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Aussie may weaken versus loonie In March Australian dollar is losing ground which it gained versus its Canadian counterpart during the previous couple of months. The pair AUD/CAD is trading just above $1.0520 (50% Fibonacci retracement of Aussie’s advance from December to February). If the pair breaks below this support, the downside momentum will increase. Analysts at Westpac analyzed the monetary flows and came to conclusion that the inflow of the long-term investors’ funds in loonie and kiwi has increased, while exposure to Australian currency remains about 25% below its peak registered in the third quarter of 2010. According to the specialists, AUD/CAD may slide to $1.0100/1.0200 in 2-3 months.

Japan: yen’s safe haven status is in danger The greenback went up versus Japanese yen as Japan posted in January a record current-account deficit of 437.3 billion yen ($5.4 billion) versus 320 billion-yen gap expected. Japanese exports decreased by 8.5% in the first month of the year, while imports added 11.2% rising for 25th consecutive month. A year earlier, in January 2011, there was a current account surplus of 547.2 billion yen. The previous biggest deficit of 132 billion yen was seen in January 2009 and was caused by the sharp drop of the global demand due to the collapse of Lehman Brothers. Such a large shortfall raised serious concerns about the nation’s economic and fiscal condition. As a result, yen risks losing its save haven status. The pair USD/JPY rose from the levels around 81 yen to the 81.50 yen area approaching the recent maximums in the 81.87 yen zone. If the pair manages to overcome this resistance, it will get strength to continue the advance which it began last month. Watch US labor market data later today and tomorrow: US jobless claimed are expected to be almost unchanged at 352,000, while U.S. nonfarm payrolls may have increased in February by 210,000. The greenback is supported by the decreased possibility of more QE in the U.S.

BMO: trading EUR/USD today Strategists at BMO Capital Markets expect the single currency to rise today versus the greenback on the positive results of Greek debt deal. Then, however, the specialists expect the market’s risk sentiment to deteriorate as the central banks (the European Central Bank and the Bank of England) will likely adopt the ‘wait & see’ approach. The ECB President Mario Draghi may reduce expectations for any future long-term refinancing operations. As a result, the bank recommends investors to sell EUR/USD on the rallies opening shorts at $1.3275, stopping at $1.3380 and targeting $1.2975. The analysts underline that the Greek announcement on private-sector participation may come before the ECB meeting if the percentage will allow the debt swap. In this case the rally would occur earlier and the levels will likely be different.

The RBNZ is worried about high kiwi The Reserve Bank of New Zealand decided to leave the official cash rate unchanged at 2.5% (in line with the forecasts) citing medium-term outlook for inflation (CPI growth rate is seen in the target range between 1% and 3%). In its statement the central bank expressed concerns about the strength of the national which is caused by the international pressures. The RBNZ underlined that the high value of the New Zealand’s dollar affects the nation’s exports and, consequently, its economic growth. So, if kiwi keeps trading at high levels on a sustainable basis, the odds of the RBNZ rate hike in the coming months won’t be very high. Even if NZD slowly depreciates, “the Bank expects to modestly increase the OCR over the projections horizon (between now and the end of 2014)”. The RBNZ Governor Alan Bollard even talked about the possibility of lowering the borrowing costs in response to NZD’s appreciation and the decline in inflation expectations. At the same time, New Zealand’s monetary authorities seem worried about the easing bias adopted by many central banks all over the world as the regulators may start competing with each other making their monetary policy looser and looser. After this dovish statement was released, NZD/USD declined to $0.8140 before rebounding today above $0.8200 as gains in Asian stocks and prospects for job growth in the U.S. supported demand for higher-yielding assets.

BNP Paribas on ECB’s and BoE’s policy Analysts at BNP Paribas expect the European Central Bank to adopt a 'wait and see' approach. In their view, evaluation of the LTRO effects will take time. If the financial conditions significantly ease, the ECB may decide to leave interest rate unchanged at 1%. As for the Bank of England, it may keep the rates at the current minimal level of 0.5% until the euro zone debt crisis is over. According to BNP Paribas, this is unlikely to happen earlier than in 2013. In addition, the specialists assume that as the PMIs and CBI show that economic activity in the UK will be at least as strong as the MPC's latest forecast suggests, the central bank won’t expand its asset purchase program either.

GBP/USD: technical comments British pound fell yesterday versus the greenback sliding from the levels around $1.5880 to $1.5700. Earlier it failed to overcome $1.6000 level and make a sustainable breakthrough above 200-day MA. Sterling got under pressure as the markets were in the risk-off mode because of the uncertainty caused by Greece’s deal with private creditors and the reduction of China’s GDP estimate. Today risk-related currencies including sterling managed to move higher as investors were taking profit on safe havens. GBP/USD was able to consolidate above $1.5700 (100-day MA). Bearish pressure on sterling will ease if it closes the day above this level. Otherwise, the pair will risk falling to $1.5666 (55-day MA) and $1.5645 (February minimums, strong support). Below the latter, pound will get vulnerable for a decline to $1.5500. Technical analysts at MIG Bank think that the outlook for the British currency will remain negative as long as it’s trading below $1.5880. If GBP/USD ultimately overcomes this point, it will get chance to rise to $1.5992 (February 29 maximum) and $1.6165 (October 31 maximum).

What to expect from the BoE's meeting? The next Bank of England's policy meeting will be held on March 8. Many analysts believe that the asset purchase target is likely to be left unchanged at £325 billion this year and a rate cut is not on the agenda. According to the forecasts, the first rate hike will be delivered only in February 2014. "With the housing market and wider economy looking weak, there is actually very little scope for raising interest rates as it would almost certainly trigger a double-dip recession," said Phil McHugh, an analyst at trading group Currencies Direct. Despite the fact that two MPC members wanted to raise quantitative easing purchases by additional £25 billion last month, economists no longer expect any more QE. The shift in forecasts is partly due to the signs the economy is growing modestly after contracting late last year, reduced concerns about Greece's debt crisis and a surge in oil prices. The MPC’s main task is to use monetary policy tools to try and keep Britain's annual inflation rate close to a government-set target of 2.0%. The latest data showed that Britain's 12-month inflation rate fell sharply in January from 4.2% to 3.6%. "Most policymakers would probably view the high oil price as likely to have a clear negative impact on growth given weak consumer demand, and thus overall put downward pressure on inflation over the next 2-3 years," said BNP Paribas economist David Tinsley. Bank of England policymaker Martin Weale said last week that UK inflation may prove more persistent than expected, hinting that it is unlikely the economy will require a further stimulus once the current round of asset purchases ends. This is by far the most explicit indication by an official that the MPC's £50bn increase in stimulus in February could be the last. However, the economy is recovering only slowly and unemployment remains too high. Inflation is coming down and the main projection is still for CPI to fall below the 2% target level by the end of the year. British economy shrank 0.2% in the fourth quarter of last year compared with the third, according to recent official data. A further contraction in the first quarter would place Britain back in recession.

Westpac: recommendations for AUD/USD Technical analysts at Westpac note that Australian dollar has finally breached its sideways trend as it dipped below $1.6000. The specialists believe that Aussie’s fair value is in the area of parity with its US counterpart. The bank recommends selling AUD/USD on the rallies to $1.0600. The pair may return to this level helped by global risk appetite. The specialists expect Australian currency to decline to $1.0300/1.0400 in several weeks. The argument in favor of selling AUD is that the Federal Reserve didn’t hint on more QE. In addition, the analysts observe that Japanese retail investors show no sign of rebuilding their unusually low AUD/JPY long positions after they have taken profits on AUD/JPY’s advance in the first 2 months of the year. However, for the pair to fall lower, to $1.0200, there should be some really negative news such as Greece’s default.

EUR/USD managed to recover a bit The single currency rebounded today from the minimums in the $1.3111 area. Analysts at Forecast Pte note that the market’s speculation about barrier options with a $1.3100 knock-out strike. Holders of these options appear to be buying the euro in order to protect themselves. Knock-out option is an option with a built-in mechanism to expire if a specified price level is passed. Such option sets a floor or cap to the level which an option can reach in favor of the holder. As knock options limits the profit potential for the option buyer.

March 7: main economic news & events Australian GDP growth turned out to be lower than expected: 0.4% instead of 0.7% forecast. In the previous quarter the indicator reached 0.8%. As a consequence, the Aussie dropped testing to the level of $1.0500 before recovering to $1.0560. China's export and import growth is anticipated to slow to around 7% year-on-year in January-February. However, the country plans to adopt measures to help the exporters cope with difficulties such as an insufficient number of orders from elsewhere in the world, rising costs and growing trade frictions. Minister of Commerce Chen Deming said that the passage of a bill by the US Senate to empower the Department of Commerce to impose countervailing duties on Chinese imports is not in line with the rules of the World Trade Organization. Japan’s foreign reserves fell to $1.303 trillion at the end of February, posting the first fall in two months, as lower prices of U.S. Treasury notes offset higher gold prices. February’s reserves fell from a record high of $1.307 trillion marked at the end of January. The MOF said Japan did not intervene in the forex market between January and February. Japanese yen held gains from yesterday versus most of its major peers concern about Greece’s ability to complete a debt swap supported demand for the currency as a refuge. Analysts at Sumitomo Mitsui believe that USD/JPY may go down to the 80 yen level and lower. The pair dropped from March 2 maximum at 81.87 to the 80.65 yen area. In the UK shop price inflation edged down from 1.4% in January to 1.2% hitting its lowest level since March 2010. One of the reasons for this is that the January 2011 VAT hike has dropped out of the comparatives and in part by consumer caution. It is also important to note that the growth in permanent job placements picked up speed in February following the rise in January, which had been the first expansion since September last year. Economists say that the data point to a broad stabilization in the labor market rather than any permanent upward shift in employment. Greek PSI deal remains in the center of markets attention as the time given to Greece’s private creditors to decide on their voluntary participation in the debt swap runs out tomorrow. The euro has weakened 3% in the past six months, while the dollar has strengthened 4.4% according to Bloomberg. The yen decreased by 2.3%. Events to watch At 8:00 a.m. GMT watch SNB’s foreign currency reserves data. The increase of reserves might be franc-negative. In the United States one should pay attention to ADP February Non-Farm employment change at 1:30 p.m. GMT (jobs growth’s expected, this index may provide some hints at Friday’s NFP data which is released by the US Labor Department) and January building permits (negative projection). The country is also to publish revised data on non-farm productivity and labor costs, which are important inflationary indicators, and a report on crude oil stockpiles. To learn more about today’s economic data releases consult FBS economic calendar.

Greece’s deal with private creditors and euro’s prospects EUR/USD dropped to $1.3180 today amid data that the euro-zone GDP fell 0.3% last quarter from the previous three months. Time for reflection on the question of the participation of the private sector in Greek bond swaps is running out. Greek Finance Minister Evangelos Venizelos suggested the country is ready to strong-arm private investors into accepting a deal that could have far-reaching implications for markets. He believes that private holders don’t have any better alternative than to submit to Greek terms. Forecasts on prospects of the common currency differ. Some specialists dissuade from buying euro, because, in their opinion, now the European Central Bank is tied up with tackling the region’s sovereign-debt problem and has no room left to bolster the economy through monetary policy. Analysts at UBS claim that there are still a lot of obstacles on euro's road as even ECB’s President Mario Draghi still regards euro-zone’s economic conditions as fragile. As a result, the specialists are bearish on euro in the medium term. In their view, EUR/USD will slide to $1.25 in several months and hit $1.15 in a year. However, other specialists believe that if the agreement on bond swaps is reached, there will be no more serious reasons for concern and a decline in short positions on euro may take place.

RBA left rates unchanged The Reserve Bank of Australia left the cash rate unchanged at 4.25%. According to the explanation, given by the RBA Governor Glenn Stevens, the decision was caused by the decrease of concerns, connected with the European economy and by its positive prospects in 2012. However, he pointed that Chinese growth is starting to moderate. It is important to note that the RBA interest rates stay relatively high in comparison to many developed economies where policy has been loosened to extremes. This fact provides Australia with various instruments to manage the situation in case if the European crisis will gather pace. "The resilience of growth through to the end of 2011 is notable and is consistent with our view that the RBA does not need to provide any further stimulus," affirm JP Morgan analysts. The median estimate now forecasts growth of around 0.8% in the fourth quarter, from an initial 0.7%. Growth for the year was expected to be 2.4%. Australia’s dollar weakened to $1.0621 as of 3:18 p.m. in Sydney from $1.0671 yesterday, after touching $1.0612, the lowest since Feb. 23. The Aussie dropped 0.7 percent to 86.45 yen from yesterday, when it fell 0.9 percent.

UBS: what to expect from the SNB? Analysts at UBS recommend traders to watch the Swiss National Bank’s meeting on March 15 with great attention. In their view, the pressure on the central bank increased after interim President Jordan confirmed the SNB’s commitment to defend EUR/CHF floor at 1.20 noting that Swiss franc is still greatly overvalued. The specialists say that one may get some hints on what course the SNB will take from Switzerland’s February CPI figures which are released on Thursday. If consumer prices keep showing increasing deflation, the SNB will lift EUR/CHF peg to 1.30 in the second half of 2012. Swiss economy has so far showed inspiring results: retail sales added 4.4% (y/y), GDP rose in the final 3 months of 2011 by 1.3% (vs. the forecast of 0.9%).

Scotiabank: comments on USD/CAD Analysts at Scotiabank note that there are risks for loonie coming from potential slowdown of China’s economic growth – remember that Canadian dollar is a growth-linked currency. “The most significant development is China’s announcement of a 7.5% growth expectation this year, below last year’s 8% and sending shivers down the spines of commodity currency traders. We are medium term CAD bulls, but view the outlook for China’s growth as one of the keys to CAD strength.” “Technically, a USD/CAD close above 0.9953 would be bullish for short‐term traders, with the 200‐day MA of 0.9993 serving as the first level of resistance.”

J.P.Morgan: trading EUR/USD this week There are several central banks’ meetings this week. Today the RBA left rates unchanged at 4.25%. Wednesday is the day of the RBNZ, while on Thursday we’ll hear from the Bank of England, the ECB and the Bank of Canada. Analysts at J.P. Morgan are focusing on the European Central Bank. In their view, Europe’s monetary authorities won’t change the interest rates. However, the specialists advise investors to pay great attention to what the ECB’s President Mario Draghi will say at the press conference the same day. If the central banker sounds more positive (according to J.P. Morgan, this seems quite likely), euro will get support as the risk aversion will subside. In addition, the European currency will be helped by the high oil prices. As a result, the analysts recommends going long on EUR/USD at $1.3150 stopping above $1.3000 and targeting $1.3500. The bank warns, however, that one should get out of the trade even of the single currency keeps sliding below $1.3500 as the private sector involvement creates dangerous uncertainty.

Fiscal Compact's signed, but crisis is not over An important «Fiscal Treaty» was signed on the EU summit, held on Friday, March 1-2. According to this document the budget deficit will be limited to 0, 5 % of GDP; the breakers may be penalized. The pact was signed by 25 EU members, excluding Great Britain and Czech Republic, which are not ready to let the European Commission intervene in its economy. The Fscal Compact is mandatory only for 17 euro-zone countries. Germany forced the conclusion of the treaty: otherwise she would refuse to finance the European Stability Mechanism. It is important to note that the document requires ratification. Besides, the EU leaders tried to persuade everyone that the financial euro-zone crisis is over. «EU shifts from austerity measures to economic growth, » said José Manuel Barroso, the President of the European Commission. However, some analysts find these statements groundless and forecast the situation go from bad to worse.

Commerzbank: comments on EUR/JPY Last week the single currency fell versus Japanese yen sliding From February 27 maximum at 109.94 to close at 108 yen on Friday. However, technical analysts at Commerzbank note that EUR/JPY has managed to hold above the 200-day MA at 106.88 yen. The specialists believe that the pair will be able to push a bit higher. In their view, resistance for euro lies at 108.85, 109.38/58 (55-day MA, July minimum) and 110.18 (50% Fibonacci retracement of the decline from April to January). According to Commerzbank, the pair’s move up will wear off in the 110.18/111.57 area. The bank notes that support for EUR/JPY is situated at 106.78 (November 14 maximum).

Banks' forecasts for FX majors The following forecasts were updated on March 2. Data from FX Week

BBH: buy USD/CHF Analysts at Brown Brothers Harriman believe that euro’s decline versus the greenback which started last week is likely to continue. In their view, when Europe finalizes the amount of private sector participation in the Greek bailout, euro will likely take a blow, especially if participation is low and credit default swaps are triggered. The specialists think that in would be wiser to stay away from euro this week. As EUR/CHF is close to 1.20, the minimal level set by the Swiss National Bank, “if euro is going to weaken sharply, Swiss franc is going to weaken faster.” Making such assumption, BBH recommends buying US dollar versus Swiss franc. According to the bank, one should go long on USD/CHF at 0.9150 stopping at 0.8950 and targeting 0.9500.

Deutsche Bank: pound may strengthen vs. Aussie Analysts at Deutsche Bank believe that British pound may strengthen versus Australian dollar in the coming months. The specialists give the following reasons for such assumption: - Chinese economic growth is slowing down. As Australian economy is tightly connected with the China’s one which is the nation’s major export market, Australian dollar will likely get under pressure. “To a growing cohort of offshore commentators, China is a classic bubble on the brink of collapse. Its economy is chronically unbalanced, over-reliant on investment and cheap manufacturing exports. Financial repression has spurred speculative overbuilding in real estate, and local governments have gorged on credit to fund stimulus projects of dubious value. Central planning never worked and social pressures are starting to boil over”. Deutsche Bank doesn’t think that China’s economy is going to collapse, but that it will weaken as its economy gradually restructures. - Aussie is already overpriced. - Such currencies as Australian, Canadian dollars and Japanese yen have outperformed those like sterling and Mexican peso during the Third Phase of Chinese growth. According to the bank, shorting the outperformers could be expensive, but buying the laggards or constructing relative value crosses seems quite sensible. Judging by the strength of past correlations and dislocation since 2008 Deutsche choose to be long at GBP/AUD.

Watch US employment data on Friday The US nonfarm payrolls report will be released on Friday, March 9. In January US payroll rose by 243,000 and showed a highest increase during a nine-month period. The expected payroll growth in February is 250,000; however, some specialists forecast even a more significant upturn. In case if employment increases less than by 200,000, Westpac Institutional Bank analysts recommend selling the dollar against the Japanese yen. However, it is more likely that the payrolls come in better than expected. In this case it will be beneficial to sell the dollar against the Canadian dollar because of the positive impact of the statistics on the Canadian economy. The specialists recommend going short on USD/CAD at 0.9880 stopping at 1.0060 and targeting 0.9400. Analysts at Deutsche Bank believe that the growth of the Consumer Confidence Index and the labor market expectations point at forthcoming changes in the economy.

Mizuho, Citigroup on USD/JPY The greenback declined versus Japanese yen as the market players were taking profits after the pair USD/JPY reached 9-month maximum last week at 81.87 yen. At the same time, the pair’s decline was limited as Japanese importers were buying US currency on the dips. The most eyed event this week is the release of US February Non-Farm Payrolls on Friday. Analysts at Mizuho Corporate Bank claim that if the data is strong, US dollar may add about 1.5 yen to the levels around 83 yen. However, the specialists warned that the things may not go that smooth as the employment component of the ISM manufacturing survey declined last month (m/m). According to the bank, weak payrolls figures will bring dollar down to 80.00 yen. Strategists at Brown Brothers Harriman also advise traders to watch Greece’s debt swap deal as it may increase uncertainty and risk aversion encouraging yen this week. Bondholders have until March 8 to sign up to the agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal that will see the nominal value of their holdings cut by 53.5%. Economists at Citigroup are positive on USD/JPY in the longer term. The specialists point out that the pair closed in February above 21-month MA for the first time since 2007 – very positive technical signal. However, in the short term there’s the high risk of dollar’s correction to 78.00/50 yen. The longer term target is bullish – 98 yen in the coming weeks. The main resistance for USD/JPY is situated at 100-week MA in the 82.10 yen area.

CFTC trader positioning data The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that: • Euro shorts declined from the previous week’s total of 142.2K to 109.7K contracts. • British pound shorts decreased from 31.3K contracts on February 21 to 23.2K contracts on February 28. Sterling positions are now their best level since September 6 when positions accounted for 13.2K short contracts. • Japanese yen positions declined from 17.3K net long contracts on February 21 to 1.2K net long contracts on February 28. Yen speculative positions have reached minimum since May 31 when positions totaled 1.6K short contracts. Strategists at Scotia Capital note that yen longs have completely capitulated ever since the shift in stance coming from the Bank of Japan of a far more aggressive monetary policy. In their view, although the gross long position in yen shifted lower this week, the gross short has almost doubled in the last four weeks, highlighting the changing market view on the yen. • Swiss franc net shorts slightly decreased from 19.8K contracts on February 21 to 19.4K contracts on February 28. Short positions increased surpassing small increase of longs. 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.

Morgan Stanley increased EUR/USD forecast Analysts at Morgan Stanley raised forecast for the pair EUR/USD buy the end of March from $1.27 to $1.34. In their view, the short-term outlook for the single currency has improved as the ECB’s LTROs help to ease the tensions about the European sovereign debt and banking sector. At the same time, the specialists are still bearish on euro in the longer-term perspective. The bank reiterated that the pair will likely slide by the end of the year, though the projection was lifted a bit higher, from $1.15 to $1.19.

RBC: technical levels for USD/JPY Analysts at RBC Capital Markets claim that if the greenback manages to close today above 81.47 yen, its chances for sustained growth will significantly increase. The specialists think that resistance for USD/JPY lies at 82.21 and 83.09 yen. On the downside, if US currency closes the day below 80.02, its rate will decline to support at 79.31 and 78.23 yen.