 ½ -month minimum at $1.5780 after the release of lower-than-expected UK CPI figures. Resistance levels for the pair are situated at $1.5935 and $1.6015, while support is found at $1.5775, $1.5750 and $1.5660.

 

[FBS_Official 10]

Westpac: Aussie declined due to the risk aversion

 

Australian dollars hit today 2-week minimums versus US dollar and Japanese yen on the concerns about the global economic recovery and on the expectations that the European debt crisis will spread more, while the region’s authorities are unable to act decisively to prevent it.

 

Analysts at Westpac and RBC note that risk aversion has significantly strengthened. In their view, the pair AUD/USD is poised for more declines.

 

According to the survey of more than 400 companies that took place from June 24 to June 30 conducted by National Australia Bank, confidence index dropped from 6 in May to 0 in June. Specialists at NAB that weaker confidence and slower consumer spending will increase the pressure on the Reserve bank of Australia to keep the rates unchanged at 4.75%.

 

The pair AUD/USD dropped from $1.0600 to the lowest level since June 29 at $1.0524. The pair AUD/JPY fell from 85.53 to the minimum since June 28 at 84.78.

[FBS_Official 10]

HSBC, BoA-Merrill Lynch: Chinese data was rather strong

 

China's second-quarter GDP was in line with forecasts rising by 9.5% after gaining 9.7% in the first quarter. June industrial production increased by 15.1% after 13.3% rise in May versus 13.2% expected.

 

Analysts at HSBC claim that Chinese GDP and industrial output figures released today are relatively strong. The specialists note that as inflation rate remains high, monetary tightening conducted by China’s monetary authorities seems justified. In their view, the country will be very cautious about raising rates, so this year 1-2 bank reserve requirement hikes are more likely.

 

Economists at Bank of America-Merrill Lynch believe that Chinese economic growth pace will slow down to 9.0% in the fourth quarter. According to the bank, the nation’s economy’s heading for a soft landing. The strategists think that China’s GDP will add 9.3% in 2011.

[FBS_Official 10]

HSBC, Western Union: kiwi’s rate depends on Europe

 

New Zealand’s dollar rose versus its US counterpart from the recent minimum at 0.8110 hit yesterday to the levels in the $0.8220 area.

 

Currency strategists at HSBC claim that taking into account kiwi’s 2011 maximums, the short-term prospects for the pair NZD/USD seem to be negative. The specialists note that the demand for New Zealand’s currency will be stemmed by the market’s concerns about the situation in Europe.

 

Analysts at Western Union believe that the pair has found support after its decline earlier this week. Never the less, the specialists also think that further dynamics of the cross will depend on how the things go in the euro area. The specialists say that kiwi managed to get higher today on the good Chinese data and is now losing its upward momentum. In their view, support for NZD/USD is at $0.8190, while resistance is situated at $ 0.8240.

[FBS_Official 10]

Commerzbank: EUR/USD decline will soon resume

 

Yesterday the single currency hit the minimum at $1.3837 versus the greenback and then managed to return back to the levels in the $1.4000 zone.

 

Technical analysts at Commerzbank, however, expect euro’s recovery to be limited. In their view, EUR/USD is going to resume decline to the uptrend support line from 2010 to 2011 at $1.3685.

 

According to the bank, the pair tested the levels below the 200-day MA at $1.3909 and the 50% retracement support at $1.3900, though hasn’t yet closed down there.

 

Resistance levels are situated at the 200-week MA at $1.4024, June 16 minimum at $1.4073 and previous support line at $1.4166.

[FBS_Official 10]

Commerzbank: yen hit 4-month minimum versus US dollar

 

At the beginning of the day Japanese yen reached 4-month maximum at 78.45 versus the greenback, the highest level since March 17. Then the Asian currency pulled back down as the market thought that the nation’s monetary authorities may intervene selling the national currency as high yen has a negative impact on the nation’s exporters.

 

Yen’s surge may be explained by the high demand for it as a refuge due to the increased risk aversion caused by the euro zone’s debt crisis.

 

Technical analysts at Commerzbank expect the pair USD/JPY to consolidate in the near term. The specialists note that close to today’s minimum there is a 78.6% Fibonacci retracement target at 78.23 below which US currency will revisit its March record minimum of 76.25. Resistance for US dollar will lie at 80.26 and 80.49.

[FBS_Official 10]

JPMorgan Chase: division of opinions within the Fed

 

The minutes of FOMC June 21-22 meeting released yesterday showed that there’s the disagreement within the Federal Reserve on the necessity of further monetary stimulus.

 

It happens that some members of the Federal Open Market Committee believe that the central bank might have to consider the possibility of launching additional quantitative easing measures, especially if economic growth remains weak and insufficient to reduce the unemployment rate in the medium term.

 

A number of other FOMC members, on the contrary, think that as inflation risks increase it may mean that the economic conditions are likely to improve so that the Fed will be able to normalize its policy even earlier than projected now.

 

Analysts at JPMorgan Chase note that one camp is worried about what happens if growth slows more than expected, while the other – about what happens if the rise in inflation isn’t transitory. So, the policymakers think that they can’t ease monetary policy because inflation is rising nor tighten it as the unemployment rate is too high.

 

As a result, the Federal Reserve is likely to wait watching the economic developments and keeping the rates at the record minimum. Economists surveyed by Bloomberg News, that the rates in the United States will remain between 0 and 0.25% until the second quarter of 2012.

[FBS_Official 10]

Morgan Stanley: pessimistic view on EUR/USD

 

The single currency went up today after hitting yesterday minimum at $1.3837 reaching $1.4100 on the talk that the ECB and China are buying the bonds of indebted peripheral euro zone’s nations.

 

Yesterday Moody’s Investors Service lowered Ireland’s debt rating from Baa3 to Ba1. As a result, Ireland became the third euro zone nation with credit rating below investment grade with Greece and Portugal already in this group.

 

The Italian Treasury is scheduled to sell as much as 5 billion euro ($6.99 billion) of bonds tomorrow.

 

Analysts at JPMorgan Chase are pessimistic on the situation in Europe. The specialists advise to sell EUR/USD on the rebound. The main theme on the market is now the fear of debt crisis contagion.

 

Strategists at Morgan Stanley think that the single currency still seems to be vulnerable. In their view, euro will slide to $1.36 by the end of 2011. The economists note that there are still big risk events ahead that may affect the European currency such as the bank stress tests.

[FBS_Official 10]

Commerzbank: comments on USD/CAD

 

The greenback jumped off the breached downtrend resistance line from August 2010 maximums.

 

Technical analysts at Commerzbank claim that if the pair USD/CAD closes above the week’s minimum at 0.9565, it will get chance to retest the 200-day MA at 0.9875.

 

The specialists say that if US dollar drops below 0.9565, the pair will be poised down to 0.9527/0.9449 support area representing the minimums of the beginning of April and the middle of May.

[FBS_Official 10]

Credit Agricole, BofTMUFJ, Investec: negative forecasts for euro

 

Strategists at Credit Agricole claim that the single currency has managed to rebound a bit as the initial panic caused by the surge of Italian yields faded. However, the fact that Italy got in the centre of market’s attention, which was previously focused mainly on Greece, Ireland, Portugal and Spain, seriously undermines euro. In the short term the pair EUR/USD may advance more. Then, however, it will retest 4-month minimum at $1.3837 and will fall to $1.3400 by the end of September.

 

Specialists at Bank of Tokyo Mitsubishi UFJ believe that Italy may once again make euro slump especially if the nation’s sovereign bond yields keep rising increasing the risk that Italian government will have to apply for external financial help. At the same time, the danger will remain even if the yields temper. The bank is getting more and more convinced that EUR/USD reversed down its uptrend from June 2010 lows. It’s more likely now that the ECB will pause monetary tightening this year.

 

Analysts at Investec expect the European currency will be gradually weakening during the second half of 2011 to end the year at $1.35. The economists think that in a year EUR/USD may fall to $1.25. According to them, if the situation in the euro area keeps worsening, euro may sink even faster.

 

Commerzbank: negative middle-term outlook on GBP/USD

 

British pound went up from Tuesday's minimum at $1.5775 almost reaching $1.6200 today before easing down to $1.6125.

 

Technical analysts at Commerzbank note that there’s a bunch of resistances in the $1.6211/62 area containing 38.2% Fibonacci retracement of the advance from December to April, June 22 maximum and the channel resistance line.

 

The specialists claim that the outlook for the pair GBP/USD will remain bearish in the middle term as long as it trades below $1.6262. In their view, sterling will drop to $1.5487 (50% retracement of the uptrend from 2010 to 2011) and $1.5347 (December minimum).

 

Sumitomo expects US dollar to weaken

 

Analysts at Sumitomo Trust & Banking Co. expect the greenback to weaken. In their view, US currency will be affected by the continuous debates about raising US government’s debt limit and reducing budget deficits ahead of the August 2 deadline.

 

The specialists claim that during the past few years the major central banks, especially Asian, tended to diversify their currency reserves decreasing the share of dollar assets. According to the bank, US dollar is gradually losing its status of the world’s main reserve currency. The debt-related factors add now to this pressure. One more reason for USD to weaken is the possibility of additional monetary stimulus in the United Stated confirmed yesterday by the Fed’s Chairman Ben Bernanke.

 

As a result, Sumitomo economists advise traders to avoid American currency. The analysts claim that it may be necessary to cut their forecast for USD/JPY by the beginning of 2012 from 88 to 85 yen.

 

The IMF data shows that the greenback’s share of global currency reserves declined in the first quarter to the minimal level since 1999 of 60.7%. Moody’s Investors Service put US top debt rating on the negative watch for the first time since 1995.

 

NAB: Aussie’s prospects in case of QE3 in the US

 

Yesterday the Federal Reserve’s Chairman Ben Bernanke claimed that the central bank will conduct more monetary stimulus in case of US economic growth slowdown.

 

Analysts at National Australia Bank claim that even if the Fed actually does more quantitative easing, Australian dollar won’t experience as big surge versus its US counterpart as the one seen at the beginning of this year.

 

The specialists note that in the last 2 rounds of QE the pair AUD/USD gained on average 7.0% in a month after the talk on the subject had begun and 11% in the six weeks afterwards. Aussie will be prevented from one more advance of that kind by the technical factors and the smaller size of any potential easing. Australian currency may rise from the current level to the levels in the $1.1100 area but it won’t manage to stay there for long. NAB strategists underlined that Australian dollar is already trading more than 20% above its fair value against the greenback.

 

Today Aussie eased down from highs in the $1.0790 area to the levels around $1.0740. Strategists at RBC Capital Markets note that the pair’s advance stemmed ahead of Italian debt auction. Resistance for the pair is at $1.0800. Economists at Barclays Capital have a more bullish point of view as they think that if AUD/USD gets above $1.0805, it will be able to climb to $1.0890 and then to this year’s maximum in the $1.1015 zone.

 

UniCredit about SNB intervention

 

Swiss franc keeps strengthening versus the single currency as investors regard it as a safe haven during the times of euro zone’s dent crisis and looming US debt. Analysts at Commerzbank claim that demand for franc will remain high as long as European and American debt problems remain unsolved. The pair EUR/CHF hit today the record minimum at 1.1492.

 

According to the Swiss National Bank’s Vice-Chairman Thomas Jordan, the central bank is concerned by such appreciation of the national currency and will be able to take the necessary steps in case deflationary risks reappear. SNB Chairman Philipp Hildebrand, however, noted that the central bank has no reason to take action at the moment as price stability was not threatened. Both of them declined to comment whether the SNB actually plans to intervene.

 

Earlier, during the period since March 2009 to June 2010 the SNB was conducting currency interventions before it posted the biggest annual $21-billion loss ever last year.

 

Analysts at UniCredit claim that even if the SNB tried to weaken the franc through renewed currency purchases it won’t achieve much as a lot of investors are using Switzerland as the only safe haven from the European crisis. In their view, the SNB can’t do anything because market forces are too powerful.

 

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[FBS_Official 10]

Citigroup, RBS: bullish medium-term outlook for USD/JPY

 

Currency strategists at Citigroup believe that Moody’s giving the US the final warning will make the nation’s authorities hurry to reach a compromise the August 2 deadline. As a result, the specialists expect investors to stop selling the greenback.

 

The bank especially sorts out the pair USD/JPY that may start strengthening later this year. As for the near term, American currency will likely remain under pressure as traders who used to be short on yen may be trying to cover their positions. In addition, though Citigroup projects that Japanese importers may increase demand for dollars, it won’t happen until September.

 

However, it’s necessary to note that as Japanese monetary authorities are very concerned about the appreciation of the national currency, Japanese corporations may start buying dollars. According to the bank, USD/JPY will find support and bottom out at 77 yen.

 

Analysts at RBS Securities are also bullish on dollar-yen. In their view, US economy will add about 3.5% in the second half of the year and that will be enough to push rate expectations significantly higher. Among the other dollar-positive factors the specialists cite Japanese production of autos and auto parts and lower gasoline prices. The specialists advise investors to go long on the pair buying below 79.50 and holding position for 3-6 months.

 

Commerzbank: EUR/USD on the way down to $1.3911

 

The single currency went up from 4-month minimum versus the greenback at $1.3837, but its rebound was capped by the breached 2011 uptrend support line at $1.4247 and the 38.2% Fibonacci retracement of the decline from May to July at $1.4259.

 

Technical analysts at Commerzbank claim that the pair EUR/USD is now poised down to the June minimum at $1.4073 and the 200-day MA at $1.3911.

 

Wells Fargo: medium-term outlook for EUR/USD

 

One more medium-term forecast from analysts at Wells Fargo. In their view, the single currency will fall into the steady weakening pattern versus the greenback.

 

As the main factors generating negative pressure on euro’s rate the specialists cite euro zone’s slow economic growth (as one may see from the leading indicators) and the increasing likelihood of ECB pausing its monetary tightening.

 

Wells Fargo expects the pair EUR/USD to stay in range between $1.4100 and $1.4200 during the coming 3 months, then to drop to $1.4000 in the last quarter and slide to $1.3500 by the middle of the next year and to $1.3000 by the end of 2012.

 

HSBC, Barclays Capital: comments on GBP/USD and EUR/GBP

 

Analysts at HSBC note that the rate of British currently is currently determined more by the dynamics of euro and US dollar, rather than be the factors specifically related to sterling.

 

In their view, pound could gain independence in trading only if UK economic outlook changes either strongly improving or dramatically deteriorating. Until that happens GBP is going to find itself trapped between a rock and a hard place.

 

All in all, HSBC sees the prospects of British economy and currency as rather pessimistic.

 

Strategists at Barclays Capital note that the GBP/USD may be in a bear trap. The pattern will confirm if it closes today above $1.6140. As for EUR/GBP, the bank claims that after jumping from support in the 0.8745/40 zone it may be on its way up to 0.90. If euro drops below 0.8740, it will revisit May base in the 0.8610 region.

 

SocGen, UBS: the risk of euro’s collapse can’t be ruled out

 

Economists at Societe Generale and UBS are very pessimistic on the future of the euro area: the former advise investors to buy insurance against the collapse of the single currency, while the latter specify their recommendation say that Danish krone may be used for protection as the situation in the euro zone tends to worsen.

 

According to UBS, as the European crisis escalates, Danmark grows more and more likely to send the peg of its national currency to euro. After suffering from some volatility in the short-term, krone will later strengthen versus other Scandinavian currencies and euro.

 

The specialists claim that one shouldn’t lose time and has to hurry and hedge it money as the pair EUR/USD has mercifully returned above $1.40.

 

Nomura: EUR/CHF has potential for further decline

 

Strategists at Nomura Securities believe that in the current situation of high uncertainty about when the European leaders will come up with a solution of the debt crisis investors should avoid the single currency. The specialists warn that it may take weeks for some developments in dealing with the current problems of the indebted euro zone’s nations.

 

Nomura notes that EUR/USD is a very liquid instrument. For a long time the pair corresponded to the ups and downs in risk premiums on sovereign bonds. Since February, however, this correlation has become not that clear as the single currency gained versus the greenback on the rates differential between the European Central Bank and the Federal Reserve. Now the risk premium on euro has once again begun increasing, but the state of things in the region has significantly deteriorated.

 

As a result, the economists draw a conclusion that EUR/USD responds to sovereign risk only when it triggers systemic risk like it’s happening now.

 

That’s why Nomura recommends trading not EUR/USD, but EUR/CHF regarding short positions on this pair as a sure gain as this cross has been very closely correlated with measures of systemic risk in the monetary union. So, the bank recommends being bearish on euro versus franc even though the pair’s already trading at the record minimums.

 

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[FBS_Official 10]

Commerzbank: negative outlook for EUR/USD

 

Technical analysts at Commerzbank note that though the single currency has rebounded last week versus the greenback from the 200-day MA at $1.3912, the outlook for the pair EUR/USD remains negative as long as it’s trading below the downtrend line at $1.4496.

 

Resistance levels are situated at Thursday’s maximum at $1.4282 and the 55-day MA at $1.4343. Euro went below support of June minimum at $1.4073, so the specialists believe that it’s currently on its way back down to the 200-day MA at $1.3912.

 

According to the bank, if EUR/USD breaches the 4-month minimum at $1.3837 hit last Tuesday, it will slide to the $1.3717/1.3680 area limited by the 2010-2011 uptrend line and the 55-week MA.

 

Nomura: EUR/CHF may drop to parity

 

Economists at OECD say that franc is overvalued by the European currency by 38% and by 46% versus the greenback. Never the less, different experts and strategists think that it still has room to continue appreciation.

 

John Taylor, the founder of the world’s largest currency hedge fund FX Concepts, believes that the single currency will fall to the parity with Swiss franc. The specialist claims that the European leaders haven’t come up with any solutions that would help to improve the situation in the euro zone in the longer term. As a result, demand for Switzerland’s currency as a safe haven is likely to remain high.

 

Currency strategists at Nomura International lowered their forecasts for EUR/CHF from 1.4 to 1.2 by the end of the year pointing out that the pair is likely to reach 1.10 over the next 3 months. In their view, the parity level is quite possible if the crisis keeps escalating.

 

The median forecast of economists surveyed by Bloomberg for the end of 2011 declined from April’s estimate of 1.34 to 1.26. The cost to hedge a drop in the euro versus the franc climbed to the maximum since January 2009.

 

Commerzbank, Barclays Capital: comments on EUR/CHF

 

The single currency has renewed today the record minimum versus Swiss franc by opening in the 1.1410 area, but then managed to restore to 1.1478.

 

Technical analysts at Commerzbank are bearish on EUR/CHF as long as it’s trading below June minimum of 1.1957. In their view, the pair will face resistance at 1.1555 and 1.1770.

 

The specialists note that as the European currency reached the base of 1-year downtrend channel at 1.1410, it may consolidate in the near term. However, euro risks dropping to 1.1290 and 1.1000.

 

Currency strategists at Barclays Capital point out that although there’s a chance that today's gap in EUR/CHF is the so-called exhaustion gap that indicates trend reversal, there should be a great number of long positions being opened in the coming sessions to make this come true. Until it happens the bank bets on EUR/CHF decline to 1.1250.

 

BBH: new rating cuts coming in Europe

 

Ratings agencies have great influence on the markets. On the one hand, Moody's and Standard & Poor's shook traders when last week they’ve warned about the potential US downgrade coming unless the debt ceiling is lifted up. On the other hand, such actions may hurry the nation’s authorities to reach compromise before the time runs out.

 

Strategists at Brown Brothers Harriman note that the agencies have missed their chance in the Asian crisis and during the boom of the dot coms, so they are probably trying to overcompensate that now.

 

Analysts at BMO Capital think, however, that rating agencies play a very important role in Europe. In their view, as the European Bank Authority released on Friday the results of stress test that turned out to be better than expected but very likely inadequate, only the rating agencies can provide insight in the more realistic picture.

 

Anyway, BBH specialists note that there will be further downgrades of Spain, Italy, Portugal and Ireland. Emerging markets, on the contrary, have solid chances for upgrades. The bank proposes investors to use this forecast while developing trading strategists in order to act ahead of the rating agencies.

[FBS_Official 10]

Societe Generale: EUR/JPY may fall to 106.95

 

Technical analysts at Societe Generale believe that the single currency is on its way down to last week's minimums versus Japanese yen in the 109.60 area and then to the downtrend channel support at 109.20.

 

If the pair EUR/JPY breaks even lower, it will slump to the longer-term rising support line at 106.95.

 

According to the bank, on the upside resistance levels are situated at 111.35 and 112.35.

[FBS_Official 10]

Commerzbank: comments on EUR/USD

 

Technical analysts at Commerzbank note that yesterday the single currency found support in the $1.4000 area versus the greenback and managed to close in the $1.4100 zone posting some gains.

 

The specialists, however, retain their negative view on EUR/USD as long as the pair is trading below the downtrend line at $1.4487.

 

According to the bank, resistance for euro is situated at last Thursday’s maximum of $1.4282 and the 55-day MA at $1.4330.

 

Merrill Lynch: USD/JPY will test the record minimum

 

Currency strategists at Bank of America-Merrill Lynch think that the greenback won’t drop below the record minimum versus yen at 76.25 hit on March 17 after Japan was shaken by the severe earthquake.

 

Never the less, the concerns about the debt problems both in the euro area and the United States are likely to keep strengthening risk aversion. As a result, the specialists warn that the slide of the pair USD/JPY may turn out to be surprisingly big.

 

The net short position on Japanese yen that is currently aggregated by the FX margin trade is very large, so the sharp risk aversion may trigger stops provoking unwanted liquidations of investors’ short yen positions making Japanese currency surge.

 

According to BoA-Merrill Lynch, if the pair tests all-time minimum, the Bank of Japan would have to ease policy further, while the nation’s Ministry of finance would probably intervene to stop disorderly appreciation of the national currency.

 

Westpac recommends selling USD/CAD

 

The Bank of Canada will release its rate statement today at 5:00 pm (GMT+4). The majority of economists agree that the central bank will hold the borrowing costs at the current 1.00% level.

 

Currency strategists at Westpac note that Canadian economy is currently in a very good shape. The specialists reminded about the encouraging June employment report. In addition, Westpac is looking forward to see strong CPI data due on Friday at 3:00 pm (GMT+4).

 

According to the bank, it’s possible to expect that the BOC will sound more hawkish than at the May meeting, so the analysts advise investors to go long on loonie versus its American counterpart. The recommended strategy is selling USD/CAD at 0.9580 stopping above 0.9700 and targeting 0.9350.

 

Credit Agricole, Westpac: pessimistic view on Aussie

 

The minutes of the Reserve Bank of Australia’s last meeting released today made the odds of its interest rate hike lower. Analysts at Credit Agricole note that the RBA didn’t mention the necessity to tighten monetary policy at some stage and believe that Aussie will remain under negative pressure.

 

Strategists at Barclays Capital expect that the central bank will stay on hold in the near future, though they think that the nation’s monetary authorities are inclining more towards lifting up the borrowing costs than to reducing them. The RBA is keeping its benchmark interest rate at 4.75% since November.

 

Strategists at Westpac note that the pair AUD/USD, which has been staying between 1.0400 and 1.0800 since May, may breach the lower border of this range in the next few weeks. In their view, Australian dollar can slide to 1.0200 and then maybe even to the parity level with its American counterpart. As the reason for Aussie’s weakening the specialists cite the debt problems in the euro area and the United States.

 

It’s also necessary to note that Goldman Sachs that recommended buying AUD/JPY at the end of June revokes this advice.

 

TD Securities: RBNZ is ready to lift up the interest rates

 

Analysts at TD Securities believe that the Reserve Bank of New Zealand may increase the interest rates from the record minimum of 2.5% at its next meeting that is taking place on Thursday, July 28.

 

In their view, it may happen as the inflation rate in the second quarter and the first quarter GDP turned out to be higher than expected.

 

New Zealand’s economy gained 0.8% in the first 3 months of the year while the central bank was projecting only 0.3% growth. The nation’s CPI added 1% in the second quarter versus 0.8% forecast.

 

According to TD Securities, RBNZ may increase the borrowing costs next week by 50 basis points compensation the cut made on March 10 or at least prepare the markets for such move on September 15.

 

In the near term New Zealand’s dollar, however, will likely remain under pressure ahead of EU summit in Brussels scheduled on July 21, warns Ueda Harlow.

 

Barclays Capital: outlook for EUR/CHF and USD/CHF

 

Technical analysts at Barclays Capital believe that in order to reverse July's downtrend versus Swiss franc the single currency has to overcome 1.1650. In such case, EUR/CHF will be able to rise to 1.1810 and possibly to 1.20. Until that happens, the pair’s prospects will remain bearish and euro will be poised down to 1.1250.

 

Credit Agricole: the prospects of China’s interest rates

 

Currency strategists at Credit Agricole believe that the People’s bank of China will pause its monetary tightening cycle in the second half of the year as the nation’s economic growth and inflation pace is slowing down.

 

The specialists note that Chinese monetary authorities are content with the current state on the country’s economy – so called “soft landing” as this was exactly the goal they pursued by raising borrowing costs and reserve requirements rate.

 

Credit Agricole notes that China now needs to finish policy tightening before the economic growth declines more sharply.

 

The specialists believe that the PBOC will conduct no more deposit and credit rate hikes until the next year when the economy will once again starts gaining pace. Credit Agricole thinks, however, that the bank will keep sterilizing its currency interventions by increasing required reserve ratio. The bank is looking forward to 2 such hikes until the end of 2011.

 

China’s second quarter GDP growth was in line with the forecasts gaining 9.5% after 9.7% advance during the first 3 months of the year.

 

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[FBS_Official 10]

Commerzbank: GBP/USD will face resistance

 

The greenback went up from Monday´s minimum in the $1.6000 area to yesterday’s maximum of $1.6177.

 

Technical analysts at Commerzbank claim, however, that though the near-term outlook has become neutral, the 3-month downtrend is still in place.

 

As a result, the pair GBP/USD will face resistance at $1.6220 strengthened by the 55-day MA at $1.6213 that is pointing lower. The specialists expect sterling to fall to $1.5778.

 

Westpac, Citi about the prospects of AUD/USD this year

 

Australian dollar has made significant advance versus its US counterpart gaining 21% this year due to the strong commodity prices and relatively high interest rates.

 

Apart from other Australian banks analysts at Westpac expect that the Reserve bank of Australia will reduce interest rates that will put Aussie under pressure for the rest of this year. In addition, the specialists express concerns about the euro area’s crisis having a negative impact on Australian consumer confidence.

 

Currency strategists at Citi, on the other hand, tend to be bullish on AUD/USD. In their view, the massive investments in the metals and the LNG space will provide solid support for Australian dollar during the next 5 years. The bank believes that the RBA rates will stay unchanged this year. The economists underline that the mining industry keeps performing quite well, while housing prices are still very high, so there’s no need for the central bank to cut rates.

 

As a result, building the trading strategy on AUD/USD one has to decide whether to focus on the miners or the consumers and be ready to adjust quickly.

 

Commerzbank, Citi: comments on USD/JPY

 

Technical analysts at Commerzbank are bearish on USD/JPY. Never the less, the specialists think that Fibonacci support at 78.23 will manage to hold the initial attack of the bears. The bank places resistance for the greenback at 79.57, 79.88 and the psychologically important level of 80.00.

 

Strategists at Citi believe that the Bank of Japan will conduct currency intervention if US dollar drops to 76 yen. In their view, the pair will move higher in a month as the market’s sentiment will probably improve and the uncertainty connected with the European and American debt issues eases. The analysts warn, however, that now it’s too early to start the trade as USD/JPY is likely to slide lower before bouncing on the BOJ intervention.

 

AllianceBernstein: all major currencies have weaknesses

 

Strategists at the fund AllianceBernstein revoked their bets versus the greenback changing the outlook to neutral as the euro area debt crisis escalates.

 

It’s necessary to note that though the fund managers’ sentiment towards US dollar has improved they didn’t become positive on dollar taking into account high indebtedness of the United States and its budget problems. In addition, the economists don’t think that the economic growth will slow down making dollar popular safe haven. AllianceBernstein expects slow and uncertain economic recovery and is cautiously bullish on the market.

 

The specialists are now bearish on the single currency and British pound and bullish on Scandinavian currencies and Swiss franc. According to them, the downside pressure on euro is stronger due to the ECB policy that is keener on targeting inflation while some economies of the currency bloc are too weak to bear tighter monetary policy.

 

Analysis conducted by the OECD on the basis of the purchasing power parity shows that US dollar is 8.3% undervalued versus euro. American currency lost 5.8% this year versus the European one. The situation has a bit improved as it managed to gain 2.3% in July.

 

All in all, the specialists say that it’s not the time for long-term trade and investments as all major currencies – dollar, yen and the European currencies – have their drawbacks, so it’s necessary to adjust to the changing conditions.

 

ZKB, Commerzbank: comments on EUR/CHF

 

Technical analysts at Commerzbank believe that as the single currency managed to break above resistance at 1.1556 trading versus Swiss franc, it may strengthen to 1.1770. Never the less, as long as EUR/CHF is staying below June minimum at 1.1808, the general outlook for euro will remain bearish.

 

Strategists at ZKB doubt that the pair will manage to rise above 1.1700. In their view, even if it does that euro’s advance will be likely contained by 1.1750. The specialists note that the EU summit that will take place tomorrow may disappoint the market.

 

JPMorgan: EUR/GBP is trapped in the narrow range

 

Analysts at JPMorgan believe that EUR/GBP is trapped at the current levels as in the short term both the euro zone and the UK faces serious risks that are affecting their currencies.

 

While in Europe the main threat comes from the debt crisis, Britain is in danger of economic recession.

 

The specialists expect euro to remain in a very tight trading range versus its British counterpart during the coming months between 0.8550 and 0.9100.

 

In their view, the trade’s volatility has heightened due to the unexpected crisis of confidence to Italy seen so far and the pat situation in America where the policymakers are trying to reach compromise on the debt ceiling.

 

According to the bank, when the pair EUR/GBP finally comes out of this range it will break it on the upside.

 

UBS: the odds of QE in the UK declined

 

British pound rose today versus the single currency and US dollar after the minutes from the Bank of England’s MPC meeting showed that the number of QE advocates has reduced.

 

The policymakers voted 7-2 to keep the benchmark interest rate unchanged this month as the majority of them said that the recent data shows that the near-term tightening isn’t necessary.

 

In contrast to the June meeting, there was no mention of other the MPC members calling for more bond purchases this month.

 

Right after the release of the minutes GBP/USD fell to the daily minimum of $1.6067, but soon recovered getting up to the $1.6130 area. Currency strategists at UBS claim that the outlook for the pair will become bullish if it manages to overcome resistance at $1.6194. Support for sterling is situated at $1.6006.

 

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[FBS_Official 10]

Taylor expects severe global economic recession

 

John Taylor, the founder of the world’s biggest currency hedge fund FX Concepts, expects the euro area debt crisis to ease during the next 3 months.

 

The specialist thinks that the improvement of the market’s risk sentiment will help gold price surge to $1,900 by October. Taylor is also quite bullish on commodity currencies, in particular, on Australian and Canadian dollars.

 

Never the less, the economist thinks that the rally won’t last long. After reaching the record high gold may fall to $1,100 as the global economy gets into recession worse than the one in 2008.

 

According to Taylor, the United States will run out of means to prevent the economic slump. European economy is also likely to get into the declining path, says the analyst. In his view, the pair EUR/USD will drop to $1.15 hitting the parity level next year.

 

Commerzbank, Citi: comments on EUR/USD

 

The single currency keeps going up this week from Monday’s minimum at $1.4014.

 

Technical analysts at Commerzbank, however, keep giving bearish forecasts for EUR/USD. In their view, the pair’s advance will be limited by the 55-day MA at $1.4307. The specialists say that the outlook for euro will remain negative as long as it’s trading below the downtrend line at $1.4471.

 

Strategists at Citi note that plenty of positive news is already priced in, so investors should buy carefully. Resistance is situated in the $1.43 area where the 100- and the 55-day MA are meeting each other, while support is found at $1.4240, $1.4210 and $1.4180.

 

BMO Capital: loonie may be used as a refuge

 

Currency strategists at BMO Capital believe that though Canadian dollar tends to follow the dynamics of oil process and strengthen when the market’s risk appetite is up it may be used now as s safe haven against the euro zone’s and US debt issued.

 

According to the specialists, loonie has all needed to attract investors: Canada enjoys economic growth and has strong financial system. In addition, the Bank of Canada is likely to raise rates sooner than the other major central banks.

 

Analysts at BMO think that Canadian currency has much more upward potential than the classic refuge – Swiss franc – as it may gain on the oil price’s advance. As a result, the bank proposes to sell USD/CAD at the current levels.

 

EU summit: political background

 

During the whole week investors were looking forward to the EU emergency summit taking place today in Brussels hoping that the deals on the second bailout for Greece will be made.

 

German Chancellor Angela Merkel warned that it’s not possible to solve the crisis in “one spectacular step”, while the Greek Prime Minister George Papandreou, on the other hand, said that the summit will be very important either leading to a breakthrough or being a total failure.

 

Merkel and French President Nicolas Sarkozy have reached some agreement on the matter during their private negotiations. European Central Bank President Jean- Claude Trichet and European Union President Herman van Rompuy have also participated in the discussion.

 

Analysts at Barclays Bank note that Germany and France made some coordinated efforts preparing for the summit that may be very helpful for some decision to be made today.

 

Strategists at Mizuho Corporate Bank point out, however, that even if the European authorities manage to persuade the private sector to do a voluntary rollover, the reaction of the rating agencies is going to hit euro. The specialists say that the pair EUR/USD is likely to drop below $1.40.

 

Societe Generale, Lloyds, BarCap about the prospects of EU summit

 

Analysts at Societe Generale believe that the European leaders will manage to make a deal. The question is if it will be credible enough to improve the market’s sentiment at least for some time. All in all, the specialists think that despite the potential skepticism euro will find some support.

 

Strategists at Commerzbank think that the situation has gone too far and become too dangerous for the EU could skip an agreement. If Greece gets the second bailout, euro will resume its recovery, at least in the short term.

 

Economists at Lloyds expect a lot of announcements and commitments from today’s summit. According to them, there may be some additional plan for Greece along with a broadening of scope of the EFSF, for example the purchase of bonds on the secondary market. It’s necessary to understand that all issues of the euro area won’t be cured today. Never the less, commitment to establish a viable systemic framework of support may be enough to encourage investors’ risk appetite.

 

Specialists at Barclays Capital say that any discussions around a consolidated EU fiscal framework or common euro-bonds issuance may provide a signal for a more sustained advance of the single currency. Without that, any improvement in sentiment and tightening in spreads will likely provoke profit taking maintaining a highly volatile environment.

 

Capital Economics: debt crisis affects European economy

 

There was a bunch of economic activity indicators released today in China and Europe. PMI figures for France, Germany and the euro area as a whole turned out to be rather negative.

 

HSBC'S Chinese PMI showed that China's factory sector contracted in July for the first time in a year and at its fastest pace since March 2009. It happened due to the nation’s monetary policy tightening and low demand in the world.

 

The flash services PMI dropped from 53.7 in June to 51.4 in July, the minimal levels since September 2009. The reading turned out to be below the expectations of 53.0. The flash manufacturing PMI fell from 52.0 in June to 50.4 in July, also the minimal level since September 2009, below the forecast level of 51.5.

 

Analysts at Capital Economics note that the decline of the European indicators may mean that the debt crisis begins weighting on the region’s economic recovery.

 

Commezbank: comments on EUR/GBP

 

Technical analysts at Commezbank believe that as the single currency didn’t manage to overcome the 55-day MA at 0.8827 trading versus the British pound, it will decline to 0.8712 and 0.8700.

 

If the pair EUR/GBP gets even lower, it will be poised down to the 200-day MA at 0.8666.

 

RBS: British pound is undervalued

 

Currency strategists at Royal Bank of Scotland believe that British currency is, so it’s possible to invest in sterling undervalued in the long term looking forward to its steady appreciation. In their view, pound is 14% below its 10-year average in real terms.

 

The specialists think that the greenback is also cheap, while the single currency has become closer to its fair value.

 

The commodity currencies such as Australian, Canadian and New Zealand’s dollars, on the contrary, seem to be expensive though they keep getting support from the improving terms of trade. The most important question here is whether high commodity prices and strong export demand from Asia are structural or only cyclical factors.

 

RBS analysts think that in the longer term, if the world’s economic recovery gains pace pound will rise to the fair value versus commodity currencies. In the near future, however, state of the global economy is too uncertain and unsustainable for buying sterling.

 

EU summit: the draft plan of resolving the crisis

 

It seems that the European authorities have managed to make some progress in dealing with the Greek issue.

 

According to the report containing the draft plan of resolving the crisis, the European Financial Stability Facility will be allowed to buy bonds in the secondary market.

 

The plan also calls for a reduction in interest rates on EFSF loans to 3.5% while extending maturities from 7 ½ to 15 years.

 

The problem European banks will get help from the EFSF to recapitalize. Analysts at Brown Brothers Harriman point out that the ECB won’t need to be the purchaser of “last resort” in the euro zone.

 

The specialists note that the markets have become more optimistic as it looks as if the EU is going to increase the flexibility and the scope of the way the EFSF works.

 

The ECB also seems to give in and agree on accepting “selective defaulted” debt as a collateral, thus saving the Greek banking system.

 

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