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BoE minutes coming: watch the pound Today the market’s looking forward to the release of the Bank of England’s February meeting minutes (9:30 a.m. GMT). The minutes will unveil how the central bank’s 9-member Monetary Policy Committee votes on the expansion of asset purchase program by 50 billion pounds ($79 billion) to 325 billion pounds this month. The consensus forecast is that the decision was unanimous. The experts, however, don’t rule out the possibility of 1-2 dissenting votes from the hawks against more QE. The BoE decided to conduct additional quantitative easing in order to help weak UK economy: Britain’s revived Q4 GDP figures which are released on Friday will likely confirm that the nation’s economy contracted by 0.2% in the final 3 months of 2012 (q/q). BoE Deputy Governor Charlie Bean claimed that despite the news that Greece will get the second bailout, serious risks remain and the debt crisis won’t be over. Such situation will hurt Britain hitting its exports and finance and affecting its consumer and business confidence. The official was also worried about the fate of other peripheral European economies. On the one hand, it’s necessary to note that some positive consumption and housing data have been released so far, so the BoE may improve its fundamental outlook for the UK economy. In this case pound will be poised to strengthen. On the other hand, cautious tone may signal that the door is open to expand the central bank’s asset purchase program beyond 325 billion pounds – such outcome would increase bearish pressure on sterling. Since the beginning of the year the pair GBP/USD consolidated between $1.5680 and $1.5930. Analysts at Lloyds say that sterling won’t be able to rise above $1.6000 versus the greenback in the near term. Specialists at Commerzbank think that the pair may test 200-day MA and then slide back to $1.5645.

Deutsche Bank, UBS: forecasts for USD/JPY Analysts at Deutsche Bank think that the greenback may resume its decline versus Japanese yen. In their view, the effects of the latest round of easing conducted by the Bank of Japan will fade. Last week the Bank of Japan added 10 trillion to it's now 65 trillion yen quantitative easing program leaving the benchmark interest rate at the record low of 0.1%. The specialists claim that USD/JPY may decline from the current maximums in the above 79.50 back to 75 yen area. According to the bank, Japan’s external investment position is large and growing, so its current-account balance will support yen’s strength for some time. Currency effects from Japan's shifting trade dynamics are being overplayed and the country will probably return to a trade surplus this year. The only way to prevent such outcome is additional stimulus from Japan’s monetary authorities. Analysts at UBS, however, don’t share the view of Deutsche Bank. The specialists reduced their 1- and 3-month forecasts for Japanese yen from 77 yen per dollar to 80 and 85 yen per dollar. As the reason for the downward revision the specialists cited easing conducted by the BOJ.

More comments about euro’s outlook ING: the Greek deal might have bought a couple of months' worth of stability to the euro-zone sovereign-debt markets. The pair EUR/USD may go up to test 2012 maximum at $1.3320 and rise to $1.3430/50. Barclays Capital: the risk of Greece’s disorderly default reduced for at least a few quarters. Never the less, there still are the implementation risks. In addition, there are near-term risks associated with early elections and rise of political opposition. Commerzbank: the skepticism about the euro is justified even after euro area’s finance ministers agreed to provide Greece with the second bailout. That isn’t positive for euro. The large majority of market players are finding it hard to believe that Greece will get through to 2020 without a further default. BNP Paribas: Greek agreement won't support euro much. Many traders would like to sell euro on the rallies. All the same, if the agreement really does remove the risk of a Greek default markets will be looking to fund riskier bets with a suitable currency such as euro. As a result, the European currency is doomed to remain under pressure.

UBS: dollar’s long-term advance against euro will go on Analysts at UBS claimed that the single currency will continue declining versus the greenback in the longer term from the record maximum at $1.6038 reached in July 2008. The specialists think that US dollar will break its negative relationship with oil prices as the United States become more independent of foreign energy supply due to the development of shale-gas deposits and an increase in domestic oil production.

Euro strengthened on Greek bailout news The single currency went up versus the greenback erasing earlier decline and reached 3-month maximum against Japanese yen as the euro-zone finance ministers agreed on a second bailout package for Greece saving the nation from default in March. The package includes a 53.5% write-down for Greek bondholders – it’s a bigger trade-off from the nation’s private creditors than initially expected. Debt-swap bonds will have a coupon of 2% in 2014, 3% in 2015-2020 and 4.3% after that. ECB President Mario Draghi expressed his approval of the deal. Euro shorts are covered now. The pair EUR/USD opened around $1.3250 and started sliding lower as the press conference was constantly delayed. The market players were pretty sure that there would be an agreement and there were enough longs on an intraday basis and these longs kept getting squeezed out, the longer the decision was delayed. After the announcement euro made 70-pip spike up. Currently the pair came close to the opening levels as stop-losses were all done. Analysts at Credit Suisse claim that euro will likely be capped as although “short-covering is supporting the euro, this much was within expectations”. In addition, EUR/USD will get under pressure due to improving US economy. The specialists think that the pair will trade in range between $1.3150 and $1.3350 for the rest of the global day and between $1.3050 and $1.3350 during the coming week.

Commerzbank: comments on GBP/USD Analysts at Commerzbank claim that British pound may rise higher versus the greenback testing 200-day MA at $1.5919. The specialists note, however, that sterling’s advance will be limited, if not by this level, then by the next resistance at $1.5967 and $1.6016 (55-week MA). According to the bank, support for the pair GBP/USD lies at $1.5603/1.5580 (55-day MA and 50% Fibonacci retracement).

BofA: euro may renew 2-month minimum Analysts at Bank of America claim that the single currency may fall to more than 2-year minimum versus the greenback. The specialists note that if euro doesn’t manage to hold at the current levels and resume decline closing the day below $1.3026, this would mean another wave of the downtrend within which EUR/USD has been trading since May 2011. In such case the pair will move down to $1.2644/$1.2510. Euro’s moving average convergence/divergence, or MACD, was at 0.0036, below the signal line of 0.0045. A reading below the signal line indicates the euro may decline.

Western Union about NZD/USD New Zealand’s dollar got a lift today versus its US counterpart as the Reserve Bank of New Zealand’s governor Alan Bollard claimed that the nation’s growth numbers are currently understated due to conservative statistical interpretations and the particular nature of the economy. According to Bollard, if Australian conventions are applied New Zealand’s GDP could be 10% higher. Analysts at Western Union claim that NZD/USD is helped by more positive sentiment towards Greece: “All it takes is another bit of speculation that the Greeks have found more places to slash their budget, and while there is nothing concrete they have said that it (the second bailout) is likely to be green lit on Monday – which is all the market apparently needs”. The specialists expect kiwi to trade at the current levels or edge higher to 0.8400. In their view, support for NZD is situated at 0.8320 (February 15 and 9 minimums), while resistance is found at 0.8420 (February 15 maximum).

USD/JPY: will the recovery continue? The greenback keeps rising versus Japanese yen. On Tuesday USD/JPY broke above the 200-day MA spurring the bullish sentiment. Today the pair set 3-month maximum at 78.88 yen. The cross is still trading below the post-intervention spike at 79.52 set at October 31 and November 1 maximum at 78.97. However, some analysts keep warning investors that it may be premature to turn bullish on US dollar. The specialists remind that in the past few years USD/JPY broke above the 200-day MA many times, but this signals turned out to be false and there was no bullish reversal afterwards. In addition, as the possibility that the Federal Reserve will decide to launch another round of quantitative easing seems strong enough, it would be hard for traders to sell yen. Expectations of QE3 will keep US short-term note yields (in particular, 2-year Treasury yields) low. USD/JPY is strongly correlated (90%) with yield spread between Japanese and US 2-year debt, so in such conditions US dollar will remain under pressure.

Commerzbank: USD/CAD technicals Technical analysts at Commerzbank note that the greenback keeps trading around the 200-day MA versus its Canadian counterpart. According to the bank, resistance for US currency lies at 1.0049/73 (December minimum and January 3 minimum) and at 1.0149/46 (55-day MA and the 3-month downtrend). The outlook for the pair will become positive only above the latter. Commerzbank says US dollar won’t likely get that high this week. The specialists think that the pair USD/CAD may slide to October minimum at 0.9892. In their view, this level will contain further declines as only an unexpected drop and 2 daily closes below the October low would point towards further range trading with a bearish bias and the possibility of such outcome isn’t high.

Spanish and French auction results Spain managed to sell the planned volume (4.074 billion euro out of the 3-4 billion euro target) of bonds with lower yields and better cover ratio. Here are the details: - 3-year bonds: 2.268 billion euro, yield 3.332% (vs. 2.861%), cover 2.2 (vs. 1.6); - January 2015 papers: 733 million euro, yield 2.966 (vs. 4.984%) %, cover 4.4 (vs. 2.4); - October 2019 papers: 1.073 billion euro, yield 4.832% (vs. 5.352%), cover 3.3 (vs. 2.1). France was able to sell 8.45 billion euro out of a targeted 7-8.5 billion euro. Here are the details: - 5-year bonds: 5.025 billion euro, yield 1.93%, cover 1.99; - July 2014: 2.090 billion euro, yield 0.89% (vs. 1.05%), cover 2.361 (vs. 2.12); - January 2015: 1.335 billion euro, yield 1.09%, cover 3.303. The actions may be regarded as successful enough. Never the less, euro didn’t get much help and keeps trading in minus for the fifth day in a row.

ANZ: scenarios for EUR/JPY Analysts at ANZ underline that the level of divergence in both monthly and weekly indicators suggests that if the current rebound can be maintained, EUR/JPY may also have formed a base. In their view, the outlook for the pair will become bullish if it overcomes resistance in the 105.50/107.00 area. In such case euro will get chance to repeat the 2009 rally and to climb through 112.00 towards 125.00 and possibly to 133.50. At the same time, the specialists claim that one can’t rule out the possibility that the single currency may survive a gradual decline to 2000 minimum versus Japanese yen at 88.95 yen. The potential rally of EUR/JPY will be undermined below 100.00 yen.

Euro’s pressed by Greek uncertainty The single currency fell to 3-month minimum versus the greenback. Tomorrow German’s Chancellor Angela Merkel meets Italian Prime Minister Mario Monti. The leaders will hold a joint press conference afterwards. On Monday, February 20, euro zone’s finance ministers will gather to discuss a second bailout package for Greece. Initially the meeting was scheduled to take place yesterday, but then was postponed. Luxembourg Prime Minister Jean-Claude Junker assured the markets that “all the necessary decisions” on the issue will be taken at February 20 meeting. The markets worried that a delay in Greek aid will increase borrowing costs for the region. The situation remains rather uncertain. According to Reuters, several EU sources said on Wednesday the euro zone is examining ways of holding back parts or even the entire bailout program until after Greek elections in April while still ensuring it avoids a disorderly default. The risk sentiment was also affected by Moody’s announcement that the ratings of several banks including UBS, Credit Suisse and Deutsche Bank are put on review to the downside. In the current circumstances watch Spain’s and France’s debt auctions later today. France will offer 8.5 billion euro in 2-, 3- and 5-year bonds, while Spain plans to sell 4 billion euro in securities maturing in January and July 2015 and in October 2019. Analysts at Nomura believe that by the end of the month EUR/USD will hit $1.2500. In their view, the market has lost confidence and investors won’t have much incentive to buy euro. The pair fell today below 38.2% Fibonacci retracement of its rally this year at $1.3056 and 55-day MA at $1.3050. Support for euro is now found in the $1.2970 area (50% retracement of the same rally, daily Ichimoku charts' Kijun-sen line and also the Cloud’s bottom).

HSBC about the forex market prospects While many experts expect the single currency to keep falling versus the greenback, analysts at HSBC think that EUR/USD will rise to $1.3700 by the end of the second quarter. The specialists don’t think the market has arrived at any kind of final verdict on Greece. There is disappointment that there wasn’t anything firmer in terms of ring-fencing Greece, but progress has been made and there is political commitment on the outcome. In that environment, people should still buy the euro, claims the bank. In the short term, euro will push higher and some of the doubts will fade away. HSBC also believe that the Swiss National Bank (SNB) will defend the floor for EUR/CHF which was set at 1.20 in September 2011 without raising it in the near future. As for USD/CHF, it will remain stable at around 0.90 over the next 3 months. The specialists are bullish on emerging market currencies, even though many are dependent on global growth indicators, and are driven by unpredictable risk appetite.

Analysts on USD/JPY prospects Analysts at BNP Paribas believe that one shouldn’t hurry to turn bullish on USD/JPY. The specialists underline that though the Bank of Japan decided to keep expanding its balance sheet and set a 1% inflation target, it will not be guiding policy any differently. The economists remind that asset purchases didn’t manage to reverse yen’s uptrend either in the past 3 years or during the prior QE in 2002-2004. According to the bank, USD/JPY will trade in 73 yen area in first quarter, 71 in the second one and then decline to 70 in the final 3 months of the year. Never the less, analysts at Barclays Capital note that the BOJ is trying to "catch up to its counterparts, and this adds to the downward pressure on yen already prevailing from Japan’s ongoing external balance deterioration and the risk of a sovereign downgrade toward fiscal year-end (March 31)”. With Japanese interest rates also “lower for longer” Japanese investors will look abroad for better returns stepping up monetary outflows from Japan. In addition, US dollar will be helped by American economic recovery. In their view, USD/JPY will rise to 79.00, 81.00 and 83.00 yen in 3, 6 and 12 months. By the way, specialists at Societe Generale point out that the move of Japanese central bank doesn’t look that large compared with ECB’s actions: the BOJ will increase bond purchases by a further 10 trillion yen this year, which could increase the size of their balance sheet by 2% of GDP, while the ECB's December LTRO added nearly 5% GDP to the central bank's balance sheet (remember that there will be another 3-year LTRO February 29). The specialists say that though the fast that USD/JPY rose above 200-day MA is rather promising, the pair still has to overcome the critical 80 yen level. Economists at CitiFX believe that yen’s depreciation will be short-lived. In their view, it will be difficult for USD/JPY to start sustainable rally until US Treasury yields as a whole start to press higher.

Commerzbank: EUR/CAD technical comments Analysts at Commerzbank are bearish on the single currency versus Canadian dollar. The specialists note that EUR/CAD didn’t manage to overcome resistance provided by the 55-day MA at $1.3258 and is resuming decline. According to the bank, support levels are situated at $1.3000 (psychological level), $1.2876 (2012 minimum), $1.2777 (2011 minimum), $1.2765 (the 1985-2012 uptrend line) and $1.2613. Resistance levels are situated at $1.3253 (January maximum), $1.3258 (55-day MA) and $1.3398 (September minimum).

China pledged to help the euro area The single currency went up versus the greenback and reached 2-month maximums against Japanese yen as the People’s Bank of China announced that the nation will take part in resolving the euro zone’s debt crisis. The PBOC Governor Zhou Xiaochuan said that China can provide help through the central bank, China Investment Corp., the nation’s sovereign wealth fund, and banks including the China Development Bank, Export-Import Bank and other institutions. Analysts at Royal Bank of Canada claim that we’ll see some growth on the short covering, but the advance won’t be long. On the upside, euro’s moves are limited ahead of the European finance minister’s teleconference on the second bailout for Greece (the meeting initially scheduled for today was put off to Monday, February 20). European authorities are waiting for written commitments of Greek parties on the implementation of the austerity program. According to Greece’s government, the necessary assurances will be provided today. The pair EUR/USD rose from yesterday’s minimum at $1.3079 to the levels around $1.3180. There may be some further consolidation between 100- and 55-day MAs.

Analysts at UBS revised up euro forecast Analysts at UBS raised 1-month forecast for euro from $1.2000 to $1.3000 and increased the 3-month projection from $1.1500 to $1.2500. The specialists also lifted up their 3-month forecast of USD/JPY’s rate from 75.00 to 77.00. According to UBS, short-term risks diminished: the situation in the euro zone’s banking sector will improve due to ECB’s Long-term liquidity operations (LTLO) operations, while the threat of a disorderly Greek default for now subsided.

Bank of Japan increased asset purchases Japanese yen declined against US dollar as the Bank of Japan increased its asset-purchase program by 10 trillion yen ($128 billion) to 65 trillion yen and set near-term inflation target at 1%. The move was generally unexpected. The BOJ left its benchmark rate at 0.1% (in line with forecasts). According to the BOJ statement, the central bank’s goals are to “clarify its monetary policy stance and to further enhance monetary easing” to “overcome deflation and achieve sustainable growth with price stability.” Some experts, however, criticize the BOJ for yielding to political pressure. The increase in the asset-purchase facility will be used to fund purchases of more government bonds. Japanese central bank decided to support national economy which contracted in the final quarter of 2011 by 2.3% (y/y), data released yesterday showed. The BOJ also signaled its resolve to take further action to beat deflation. Nationwide core CPI fell by 0.1% (y/y) in December, the third straight month of decline. Prices haven't risen by at least 1% for any year since 1997. It’s also necessary to point out that as US Federal Reserve last month set an inflation target and extended its commitment to near zero rates. As a result, pressure on the BOJ strengthened encouraging it to make a move. Analysts at Sumitomo Mitsui think that the impact on yen’s long-term uptrend will be limited. Specialists at Mitsubishi UFJ Morgan Stanley Securities claim that the BOJ still has further easing options left, such as increasing the amount of assets it buys and buying JGBs with longer maturities. Economists at Credit Agricole think that the BOJ's decision will help to keep JGB yields low and make yen weaken in the short term. However, the specialists aren’t sure that the impact will be sustained. There needs to be probably more to be done, the buying of JGBs would need to be more intense, says Credit Agricole. The pair USD/JPY rose above 78 yen mark. Resistance for the greenback lies at 78.29 yen (maximums of the late November and January 25). Above this level the upside momentum will increase.

Moody’s downgraded European nations The single currency declined versus the greenback for the third day. Euro fell after Moody’s Investors Service downgraded several European nations. US dollar, on the other hand, strengthened versus all of its major counterparts as the market’s risk sentiment deteriorated. Moody’s cut Spain’s rating from A1 to A3, Italy’s – from A2 to A3 and Portugal’s one – from Ba2 to Ba3 with negative outlooks. The ratings of Slovakia, Slovenia and Malta were also lowered with negative outlooks. In addition, the agency said it may strip France, Austria and the UK of their top Aaa ratings. The rating of EFSF (European Financial Stability Facility) was retained with stable forecast. According to the Moody’s economists, the downgrade was motivated by the uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework and the resources that will be made available to deal with the crisis. The euro zone’s finance ministers meet tomorrow to discuss a second 130 billion-euro ($171 billion) aid package for Greece which managed to reach parliamentary approval of austerity measures. Analysts at Mizuho claim that “the ratings agencies behind the curve as the risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren't new and the downgrade should have minimal impact on market sentiment.” Investors’ attention will be also focused on Italian bond auction today (bonds due in 2014, 2015 and 2017) and debt auctions of Spain, Belgium and Greece (bills) and the Netherlands (bonds maturing in 2017) tomorrow. The pair EUR/USD fell from last week’s maximums above $1.3300 to the levels in the $1.3135 area.

JPMorgan: buy euro against franc Analysts at JPMorgan recommend buying the single currency versus Swiss franc. In their view, the pair EUR/CHF will rise to 1.23 in the medium term. The specialists point out that in Switzerland deflationary forces are mounting, while the economy is close to recession. The bank reminds investors of weak January manufacturing PMI (the indicator declined from 49.1 to 47.3) and high unemployment rate. According to JPMorgan, the SNB will defend the 1.20 floor or possibly to raise it.

Different comments on Greece and euro UniCredit: if Greece leaves the euro area, it would be a disaster for Greek society, while for the rest of Europe it won’t matter much in the longer term. However, the majority underestimates the risks of Greek default to the global financial markets in general and other European nations in particular. Bank of Nova Scotia: as Greek parliament approved austerity measures the pressure on euro may ease in the short term. Societe Generale: speculative positioning data shows that short euro positions are being reduced, but not enough to spark a substantial risk rally. EUR/USD will struggle to break last week's maximum at $1.3330. Morgan Stanley: EUR/USD correlation with the market’s risk sentiment will break down this year. The single currency will remain under pressure with the ECB’s accommodative increase of euro’s supply, recessionary growth and political uncertainty. Sell euro at $1.3250, stopping at $1.3300 and targeting $1.2390. Credit Agricole: so much good news is already reflected in the value of the single currency, so even if there is some form of debt deal and second bailout package for Greece EUR/USD’s advance will be limited.

Watch Fed’s meeting minutes on Wednesday To get insight about the Federal Reserve’s stance toward further quantitative easing one has to watch the Fed's January meeting minutes released on Wednesday. The minutes will show how the opinions of the central bank’s officials are divided: some FOMC members may have seen the need for additional monetary easing. This time the central bank for the first time will provide "qualitative" details on officials' views on the Fed's near-record $2.9 trillion balance sheet. Last month the Fed revealed its intentions of keeping the rates near zero until the end of 2014 but gave no details on how it should handle its asset holdings. The argument against QE3 is improved labor market situation (in January unemployment rate declined to 8.3%). However, some experts think that US economy won’t gain enough growth pace to satisfy the Fed.

UK economic forecasts: update The Confederation of British Industry (CBI) lowered its 2012 forecast for the UK economy from the 1.2% (November 2011 estimate) to 0.9%. Although Britain’s GDP contracted by 0.2% in the final 3 months of last year, the specialists think that the nation will manage to avoid technical recession or, in other words, 2 consecutive quarters of negative growth. According to the CBI, British growth will accelerate to 2.0% in 2013. The economists say that in the quarterly basis growth will remain fragile in the first two quarters of this year (0.2%, 0.2%), improving modestly in the second half of the year (0.6%, 0.5%), as inflationary pressures ease. The latest forecasts show inflation falling back towards target levels (2.2%) in the fourth quarter of 2012 and then remaining close to the BOE’s 2.0% target throughout 2013. The growth will be driven by trade and business investment. Household consumption, however, will be under pressure from modest wage growth and continuing high unemployment. Later this week in the UK On Wednesday the Bank of England will publish its latest quarterly Inflation Report with update forecasts for growth and inflation. The BoE Governor Mervyn King will give press conference the same morning. As the Monetary Policy Committee (MPC) increased asset purchases by 50 billion pounds to 325 billion pounds on Thursday, the forecasts might continue showing lower inflation in the medium term. On Tuesday the Office for national Statistics will release January inflation data. The CPI growth is expected to slow from 4.2% (y/y) to 3.6%. King will have to write a letter to the Chancellor, explaining why inflation is more than one percentage point above the 2% target.

UBS: short-term outlook for USD/JPY Analysts at UBS note that the greenback has posted its biggest weekly advance versus Japanese yen since the Bank of Japan’s record intervention at the end of October 2011. USD/JPY rose from the 76.50 area on Monday to Friday’s peak at 77.80 yen. The pair went up due to the general strengthening of US dollar as well as on the speculation of potential intervention of Japan’s monetary authorities. Never the less, the specialists claim that USD/JPY may find itself under pressure in the upcoming weeks. According to UBS, the outlook for the pair is mixed: on the one hand, the economists expect inflows into yen from semi-annual coupon payments of US T-bonds holders and some kind of repatriation due to the Japanese financial year-end; on the other, the Bank of Japan may further ease its monetary policy. The bank thinks that USD/JPY isn’t likely to rise above 80 yen unless US Treasury yields can break significantly higher.