Comments and forex-analytics from FBS Brokerage Company

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Societe Generale: buy euro at 1.34/38

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

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

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

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

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

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

Daiwa SB: yen’s rate will weaken

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

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

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

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

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

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

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

Commerzbank: USD/CHF will rise to 1.0067

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

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

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

Ueda Harlow: EUR/USD may drop to 1.2867

Technical analysts at Ueda Harlow Ltd. claim that the single currency may fall to 5-month minimum versus the greenback.

The specialists note that the pair EUR/USD broke today below the key technical levels – 5-day MA at 1.3628 and the 20-day MA at 1.3641.

The momentum deteriorates and euro’s now moving down towards the trend line connecting January 4 maximum at1.3433 and February 14 minimum at 1.3427. If the European currency drops below this line, it may fall to the 1.2969 level hit on November 30 or to this year’s minimum at 1.2867 tested on January 10. The last time euro traded below 1.2867 was September 14.

NZD is falling down after the earthquake

New Zealand’s dollar fell to this year’s minimum versus its US counterpart as magnitude 6.3 earthquake broke out in Christchurch, the country’s second-largest city. The pair NZD/USD slumped from 0.7640 getting below 0.7500.

Analysts at Nomura Australia claim that damage and disruption from today’s earthquake may lower New Zealand’s first-quarter GDP to the flat level, while earlier they projected 0.8% increase. In their view, the Reserve bank of New Zealand will raise its benchmark rate by 25 basis points this year to 3.25%. Earlier they forecasted 3 rate hikes with the first already in April.

Analysts at Citigroup expect New Zealand’s central bank to be on hold for all of 2011 and possibly the first quarter of 2012.

Economists at Australia and New Zealand Banking Group note that this is already the second strong earthquake after the one that happened on September 4, 2010. The specialists believe that there’s the serious risk that New Zealand will be downgraded. In their view, the government may not be able to achieve the goal of a budget surplus by 2014.

UniCredit: strong franc is not an obstacle for exports

Despite the franc’s strength Switzerland's export growth remains strong. According to the data released today, Swiss trade balance surplus reached 1.96 billion francs, while the economists were looking forward to 1.65 billion.

Specialists at UniCredit say that although high demand for franc as a safe haven currency reduces the exporters’ profits, it helps, on the other side, to stem the commodity related rise in input costs.

In addition, Swiss export goods have the advantage of having high quality and, consequently, being less sensitive to the price shifts. As the global economy’s rebounding, the demand for Swiss exports is increasing.

Commerzbank: comments on EUR/USD

The single currency didn't manage to overcome the 1.3715 level on Friday on its way to February 9 maximum at 1.3745. Technical analysts at Commerzbank note that as long as the pair EUR/USD trades below this maximum, it will remain under bearish pressure.

According to the specialists, euro will be poised down to the 1.3396/61 area limited by the 55-day MA and the 50% retracement of the move seen this year.

If EUR/USD climbs above 1.3745, it will rise to resistance line connecting the maximums of November and January at 1.3770 and the recent maximum at 1.3862

Sakakibara: yen will rise to the postwar maximum

Eisuke Sakakibara, formerly Japan’s top currency official known as “Mr. Yen” for his efforts to influence the yen rate through verbal and actual intervention in the currency markets in 1997-1999, expects that yen will rise versus the greenback above the postwar maximum at 79.75. In his view, Japanese currency will stay this year above 80 yen per dollar. Such forecast is based on the structural weakness of the American economy.

Sakakibara notes that the US still faces a balance-sheet problem with businesses saddled with bad loans and households with excess debts. As a result, the economist doesn’t think that the current economic recovery seen in the United States is sustainable.

According to Sakakibara, the pair USD/JPY will remain in the downtrend during the medium or long term. The former official says that Finance Minister Yoshihiko Noda should declare that strong currency is in Japan’s interest.

Yen reached the maximal level since April 1995 on November 1 when it advanced to 80.22 per dollar. Economists surveyed by Bloomberg expect yen to fall to 86 per dollar by the middle of this year ending 2011 at 89 yen per USD.

Juergen Stark: ECB is ready to fight inflation

Juergen Stark, ECB Executive Board member, claims that the central bank will raise interest rates if necessary to keep inflation under control. According to Stark, the ECB is ready to “act decisively and immediately” on any indications of a wage-price spiral and higher inflation expectations.

In January inflation euro zone inflation accelerated to 2.4% getting above the 2% ceiling established by the central bank. Stark expects inflation to stay above 2% during 2011 and then ease down in 2012.

Hawkish comments of the EBC officials may be the kind of preparation for the shift in policy at the next meeting of the European officials that will take place on March 3 when the central bank is due to publish its latest inflation forecasts.

Yves Mersch: hawkish comments

ECB council member Yves Mersch claimed today that the European Central Bank will likely make an “exit” statement at the next meeting on March 3 announcing the end of monetary stimulus for the region’s economy. In addition, the official said that the ECB can raise rates even before the peripheral euro area nations have finished conducting austerity measures. According to Mersch, excessively low rates can distort European economy.

Such hawkish comments made the single currency go up compensating the previous losses made as investors’ risk aversion strengthened due to the escalating situation in the Middle East, the earthquake in New Zealand and Moody's downgrade of Japan's debt outlook.

The pair EUR/USD formed a spike returning above 1.3600.

MPC minutes will put light on what’s the BoE up to

Tomorrow the Bank of England will publish the minutes of its Monetary Policy Committee’s meeting that will take place on February 10. BoE official Adam Posen will speak today at 5 p.m. Andrew Sentence, David Miles, Charles Bean and Martin Weale will also speak this week.

The MPC members have different views on the suitable monetary policy, but the tone of the central bank seems to turn more hawkish, so the market wonders if Sentance and Weale who propose to lift up the benchmark rate have been joined by a third member.

Economists at BNP Paribas say that if the minutes show a third official voted for an increase, the market will have no more doubts about the coming rate hike from the current 0.5% level. In their view, although the rate increase will make it harder for the British economy to recover, it won’t completely derail the rebound.

Analysts at Standard & Poor’s believe that the MPC will take more time to make out how strong economic growth will be in the first half of the year. However, the specialists added that as this is the question of credibility for the BoE’s ability to fight inflation, UK central bank will increase rates by autumn or even sooner.

Analysts on the efficiency of G20 finance ministers’ summit

Group of 20 finance chiefs convinced China in the necessity of developing an early warning system to detect when economic fault lines are opening that may affect global growth. Among the yardsticks to monitor there are, for example, budget deficit levels, the external imbalance and private savings rates.

The officials signaled concern over the new threat by noting some emerging markets are displaying “signs of overheating” and agreed to study the forces behind surging commodity prices.

The G-20’s statement maintained last year’s decision to enhance currency flexibility trying to avoid at the same time volatile movements in exchange rates.

The economists have different estimates of the summit’s results.

Analysts at UBS claim that the statement of G20 finance ministers’ meeting brought nothing new. In their view, the group itself is losing relevance as there's no sign of the establishment of a binding global imbalances supervisory system anytime soon. In their view, the currency markets are still driven mainly by policy normalization, the sovereign debt crisis and global inflationary pressures.

Strategists at Goldman Sachs Group note that there’s slow but steady progress towards better international policy coordination aiming at reduced global imbalances. Economists at TD Securities believe that the list of indicators will give the rich countries an alternative to telling emerging markets to stop manipulating currencies.

Bayern LB: strong franc in the first half of the year

Analysts at Bayern LB believe that in the first half of 2011 Swiss franc will keep being strong as the political turmoil in the Middle East and the euro zone’s debt crisis increase investors’ risk aversion, while Switzerland has trade surplus and franc is regarded as the safe haven.

When the mentioned factors supporting franc’s rate disappear, Swiss currency will weaken and lose attraction due to the country's low interest rates, the specialists say.

Demand for franc and yen keeps growing

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

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

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

WestLB: Aussie will gain on carry trades

Analysts at WestLB note that Australian dollar performed surprisingly well despite the natural disasters that were tormenting the continent since the end of last year.

The specialists believe that even though RBA assistant governor Philip Lowe claimed that the country’s GDP could be about 1% lower this quarter, the total 2011 growth will still be almost 4.25% – more than in other developed nations.

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

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

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

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

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

Commerzbank: short-term GBP outlook

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

RBC: USD/CAD is trapped between 0.98 and 1.00

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

MIG Bank: USD/CHF under bearish pressure below 0.9506

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

Mizuho: GBP/USD may rise to 1.6500

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

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

The bank advises investors to buy on the rate’s decline to 1.6160 stopping below 1.6100 and expecting pound to climb to 1.6260/1.6300 and then to 1.6500

Citigroup: EUR/USD will rise to 1.4283

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

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

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

Morgan Stanley: upward revision of euro forecast

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

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

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

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

Sumitomo Mitsui: euro may climb to $1.4200

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

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

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

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