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CFTC trader positioning data Monday, April 9, 2012 - 08:00 The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that: • The net short euro position dropped to 79.5k contracts, the smallest such net position since late November 2011. Long positions increased 5.8k contracts, while shorts shrank by 3.8k contracts. • The net short yen position declined to 65.1k contracts from 67.6k. Longs rose by 3.7k, whereas shorts rose by 1.1k contracts. • The net short pound position went down to 8.8k contracts from 11.1k. Both longs and shorts increased (2.7k and 380 contracts respectively). • Swiss franc net shorts decreased to 14.7k from 15.1k contracts. Longs grew by 322 contracts and shorts were pared by almost 100 contracts. It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.

Ifr Markets: option expiration for today Analysts at Ifr Markets, key analytical data provider, claim that today the following options expire: EUR/USD: $1.3400, $1.3225, $1.3300, $1.3500, $1.3315. USD/JPY: 82.25, 84.00 83.15, 83.00. EUR/JPY: 108.00. AUD/JPY: 83.75. AUD/USD: $1.0200, $1.0300. Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Mizuho: short-term bearish on USD/JPY Analysts at Mizuho Corporate Bank believe that the greenback may drift lower versus Japanese yen sliding to 80.00 in the next 2 weeks. “When we look at the amount of short positions in the yen, we see that they really have not decreased. Their volume is large. At some point, these positions will be closed, leading to an increase in the yen. Employment data can serve as an impetus for this,” say the specialists.

The week ahead: events to watch Monday: • New Zealand, Australia, Germany, France, Switzerland, Italy and Great Britain: Bank holidays (Easter). • Ben Bernanke speaks (11:15 p.m. GMT) in Stone Mountain. The Fed’s Chairman will likely mention the unexpectedly weak NFP (payrolls added only 120K in March vs. the expected increase of 207K). Tuesday: • Japan: The release of monetary policy statement and overnight call rate is scheduled. At a policy-setting meeting the BOJ is supposed to refrain from further quantitative easing steps due to weak yen and signs of improving economic conditions, although policymakers could take action at the following meeting on April 27. With interest rate expected to stay near zero, the BOJ doesn’t possess a remarkable liberty of action. • China: Trade balance in March is likely to be less terrifying than in February: analysts forecast the trade deficit to decline from 31.5 billion to 3.0 billion. Investors have become increasingly nervous about China's depressed economy in recent sessions. • Greek T-bill auction. Wednesday: • Italian T-bill auction. Thursday: • Australia: Labor market data should be widely watched. The unemployment rate in March is forecasted to increase slightly from 5.2% to 5.3%. Number of employed people may increase by 6,700 versus February’s 15,400 contraction. Weak February figures may mean that strong Aussie burdens the Australian economy and that the RBA may decide to cut rates in the coming months. • U.S.: PPI growth accelerated from 0.1% in January to 0.4% in February. In March American producer prices are seen gaining 0.3%. The PPI is climbing more than the Fed anticipated, though the central bank claims that the rise in energy prices is only temporary. Higher prices diminish the chances for additional QE. Trade deficit in March may contract from $52.6 billion to $51.9 billion. However, according to TD Economics, rising energy prices will continue to widen the trade deficit in February; analysts expect the deficit to rise to $53 billion, the maximum since October 2008. A slight decrease in a weekly number of unemployment claims is forecasted (355,000 versus previous 357,000 – a 4-year minimum posted last week). However, broader outlook on the U.S. labor market in 2012 remains cloudy. • Italian bond (BTP) auction. Friday: • China: Economy is expected to contract in the first quarter: GDP may decline to 8.4% from 8.9% in the last quarter 2011. Strategists at Barclays Capital warn that the Aussie and other commodity currencies could be weighed down until it is clear the China’s slowdown has bottomed out. • U.S.: Consumer Price Index is forecasted to rise to 0.2% in March versus 0.1% in February. TD Economics analysts expect the downward trajectory in annual CPI (drop to 2.5% y/y from 2.9% y/y in February) regardless of the surge in energy prices. • Ben Bernanke speaks (5:00 p.m. GMT). There may be a surge of volatility on the Chairman’s comments.

USD/JPY: analysts’ forecasts The pair USD/JPY was trading sideways this week opening and closing in the 82/83 yen area. Today the main event for all dollar crosses is the Non-Farm Payrolls release at 12:30 GMT. Bank of Tokyo-Mitsubishi UFJ: USD/JPY may rise to 84 yen if NFP data exceed expectations. JP Morgan: USD/JPY will likely trade next week between 81 and 83 yen. Analysts at Brown Brothers Harriman claim that unless the Bank of Japan announce some aggressive easing measures on Tuesday, April 10, yen’s dynamics will be determined by external factors. The specialists underline that the LTROs in Europe may have already given all positive effect they could and that political and economic headline risk in the weeks ahead are on the downside. As a result, BBH believes that safe-haven demand for yen will increase and USD/JPY may decline to 80-81 yen, while EUR/JPY may slide to 104-106 yen.

RBS is extremely bullish on GBP Analysts at RBS expect the British pound in April to be on a rise against the euro, yen and Swiss franc. However, the sterling looks less likely to do well against the Australian and the New Zealand dollar. According to specialists, in April sterling has traditionally been strong against a range of currencies. Moreover, higher than expected construction, manufacturing and services PMIs (56.7, 52.1 and 55.3 respectively) bring bullish sentiment to the market. At the current run rate, previously announced asset purchases wouldn’t run off until early May. The further expansion of monetary easing is unlikely taking into account the improvement of UK economy.

NFP: Bloomberg survey in details Bloomberg Survey ================================================================ Nonfarm Private Unemploy Hourly Payrolls Payrolls Rate Earnings ,000’s ,000’s % MOM% ================================================================ Date of Release 04/06 04/06 04/06 04/06 Observation Period March March March March ---------------------------------------------------------------- Median 25 215 8.3% 0.2% Average 208 220 8.3% 0.2% High Forecast 250 265 8.4% 0.2% Low Forecast 175 185 8.1% 0.1% Number of Participants 80 45 76 49 Previous 227 233 8.3% 0.1% ---------------------------------------------------------------- 4CAST Ltd. 200 215 8.2% --- ABN Amro Inc. 210 230 8.3% --- Action Economics 210 215 8.3% 0.2% Aletti Gestielle 200 --- 8.3% --- Ameriprise Financial Inc 215 210 8.2% 0.2% Banca Aletti & C spa 230 246 8.2% --- Bank of Tokyo- Mitsubishi 200 210 8.2% --- Bantleon Bank AG 190 --- 8.3% --- Barclays Capital 200 215 8.2% 0.1% BBVA 200 210 8.3% 0.2% BMO Capital Markets 190 --- 8.3% 0.2% BNP Paribas 210 --- 8.3% 0.1% BofA Merrill Lynch Resear 220 225 8.3% 0.2% Briefing.com 230 250 8.2% 0.1% Capital Economics 200 --- 8.3% 0.1% CIBC World Markets 200 --- 8.3% 0.2% Citi 185 --- 8.3% 0.1% ClearView Economics 190 205 8.4% 0.2% Comerica Inc 200 --- 8.2% 0.1% Commerzbank AG 220 --- 8.3% 0.2% Credit Agricole CIB 210 --- 8.3% 0.2% Credit Suisse 235 --- 8.2% 0.2% Daiwa Securities America 200 --- 8.3% --- Desjardins Group 210 --- 8.3% 0.2% Deutsche Bank Securities 250 250 8.2% 0.1% Deutsche Postbank AG 230 --- 8.2% --- Fact & Opinion Economics 240 250 8.2% --- First Trust Advisors 210 223 8.1% 0.2% FTN Financial 200 220 8.3% 0.1% Goldman, Sachs & Co. 200 --- 8.2% 0.1% HSBC Markets 180 189 8.3% --- Hugh Johnson Advisors 180 185 8.3% 0.2% IDEAglobal 210 220 8.3% 0.2% IHS Global Insight 210 --- 8.2% 0.2% Informa Global Markets 200 --- 8.3% 0.2% ING Financial Markets 220 230 8.1% 0.2% Insight Economics 235 --- 8.2% 0.2% Intesa Sanpaulo 190 --- 8.3% 0.2% Iur Capital Llc 195 --- 8.2% --- J.P. Morgan Chase 215 220 8.3% 0.2% Janney Montgomery Scott L 201 221 8.3% --- Jefferies & Co. 195 210 8.2% 0.1% JH Cohn 225 --- --- --- Laurentian Bank Securitie 180 185 8.3% 0.1% LCA Consultores 225 --- --- --- Maria Fiorini Ramirez Inc 215 225 --- --- Market Securities 219 --- 8.2% --- MET Capital Advisors 222 --- 8.2% --- Mizuho Securities 175 --- 8.3% --- Moody’s Analytics 200 205 8.3% 0.1% Morgan Stanley & Co. 175 --- 8.3% 0.2% National Bank Financial 190 --- 8.3% --- Natixis 205 --- 8.2% 0.2% Newedge 205 215 8.3% --- Nomura Securities Intl. 225 235 8.2% 0.2% Nord/LB 175 --- 8.3% 0.2% OSK Group/DMG 192 --- 8.2% --- O’Sullivan 195 205 8.3% 0.1% Paragon Research 242 --- 8.2% --- Parthenon Group 206 224 8.2% 0.2% Pierpont Securities LLC 235 245 8.2% --- PineBridge Investments 245 265 8.2% 0.1% PNC Bank 200 210 8.3% 0.2% Prestige Economics 200 205 8.3% --- Raiffeisenbank Internatio 240 245 8.2% --- RBC Capital Markets 200 205 8.3% --- RBS Securities Inc. 220 225 8.2% --- Scotia Capital 220 --- 8.3% --- SMBC Nikko Securities 250 250 8.3% 0.2% Societe Generale 190 195 8.1% 0.2% Standard & Poor’s 225 230 --- 0.2% Standard Chartered 205 215 8.3% 0.1% Stone & McCarthy Research 200 210 8.2% 0.2% TD Securities 175 185 8.4% --- UBS 200 210 8.2% 0.1% University of Maryland 200 205 8.3% 0.2% Wells Fargo & Co. 226 --- 8.2% --- WestLB AG 220 --- 8.3% 0.1% Westpac Banking Co. 180 --- 8.3% --- Wrightson ICAP 230 235 8.2% 0.1% ================================================================

It was a grim week for the euro area The single currency hit 3-weel low versus the greenback and lost 2.7% this week against Japanese yen showing the steepest 5-day slide since the week ended September 9. Spain The main theme of the past week was Spain. Analysts at Citigroup said that the nation was at “a greater risk than ever before” of a debt restructuring. Spain’s main IBEX 35 index touched the lowest in 7 months approaching to its post-credit-crisis minimum. Spain’s 10-year borrowing costs returned above 5% after bottoming at 4.815% after the ECB’s second long-term refinancing operation (LTRO) in February. In March the indebted country shocked markets by announcing that it had missed its 2011 budget deficit target of 4.4% and set a lower goal of 5.3% for 2012. Spanish government failed to sell the planned amount of debt at this week’s auction (April 4) managing to borrow only 2.59 out of 3.5 billion euro target. Bank stocks plunge It’s also necessary to note that this week was the worst for European bank stocks since December with Italy’s Unicredit falling by more than 11% and Banca Poplare di Milano slumping by more than 15%. ECB: downside economic risks The ECB President Mario Draghi repeated that downside economic risks prevail and called talk of an exit strategy from LTO premature. Discouraging data German February industrial output data: -1.3% m/m vs. the Reuters consensus forecast of -0.5%. EUR/USD Scotiabank: watch the bearish signals from MACD, RSI and candlesticks. However, EUR/USD is still caught in sideways trend between $1.30 and $1.35 which has been in place since the end of January. As a result, wait for the breach of $1.2974 support for bearish confirmation.

A few more comments on NFP and today’s trading Release time: 12:30 p.m. GMT Societe Generale: the pace of hiring has probable decelerated to 190K in March but likely upward revisions to prior months along with another drop in the unemployment rate to compensate the impact of slightly slower payroll growth. Employment growth between 1% and 1 ½% is weaker than in an 'old normal' recovery and may not be able to generate GDP growth above 2%, but it is pretty good insurance against a slip back into recession. However, QE3 may return to the agenda before June as the pace jobs growth declines. “Payrolls on a bank holiday is a good enough reason to take risk off for anybody.” Goldman Sachs: forecast for March gain in nonfarm payrolls is raised from 175K to 200K on the better-than-expected ADP employment report. Bank of New York Mellon: “The whisper number could be something larger than 250K. The problem is that everyone is talking about it, but nonfarm payroll data is so unpredictable and if the figure comes in below 200K, stocks are likely to sell off”. Reuters’ consensus: +203K. Trading implications A good reading will encourage short-term Treasury yields and, consequently, the greenback, while the single currency will get under pressure. For now EUR/USD has managed to find support at the bottom of the daily Ichimoku Cloud after hitting 3-week minimum at $1.3034 yesterday. At the same time, this support looks really fragile as the market’s still seems seriously concerned about Spain. Analysts at Bank of Tokyo-Mitsubishi claim that euro’s slide below $1.30 looks inevitable.

How do you like the picture at EUR/CHF chart? The pair has clearly pierced the SNB’s floor which lies at 1.20 posting the 7-month minimum at 1.1997 on the new wave of concerns about Spain’s finances. Switzerland’s central bank replied that it “won't accept any exchange rate below 1.20” reiterating its commitment to buy foreign exchange in unlimited quantities to defend this level. Analysts at HSBC think that the SNB intervened today. In their view, the evidence is that stops in the 1.2030 area didn’t trigger sustained slump of euro below the minimal level. Strategists at Citi estimate that the central bank sold 1-2 billion euro at 1.20. Swissquote points out that it was the CPI data released today which made traders test the SNB’s resolve to maintain franc’s cap. The specialists think that the SNB won’t manage to keep on with just verbal interventions from now on. Swiss inflation accelerated to 0.6% in March from 0.3% in February beating the forecasts. The SNB’s foreign currency reserves increased from 227.2 billion francs in February to 237.5 billion francs in March. Recent data shows that franc’s peg to euro helps to stabilize Swiss economy, though CGF is still about 30% stronger than it was below the crisis. RBC: Swiss central bank has signaled and repeated its unwavering commitment to the EUR/CHF floor. But though the market believes it for the next 1-3 months, EUR/CHF risk reversals show investors believe the floor will break beyond that. If downside price risks emerge, the SNB's only real tool is to raise the EUR/CHF floor. The floor can last as long as it is compatible with the SNB's mandate of price stability.

Spain: frightening austerity agenda On Friday, March 30, Spanish Prime Minister Mariano Rajoy delivered the annual budget. Spain is cutting 27 billion euros ($36 billion) from its budget this year as a part of the tough austerity plan. Prime Minister remains committed to reduce the budget deficit to 5.3% of GDP in 2012 from 8.5% in 2011, despite the protests, bursting in Spain. To meet the goals set in the budget plan, Spain’s regional authorities will have to cut their deficits by 50% this year. As a result, budget spending in both health care and education is expected to be cut. Social unease may increase on the back of these reforms. According to Spanish Economy Minister Luis De Guindos, the introduced austerity measures are focused on spending cuts rather than tax hikes. Moreover, Prime Minister Rajoy has denied the intentions to raise taxes. However, some economists are convinced that the government will also need to raise income taxes, increase electricity prices, abolish corporate tax breaks, and keep civil servant salaries fixed for a while in order to cut budget deficit. The appraisal of the Spain’s government’s policy seems to be controversial. Investors believe the further austerity measures would deepen the recession in Spain and in the whole euro zone, given that the Spanish economy is already expected to contract by more than 1.7% this year. Some experts note Rajoy tries to eliminate budget deficit at the expense of economic growth in order to delight the EU officials. European officials, however, appreciate the value of Spain’s attempts to return market confidence. “Even though Spain is in a difficult situation, the steps it has taken are consistent with its goal to improve the sustainability of its public finances”, said Olli Rehn, EU Commissioner for Economy and Finance. On Wednesday, April 4, Spanish government conducted the first debt auction since announcing that public debt will surge to 79,8% GDP this year. Spain sold only 2.59 billion euros of debt out of 3.5 billion euros (maximum target). Spain's borrowing cost is actually higher than it was on the day of the first LTRO operation 3 1/2 months ago. The yields on 5-year notes rose to 12-week maximum of 4.5%. Analysts at CIBC claim that if Spanish yields keep rising, euro will decline. In their view, euro zone’s periphery remains in extremely stressful condition.

EUR/USD renewed 3-week low The single currency is declining versus the greenback for the fourth day in a row. Today EUR/USD hit 3-week minimum at $1.3056 due to concerns about the euro area, primarily Spain. Another source of pressure on euro – German February industrial output data: -1.3% m/m vs. the Reuters consensus forecast of -0.5%. In addition the results of French debt auction conducted today came mixed: the nation managed to sell the planned volume 8.439 billion euro of debt maturing in 2017, 2022, 2026 and 2041 out of a targeted 7-8.5 billion euro, though the yields were slightly worse. RBC Capital Markets: Euro zone pressures are picking up with the 10-year Italy-Bund spread sitting at 375 bps, the 50% retracement of the January-March tightening. Spain is also underperforming with our rates team noting spread widening is more pronounced in 2-year notes than in 10-year ones. The technical outlook for EUR/USD seems bearish. However, taking into account the fact that we’ve seen a rapid decline it’s possible to expect some correction before the pair’s slide to $1.3000 and lower resumes.

Pound fell on data releases and the BoE British pound fell versus the greenback on weak data and the results of Bank of England’s meeting. The pair GBP/USD tested the levels below the 200-day MA, but found support at 50-day one from which it bounced upwards. Resistance: $1.5885 (February 9, March 6 maximums) and $1.5922 (March 21 maximum). Support: $1.5818 (today’s minimum, 50-day MA), $1.5775 (uptrend support line from the beginning of the year). UK economy: growing or not? The BoE has taken a "wait-and-see" approach In contrast with Manufacturing, Construction and Services PMIs which point to accelerating growth in these sectors, today’s data released in Britain was discouraging: UK manufacturing production contracted by 1.0% in February m/m (vs. expected increase of 0.1%). Official forecasts aren’t positive either: GDP growth in Q1 is unlikely to hit the 0.5% q/q as implied in the Monetary Policy Committee’s February forecast. There is also some disappointing news from the euro area which strengthened the pressure on sterling as Europe is Britain’s main trading partner: German February industrial output data (-1.3% m/m vs. the Reuters consensus of -0.5%). The BoE decided to leave the rates unchanged at 0.5% keeping the size of the Asset Purchase Facility at 325 billion pounds (the last increase was in February by 50 billion pounds). The central bank said that the MPC expects the asset purchases to take another month to complete and that “the scale of the program will be kept under review.” There’s no detailed policy statement. One will be able to get more hints on the BoE’s policy stance only when the meeting minutes are scheduled for release on April 18.

USD/CAD: short- and longer-term prospects The pair USD/CAD is consolidating after yesterday’s advance. The market awaits Canadian employment data later today (payrolls are expected to increase by 11.3K after declining by 2.8K in February, unemployment rate is also seen higher at 7.5% vs. 7.4%) due at 12:30 GMT. Also watch Ivy PMI at 2:00 p.m. GMT. Analysts at Toronto-Dominion Bank: if loonie fails to find a powerful growth driver, it will risk declining. However, although USD/CAD looks undervalued it will be difficult for the pair to breach the corridor within which it has been trading since February as it approaches resistance provided by 200-day MA. The specialists are looking forward to gradual appreciation of the greenback. On the downside they see the pair’s decline contained by 0.98 in the near term. Longer-term In the first quarter of 2012 Canadian dollar added 2.4% versus its US counterpart gaining from US economic recovery (due to trade connections), high oil prices (exports) and some stabilization in euro area (good for risk sentiment). Analysts at RBS see USD/CAD falling to 0.9600 by the end of June. At the same time, although loonie has decent fundamentals, there have been some disappointing data so far (retail sales). The Bank of Canada is clearly on hold. Strategists at Scotia Bank expect USD/CAD to rise to 1.0100 by the year-end. BMO: “Even if we do get a break through 1.0075, it won’t go screaming too much higher given the pent-up interest to sell US dollars at better levels.”

What to expect from NFP? According to ADP employment report released yesterday, US non-farm sector added 209K jobs in March after a revised advance of 230K in February. The figures were slightly above the consensus forecast (206K – Bloomberg version). Now all eyes are on official Non-Farm Payrolls figures due on Friday at 12:30 GMT by US Labor Department. The economists expect NFP to post 211K after 227K February, while the unemployment rate is seen unchanged at 8.3%. The experts often use ADP report to amend their estimates of NFP as the former figures are released earlier than the latter, though the 2 sets of data aren’t always well correlated. According to Credit Suisse, over the past year the average difference between ADP's figures and the government-reported private jobs numbers was equal to 1,000. Analysts at Brown Brothers Harriman think that the decline in the number of unemployed seen so far may be explained by the fact that some people just stopped looking for jobs and not by some real improvement. The specialists warn that there is a risk on the downside for the March jobs report. BBH adds that the advantages from milder weather in January and February won’t likely be seen in March. In addition, the slump in construction spending (-1.1% drop in February m/m) will also affect job figures. Blue – actual data Yellow line – forecast Dark blue line – revision NFP chart

EUR/USD: analysts’ comments Bank of the West (California): EUR/USD will test its recent trading range $1.30/1.35 on the downside. As the expectations of QE3 in the US have receded, the market’s attention has turned to Spain which is struggling with the deficit targets. KTB Securities: The debt itself is not an issue as long as there is sufficient enough (economic) growth to support it, but Spain's weak growth outlook does not paint a pretty picture. ANZ: If the peripheral governments cannot make the necessary reforms, in the long term that’s a negative for euro. Citigroup: The market has been locked into a range because there was no dominant FX theme. Now it looks as if higher US rates and concern on Spanish debt could be the short-term drivers, opening up room for higher volatility BBH: Based on current spot and volatility levels, indicative pricing suggests almost a 50% chance of testing the mid-Jan low near $1.26 here in Q2. Euro faces strong resistance at $1.3380 – this level has been tested several times so far but the pair failed to break above it.

GBP/USD: technical comments On Tuesday, April 3, British pound slipped versus the greenback breaking below the short-term uptrend support line affected by the Federal Reserve’s meeting minutes. On the weekly chart pound returned below the 200-week MA after testing higher levels. The pair found support in the $1.5840/30 area (March 20 & 28 minimums, 200 MA on H4 chart and 50% Fibonacci retracement of sterling’s advance from March minimum at $1.5600 to April 2 maximum at $1.6062). Chart. H4 GBP/USD On the downside, there’s an important support in the $1.5770/1.5780 zone (61.8% Fibo retracement of the advance mentioned above and the uptrend line the beginning of the year). The outlook for the pair will turn really bearish only if it falls below this point. On the upside, if GBP/USD keeps trading within the rising wedge (watch the daily chart), it may get chance to revisit the levels in the $1.6165 zone (October 2011 maximums). As for the fundamental factors, watch the results of the Bank of England’s MPC meeting due today at 11:00 a.m. GMT and US Non-Farm Payrolls data released tomorrow at 12:30 p.m. GMT.

BMO: trading recommendations on EUR/USD Strategists at BMO believe that if nonfarm payrolls, released on Friday 13:30 GMT, are greater than 225,000, it will make sense to go short on EUR/USD. In this case they advise to enter the trade at current levels with a stop at $1.3427 and targeting at $1.2550. The currency pair may strengthen to $1.3200 ahead of the data release, but, in their view, the rise won’t last long. According to specialists, EUR/USD is more likely to be on the ebb in the nearest future, because the ECB is expected to ease monetary policy by cutting rates by the summer. The two-year yield spread is at 16.7 basis points and is increasing in favor of the greenback. Technical analysts point that if the currency pair breaks the support level $1.3130, the chances to pass through $1.3035 (the neckline of a classic head and shoulders figure) will be high. The break of the neckline should generate a 500-point drop.

Draghi: Upside inflation risks seen prevailing in 2012 According to Mario Draghi, the region would undergo a moderate recovery over the course of the year, while inflation in the bloc would remain above 2% for the rest of the year. However, Draghi claims that ECB possesses all the necessary tools to tackle potential inflation risks. He expects the inflation to fall back below 2% in 2013 and to remain in line with price stability. The ECB President repeated several times that downside economic risks prevail and he called talk of an exit strategy from LTO premature. Such comments harmed EUR/USD which fell below the 100-day MA to $1.3105.

Commerzbank: bearish on NZD/USD Analysts at Commerzbank believe that the decline of New Zealand’s dollar versus its US counterpart may accelerate in the medium term. The specialists note that NZD/USD was affected by the unexpected trade deficit in Australia and the speculation about China’s economic slowdown. The bank underlines that kiwi failed to overcome resistance at $0.8289 (March 19 maximum) and expect the pair to slide to $0.7969, $0.7965 and $0.7922. According to Commerzbank, in the longer term NZD/USD risks to fall to $0.7460/7369 (December 15, 2011 minimum/November 25, 2011 minimum) as long as it’s trading below $0.8471 (February maximum).

Euro area: economy briefly, EUR/USD fell - Spanish yields rise The yields on Spanish 5-year notes rose to 12-week maximum of 4.5% as the nation conducted the first debt auction since announcing that public debt will surge to a record this year. The auction went bad – Spanish government managed to sell only 2.59 billion euro of debt out of 3.5 billion euro (maximum target). In addition, Spain was forced to pay higher interest rates: the average yield on bonds maturing in 2020 rose to 5.338% from 5.156% at the previous auction of this type. - ECB policy meeting The European Central Bank, as expected, left its benchmark rate unchanged at 1%. Watch the central bank’s press conference which is to start in 20 minutes. EUR/USD The single currency is testing the levels below 100-day MA versus the greenback. Next support for the pair is at $1.3124 (trend line support).

Standard Chartered: comments on the euro • Despite the slight signs of improvement in Europe, economic data, coming from euro zone, show recession is set to continue. European manufacturing PMIs (March) show that only 3 countries performed well last month: UK: 52.1 (an 8-month high) Austria: 51.5 (a 3-month low) Ireland: 51.5 (a 10-month high) Netherlands: 49.6 (a 2-month low) Germany: 48.4 (a 3-month low) Italy: 47.9 (a 6-month high) France: 46.7 (a 33-month low) Spain: 44.5 (a 3-month low) Greece: 41.3 (a 3-month high) • In Q2 the euro may stop appreciating versus the other key currencies due to following reasons: - Flow drivers for EUR strength are no longer so supportive - European banks keep repatriating offshore balance sheets - Forthcoming elections in France and Greece may resume the crisis. ECB may cut the rates by 25 bps to 0.75% in Q2 - Oil price growth is slowing, so support from oil-related FX reserve diversification is expected to decrease • The latest IMM Commitments of Traders data showed that non-commercial accounts increased net short positions by 7,194 on the week to 89,180. Within this, 'leveraged funds' (hedge funds and trading models) increased their net shorts by 6,017 to 80,577; and asset managers reduced their net long positions by 5,648 to 8,148.

FBS Quarterly Report Q1 Review Traders will remember Q1 2012 for mixed economic data. On the one hand, US economy kept improving. On the other hand, we got some disturbing news from China and the threat of recession in Europe. Geopolitical risk (Syria) and sovereign debt worries (Europe) were also among the main drives of the global financial activity in the first quarter. American stock markets rallied aiming to return to the levels seen before Lehman Brothers collapse (NASDAQ was up by 18%, S&P was up by 14%). Brent crude oil price remains in the area of 125 dollars per barrel. On the upside oil prices are affected by the Iran, on the downside – by the talks about the potential release of strategic petroleum reserves. Higher prices harm global demand hurting the developed economies. Let’s begin our analysis with a look at how the economies of United States, euro area and China have been performing since the beginning of this year. The United States US GDP growth accelerated from 0.4% (q/q) in the first 3 months of 2011 to 3.0% in the final quarter of the last year. Source: Bureau of Economic Analysis, U.S. Department of Commerce Activity in US manufacturing and services sectors is resilient, and manufacturing output has been gaining pace for the 3 months to March. The situation at US labor market has also improved. By March jobless claims have reached a 4-year minimum, while the nation’s economy has been adding in winter over 200K jobs per month, and unemployment rate fell from 9.0% in September, 2011 to 8.3% in January and February, 2012. However, even in the United States not everything is so bright. First of all, America isn’t isolated from the rest of the world, so China’s landing – soft or hard – and euro zone’s problems will surely affect its state. Secondly, inflationary pressures in the US are slowly picking up, trade deficit is widening, while the housing market is still in trouble. Note that trying to predict the market’s sentiment is a tricky thing. US investors seem to think that American economy may stay away from the issues elsewhere and keep growing. As the global markets represent a really complicated mechanism they may even be right: China’s slowdown does not pose systemic risks for markets in a way the credit crisis would. If it leads to weaker commodity prices, this could ultimately be a positive factor for future growth. Europe Euro zone’s economy contracted in Q4 by 0.3%. Moreover, it’s necessary to note that about a third part of the EA17 nations have already entered recession which is defined as GDP contraction during 2 consecutive quarters. The region’s manufacturing sector suffered a poor March: Manufacturing PMI of the currency union came in at 47.7, a 3-month low and the eighth month in row in which output has shrank. The unemployment rate across the euro area jumped to 10.8% in February, the maximal level in at least 14 years. China Chinese Premier Wen Jiabao cut 2012 growth target to 7.5% from the 8% goal which was in place since 2005 as officials seek to shift the economy toward more consumption. Last year Chinese GDP increased by 9.2%. The Bank of China, however, claimed recently that China’s economic growth will be able to remain over 8% for the whole of 2012. China posted the largest trade deficit in February in at least a decade of $31.5 billion as import growth exceeded that of exports in more than 2 times. The deterioration of China’s trade balance may be explained by lower demand from the euro area which is suffering from the debt crisis as Europe accounts for 20% of all Chinese exports. Taking into account reduced overseas demand it’s possible to expect China’s exports to stay weak at least for the next few months. At the end of March the nation’s PMI data made investors experience mixed feelings: while HSBC Manufacturing PMI was below the critical mark of 50, the official index of purchasing managers turned out to be above this level. Official figures helped to lighten the market’s mood, though the concerns about Chinese slowdown haven’t faded and will likely continue haunting investors’ sentiment. Currency majors in Q1 2012 New Zealand’s dollar was the best performing G20 currency this quarter, rising more than 5% against the greenback. Japanese yen performed the worst, falling more than 7% versus US dollar. American currency lost to all its major counterparts except yen (due to monetary stimulus by the Bank of Japan). The greenback was weakening in January and February and then retraced some of its losses in March. Q2 prospects Euro European policymakers have finally started showing real efforts in combating the crisis in the first quarter. There was the Greek restructuring deal, approval of the second bailout to Greece and expansion of the anti-crisis firewall. However, significant risks still exist. Among them one may cite the risks of/that: - Potential euro zone’s economic slowdown and recession; - Defaults of other indebted European economies; - The size of the bailout funds may turn out to be insufficient; - Of implementation associated with the European rescue and reform packages. The first risk seems to be the most severe. As the so-called PIIGS countries have to conduct severe austerity measures, it becomes more and more difficult for them to restore their competitiveness that is leading to social unrest. Combined with the electoral cycle in these countries, the political landscape is shifting to right wing nationalist parties. If these parties are successful, the implementation risks surrounding these austerity programs will be escalated. French presidential elections on April 22 and May 6 could also be a catalyst for intensifying trouble. As a result, despite the political progress made so far it’s really hard to find in Europe some drivers which are capable to trigger the growth of the single currency in the medium term. US dollar One may say with high certainty that the greenback’s performance will depend primarily on further actions of the Federal Reserve. The main question remains the same: will the Fed launch QE3 to promote economic growth or not? In March the Fed’s Chairman Ben Bernanke acknowledged the US economic improvement, but underlined that the option of more quantitative easing should be left open, because the economy isn't strong enough to continue quickly reducing unemployment. Bernanke doesn’t expect jobless rate to keep declining. The policymaker warned that the recent signs of improvement at the labor market may be the result of statistical errors. Some experts also note that the market has began expecting too much from US economy and, consequently, may be easier disappointed if the actual data fails to exceed the forecasts which tend to get higher and higher. Another important development is that the inverse relationship between US dollar and investors’ risk appetite started to fade. Never the less, don’t hurry to take risk. We see steady growth for American currency possible only if QE3 is completely taken out of the Fed’s agenda and that isn’t very likely in Q2. In addition, US GDP growth may have slowed in the first quarter. Don’t forget about the negative effects of higher oil prices which may increase inflationary pressure and the fact that tax cuts are set to expire by the end of the year. British pound UK economy is still having a lot of problems and consumer sentiment is weak as high unemployment and weak wage growth don’t encourage British to spend. At the same time, there are some positive things ahead: Diamond Jubliee and Olympics will certainly support the nation’s economy. UK inflation is also expected to decline further which would make consumers feel better. In addition, Britain’s Manufacturing and Construction PMIs posted the readings above 50 in March beating the forecasts pointing at the expansion of these industries. If GBP/USD manages to steady itself above the 200-week MA, its chances to continue growth will significantly increase. Remember, though, that Britain is strongly affected by the situation in the euro area, its main trading partner, so the downside risks still seem considerable. Japanese yen Japanese yen has weakened versus the greenback in Q1 as the Bank of Japan has given in to political pressure increasing in February its asset-purchase program by 10 trillion yen ($128 billion) and setting an inflation target at 1%. The greenback on its part was driven by the rising yields in the United States (10-year Treasury yields added 27 basis points). USD/JPY has managed to break above its long-term downtrend leaving the range within which it was trading in the second quarter of 2011. The pair consolidated above 100-week MA. We’ll get a bullish signal if the weekly Ichimoku Cloud switches upward. Note though that April has been traditionally a good month for the yen because domestic investors tend to transfer funds abroad the start of the fiscal year after the March repatriation. However, this year the demand for yen wasn’t that high as Japanese importers were selling large amounts of the national currency – Japan has to import much nowadays (energy resources). So, yen’s expected to weaken modestly due to the BOJ’s loose policy, weak fundamentals and an increase in risk appetite – the factors which don’t encourage demand for yen as a safe haven. Swiss franc Although euro zone sovereign debt crisis hurts Swiss exports, Switzerland may avoid contraction with the help of relatively resilient domestic demand. Swiss fundamentals remain very strong: the nation has balanced the fiscal account, public debt is declining and government bond yields are lower than in Germany and the US. The nation’s economy has regained some strength: investors’ confidence rose for the third month in March. Foreign sales, adjusted for inflation and seasonal swings, increased by 9.2% in February (m/m). The Swiss National Bank raised 2012 GDP growth forecast from 0.5% to 1%. The SNB’s EUR/CHF floor at 1.2000 helped to stabilize Swiss franc. Market participants expressed enough confidence to this level and we have seen the pair’s trading range narrow to the levels between 1.2000 and 1.2100. At the same time, deflation remains a considerable threat which could push Swiss economy into recession. If deflationary pressures intensify in the coming months, the SNB will likely opt to raise the currency floor, though with oil prices rising steadily year-to-date, the likelihood of such outcome has diminished. Swiss consumer prices rose by 0.3% in February after decreasing by 0.4% in January. Australian dollar Australia is heavily influenced by China’s business cycle. Speculation that China may experience a harder landing than expected weighted on the Aussie dollar this quarter and will likely continue to do so. Many economists expect the Reserve Bank of Australia to cut rates in May. The central bank itself decided to take a “wait-and-see” approach intending to take into account the first-quarter CPI data (released on April 24). In March the nation’s consumer prices rose by 1.8% (y/y) showing the slowest pace since October 2009. In addition, Australian annual budget is released on May 10. If the signal from the budget is deep fiscal cuts, the RBA will likely be forced to ease monetary policy to accommodate tighter fiscal conditions. Canadian dollar Canadian economy grew in line with forecast at 0.1% in January. Although the nation’s GDP growth has slowed from the last quarter of 2011, its economic outlook seems optimistic as it gains from US growth and higher oil prices. As Canada released the spending plan with a goal to balance the country’s budget in 2014-2015 and achieve surplus in 2015-2016, S&P confirmed Canadian top credit rating – the factor which makes Canada stand out among G10 nations. As a result, loonie has all chances to continue gradual appreciation. Forecasts from major banks Data was submitted on March 30, 2012. Source: FX Week

Dollar rises on FOMC minutes The greenback strengthened against a basket of currencies on the backdrop of the release of the minutes of the FOMC’s meeting on March 13. The March minutes show decreased urgency to add stimulus with no sentiment expressed for additional easing unless the economic conditions worsen. The Fed also affirmed its plan, first announced in January, to hold low interest rates through late 2014. Rochford Capital: The U.S. monetary policy will stay status quo for the foreseeable future. The EUR/USD is a bit of a sell at these levels in the short term. However, the policymakers pointed the labor market still remains weak. They expect the unemployment to remain high till the end of 2012. U.S. factory orders in February increased 1.3%, offsetting a similar decline in January, though were below the consensus forecast (1.5%). Economic data to watch Today at 13:15 GMT the ADP non-farm employment indicator is expected to show a 206,000 increase in the number of employed people during March versus a gain of 216,000 in February, the biggest in two months. The weekly number of unemployment claims, released tomorrow (13:30 GMT), is forecasted to decline to 355,000 against 359,000. Non-manufacturing PMI release is scheduled on Wednesday (15:00 GMT). EUR/USD The currency pair declined today to $1.370 level. Economists expect EUR/USD to trade at $1.310 by the end of 2012.

Merrill Lynch: trading recommendations on EUR/AUD Strategists at Bank of America Merrill Lynch recommend going short on the euro versus the Aussie, entering the trade at the current levels with a stop at 1.3050 and a medium-term target of 1.2200. Analysts believe the Australian dollar is a profitable bet these days: copper prices are rising, and Australia is the major copper exporter. Moreover, April is the strongest month of the year for the Aussie historically. The common currency prospects, however, are not so clear-cut. The European bank stocks are weakening and interest rate spreads between German and Spanish bonds are widening. One can’t say with certainty that European economic unease will not resume in the nearest future.