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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 for the second consecutive weak. Net shorts account for around 141K contracts, down from the previous week’s total of 158K. • British pound shorts increased from 26K contracts on January 31 to 33K contracts on February 7 after 2 weeks of improvement. • Japanese yen net longs declined from 57K contracts reported on January 31 to 55K as the data on February 7 showed. Yen speculative positions are still just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K. • Swiss franc net shorts declined from 11K net short contracts on January 31 to 9.7K contracts on February 7. The shorts decrease for the third consecutive week. • US dollar long positions were reduced from a total long position of $14.22 billion on January 31 to $10.63 billion on February 7. 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.

Yen weakened on Greek news and Japan’s data Japanese yen fell as the risk sentiment improved due to Greek Parliament’s approval of the austerity measures reducing demand for yen as a safe haven. In addition, the data released today showed that Japan’s economy contracted in the final quarter of 2011 more than expected undermined by the weakened exports: the nation’s GDP shrank by 2.3% (y/y) versus the median forecast of 1.3% decline. That made the markets see greater possibility of Japan’s intervention as it seems quite evident that stronger yen’s affecting Japanese exporters. As a result, traders are cautious to go long on JPY. Bank of Japan meets today and tomorrow and more monetary easing steps may be considered. Comments of Japan’s officials Prime Minister Noda: Japan does not intervene with specific forex levels in mind. Finance Minister Azumi: usual statement about decisive action when necessary. Analysts at Commerzbank note that yen has been trading weaker again recently due to the verbal interventions of Japanese politicians, debates about the nation’s 2011 trade deficit and the smallest current account surplus in 15 years. In their view, as long as markets keep focusing on the deterioration of the trade and current account balances USD/JPY will likely remain supported. The pair USD/JPY is trading in the 77.70 yen area up from 76 yen at the beginning of February. The pair EUR/JPY reached 103 yen zone up from 100 yen earlier this month.

Greek Parliament approved austerity measures Greek Parliament approved austerity measures needed to secure an international bailout having voted 199 to 74. The situation in Athens is tense as people get involved in disorders protesting against such decision with 10 buildings were set ablaze at the center of the city The adopted measures account for about 7% of Greek GDP over three 3 and include a debt swap that would shave 100 billion euro off more than 200 billion euro of privately held debt. Prime Minister Lucas Papademos: “It is up to us, our vote, whether the country will remain in the euro or be led to a disorderly default. Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy.” In March Greece faces 14.5 billion-euro bond payment. As for the riots, Papademos noted: “Vandalism, violence and repression have no place in democracy and won’t be tolerated. In such critical times we have no luxuries for such conflict.” The next step is the meeting of the euro zone’s finance ministers on Wednesday, February 15. The region’s finance chiefs are to approve the second aid package. The pair EUR/USD returned up to the levels in the $1.3259 area after sliding to $1.3155 on Friday ahead of the vote. Resistance at $1.3260 and sell orders not far from there will likely limit further advance of the single currency for some time.

Aussie may be overvalued Adrian Lee, chief investment officer at currency portfolio manager Adrian Lee & Partners, thinks that Australian dollar is overvalued versus the greenback. Mr. Lee is sure that Australia’s currency will remain strong due to high demand for commodities and growing emerging market economies. However, the specialist doesn’t recommend investors to buy Aussie at the current levels in the $1.0800 area. In his view, one should wait until AUD/USD weakens to $1.0500 and open longs there.

Euro renewed 2-month highs, all eyes on Greece The single currency rose to 2-month maximums versus the greenback testing the levels above $1.3300. The market keeps expecting Greek deal to come: to receive 130 billion-euro ($173 billion) second bailout from the Troika (the European Commission, the ECB and the IMF) the nation’s policymakers have to reach an agreement on spending cuts. According to an e-mailed statement from the office of Greek Prime Minister Lucas Papademos, the Prime Minister and the leaders of the three parties supporting the government “agreed on all the points of the program with the exception of one which requires further elaboration and discussion” with the lenders. The exception seems to be pension cuts. The ECB will announce today its interest rate decision (at 12:45 p.m. GMT). The consensus forecast shows that the central bank will keep the rates unchanged. After that euro-area finance ministers will meet in in Brussels. Analysts at BNP Paribas claim that the pair’s EUR/USD rate has already largely priced in an almost done agreement on an aid package for Greece. However, the specialists expect euro to make a knee-jerk bounce to $1.3500 or $1.3600 as more euro shorts are stopped out. At the same time, sells-off might soon begin as euro will find itself under pressure due to the region’s weak growth prospects and the ECB’s loose monetary policy.

Commerzbank: comments on NZD/USD New Zealand’s dollar keeps strengthening versus the greenback. The currency is trading within an uptrend since the middle of December. Analysts at HSBC claim that kiwi’s dynamics will depend on euro’s performance and, consequently, the result of Greek deal. Specialists at Commerzbank say that support for NZD/USD lies at $0.8248 (uptrend channel support line). As long as the pair is trading above this mark, the outlook for kiwi is bullish with $0.8400 and $0.8426 in focus, while the decline below this level will trigger the fall to January minimum at $0.8155. The next important data release: New Zealand’s unemployment level later today.

Morgan Stanley: sell GBP/USD Analysts at Morgan Stanley recommend investors selling British pound versus the greenback. The specialists advise to place stops for GBP/USD at $1.61 and look for the pair’s decline to $1.5460. According to the bank, sterling will be under pressure due to 2 factors: UK economic weakness and Bank of England’s quantitative easing – Morgan Stanley expects the BOE to announce tomorrow another 50 billion pounds of bond purchases.

Greek deal speculation encourages euro The single currency surged versus the greenback setting new daily maximum at $1.3197 after Reuters reported that “Greek government is drafting agreement on bailout deal to be put to political leaders for approval later today” citing the words of the unnamed government official. Analysts at BNP Paribas claimed that “the whole focus on austerity measures is that it’s the prerequisite for the second bailout package. It would be a step closer to everything fitting in to place. The market has reacted very positively.” Resistance for EUR/USD if found at $1.3200 and $1.3225 (January 30 maximum).

Will the ECB lower rates? The European Central Bank meets this Thursday. The majority of the economists expect the ECB to keep the borrowing costs unchanged. Some specialists, however, think that the central bank may cut its benchmark rate from the current level of 1%. The arguments for the ECB’s staying on hold: better-than-expected key economic indicators released so far in the euro zone, successful bond and T-bill auctions in Germany and peripheral nations, positive impact of ECB’s LTRO which helped to increase liquidity. The arguments for the ECB’s rate cut: austerity measures affecting the European economy and creating the threat of the region’s recession, the expansion of the central bank’s balance sheet as a result of the LTROs, unresolved negotiations in Greece. Analysts at UBS think that the ECB will reduce interest rates. In their view, EUR/USD will stay under pressure ending 2012 at $1.1500.

Jordan: SNB won’t allow franc to strengthen ТThe Swiss National Bank’s interim president Tomas Jordan said today that the central bank will not tolerate a breakdown of the CHF 1.20 threshold. According to Jordan, the SNB is more than ever “committed to defending the cap” and can’t allow further appreciation of the national currency as strong franc affects Switzerland’s economy. To do that the central bank is ready to buy unlimited amounts of foreign currencies. The main risks come from further escalations of the euro zone’s debt crisis. The pair EUR/CHF is trading in the positive zone, right below the daily peak at 1.2087. Resistance for euro is found at 1.2109 (January 25 maximum) and 1.2128 (January 13 maximum). Support for the pair lies at 1.2053 (200-day MA) and 1.2028 (February 1 minimum).

Japan conducted stealth intervention in November Japanese yen declined versus US dollar and the single currency as the government data showed that Japan conducted stealth intervention in November in order to weaken the national currency. Stealth intervention is carried out without any official announcement from the finance ministry. Japan’s Ministry of Finance reported today that the nation sold 1.02 trillion yen ($13.6 billion) against the dollar in markets on the first four days of November in addition to an 8.07 trillion-yen sale on October 31. Finance Minister Jun Azumi said he won’t rule out any options to curb the currency’s appreciation. Analysts at Bank of Tokyo-Mitsubishi UFJ claim that yen’s drop reflects the increasing risks that the Japanese authorities may intervene again to make yen depreciate. Specialists at Commerzbank think, however, that interventions won’t reverse major USD/JPY downtrend as their effect seems to be short-lived.

UBS on SNB’s policy options There are 2 things to note about Swiss franc: 1) Hopes that that Swiss National Bank lifts up the floor for EUR/CHF from 1.2000 to 1.25/3000 in order to fight deflation crushed on December 15, when the SNB left the peg unchanged. 2) The market started worrying about the sustainability of the peg after former central bank’s President Hildebrand resigned. Strategists at UBS claim that although the SNB interim president Tomas Jordan pledged to defend EUR/CHF minimum, the central bank is under pressure due to a lot of stops placed below the threshold: if franc strengthens, it may be very difficult for the SNB to act against the market. However, the central bank will try to do its best as its credibility is at stake, thinks UBS. The specialists think that the SNB will lift up the floor in the second half of 2012 to 1.3000. The bank recommends watching Switzerland’s CPI figures due on Monday.

Greece: negotiations seem endless The single currency is under pressure versus the greenback, unable to resume recovery from January minimum at $1.2625. The pair EUR/USD has so far been consolidating in the $1.3035/1.3225 area. The bias is still bullish. On the upside, if euro rises above $1.3233, it may get to $1.3375 (December 12, 2011, maximum). On the downside, below support at $1.3075, the pair may drift to $1.2856/75 (December 29, 2011, minimum/January 2011 minimum). Investors are worried that the Greece’s policymakers may fail to reach an agreement on terms for a second aid package, which is a condition for the second bailout. Today Greek Prime Minister Lucas Papademos will resume talks with the heads of 3 political parties in his interim coalition government. In addition, Papademos begins today a second round of negotiations with the Troika – the European Commission, the ECB and the IMF. Analysts at Westpac think that there will be a lot of problems and shocks before the Greek situation is resolved, so they are bearish in euro. The single currency lost 4.5% during the last 3 months.

RBA left the rates unchanged Tuesday, February 7, 2012 - 05:45 Australian dollar surged to the 6-month maximum versus the greenback at $1.0809 as the Reserve bank of Australia surprisingly decided to keep the rates unchanged at 4.25%, while the market was looking forward to a cut. For now the pair AUD/USD has returned back to the levels in the $1.0780 area. The RBA Governor Glenn Stevens noted that “with growth expected to be close to trend and inflation close to target, the board judged that the setting of monetary policy was appropriate for the moment.” Analysts at RBC claim that the central bank “has left the door open for a rate cut going forward, but the onus is going to be on the data.” Economists at ANZ think that the RBA is showing no signs of any immediate policy easing. According to the specialists, the policy statement was neutral, while the RBA made little mention of bank funding costs and won't incline to easing unless the global outlook seriously changes. The RBA lowered costs both in November and December by 25 basis points. The majority of the economists expected the central bank to lower the borrowing costs.

Bullish euro forecast? Really? Analysts at Bank of New York Mellon think that the dynamics of the pair EUR/USD will depend more on dollar’s prospects than on those of euro. The specialists think that as US economic data tends to improve that will encourage global risk appetite. As a result, the greenback will be widely used as a funding currency for the carry trade: investors will borrow in US dollars in order to invest in higher-yielding overseas assets. BNY Mellon thinks that American currency will get under pressure, especially in the second half of the year. According to the bank, EUR/USD may rise to $1.40 by the end of 2012 and maybe even to $1.45. It seems quite unusual to read such bullish euro forecast, don’t you think?

Forecasts for January NFP figure US Non-Farm payrolls data for January is released today at 1:30 p.m. GMT. Bloomberg median forecast: +140K Reuters’ median estimate: +150K Prior three months: December: 200K November: 100K October: 110K ADP Non-Farm Employment Change: +170K vs. +292K in December. Initial jobless claims 4-week MA: 375.8K vs. 374K at the end of December. Challenger January job cuts: -53.5K vs. 18-year average of -101K. Citigroup expects NFP to add only 100K. The bank underlines that the good outcome would only reinforce the recent trend of good US data, while a weak payrolls number could signal that expectations have begun to adjust. Analysts at Ueda Harlow think that if US labor market figures turn out to be good and stocks rise, investors will get out of the dollar because of the low rates.

Analysts’ comments on SNB’s floor The European currency has so far approached the critical level versus Swiss franc at 1.20. Swiss National Bank interim President Thomas Jordan expressed resolve to defend EUR/CHF floor set in September with all efforts. Here are the analysts’ comments on this issue. Swissquote Bank: “We’re seeing a test of the floor. If European policymakers make a deal, get Greece the money, and if markets cheer on Monday, the SNB is going to wipe the sweat off its brow. That’s the primary determinant.” Never the less, “already there’s a feeling that the longevity of the floor is highly questionable given what we’re hearing out of Europe. There’s also a question about Jordan’s commitment to the floor. Hildebrand had become a figurehead, the guy up front and there’s a feeling of less control.” Citigroup: “SNB will defend the floor at any cost”. RBS: “The closer we get, the more excited markets become, and if we touch 1.20, the SNB should be ready to act. It’s obviously watching very closely.” Standard Bank: “If the euro-franc is sitting just above 1.20 and there’s a shock within the euro zone such as a Greek pullout, the euro could easily plunge through this barrier almost before the SNB has had time to react.” Commerzbank: “Consumer prices are 0.7% below last year's levels. Excluding energy prices the figure even reaches 1.1%. If the SNB is breaking out in a cold sweat this is more likely to be caused by concerns about deflation. The SNB would be pleased about any franc it can create by intervention.”

Euro’s affected by the Greek uncertainty The lack of agreement between Greece and its creditors is weighting on the rate of the single currency. The weekend approaches, but the uncertainty remains strong. Analysts at Mizuho claim that Greek creditors have no incentive to voluntarily agree on a debt write-down, so it would be very difficult for the nation to reach the deal with the bondholders. The specialists say that EUR/USD should fall below $1.20. The single currency may show the weekly decline as it’s trading in the $1.3150 area, below Monday’s opening at $1.3222. Analysts at RBC Capital Markets think that the downtrend will become evident if euro closes the day below $1.3028 (February 1 minimum). That would mean that the pair has topped and will be targeting $1.2875. On the upside, the upward move will be confirmed by the pair’s close above $1.3220. In this case, EUR/USD will head to $1.3291 and then to $1.3469.

Morgan Stanley cut EUR/USD forecast Analysts at Morgan Stanley lowered their forecast for EUR/USD’s minimum this year from $1.20 to $1.15. The specialists note that ECB’s expanded its balance sheet and expect more easing from the central bank. “We believe that the relative performance of money multipliers will be a significant driving force for currency markets in the coming year. We see the ECB liquidity as a negative for the EUR,” said the economists.

Lloyds: EUR/CHF will breach SNB’s floor Analysts at Lloyds Bank believe that the single currency may break the floor versus Swiss franc set by the Swiss National Bank in September at 1.2000. The specialists claim that the long-term chart still shows that EUR/CHF may drop to 1.1311 before the 4-year downtrend is over. In their view, the pair has so far tested trend resistance on the monthly chart, but didn’t manage to break above. According to the bank, resistance for the pair for the month end is at 1.2490, while support lies at 1.1274 (monthly Ichimoku conversion line).

Get ready to sell euro The negotiations between Greece and its private creditors are still going. On January 31 Greek Prime Minister Lucas Papademos claimed that the nation will try to make the agreement reached by the end of the week. Bloomberg reports that there’s speculation that Athens managed to persuade bondholders agree to lower coupon on the new 30-year securities from 4.25% to 3.6%. The hopes of soon Greek deal allowed the single currency to gain despite all the worries about the euro zone’s future. At the same time, many experts say that when the deal is actually reached, one should sell euro. Analysts at BMO Capital claim that the Greek negotiations could continue into March, when Greece has a big bond payment due. The specialists are also deeply concerned about Portugal’s fate. The yield on the nation’s 10-year bonds is above 15% after Monday’s peak of 17.4%. According to BMO, investors should sell EUR/USD at $1.3185 with stopping at $1.3285 and targeting $1.2885. Those investors who would rather wait for a potential rise on news of a Greek deal can just adjust the trade levels to reflect the same 3:1 ratio of target to stop, says the bank. Analysts at TD Securities point out at the risk of euro’s decline. Bank of New York Mellon thinks the success of the Greek deal is already prices in euro’s rate and there won’t be much of an advance. Westpac keeps expecting move up to $1.3400 to sell there.

Yen advances, talks about potential intervention Japanese yen keeps strengthening versus the greenback for the 6th day in a row. The market's speculating about potential Japan’s currency intervention and further monetary easing by Bank of Japan – this talk may provide USD/JPY some support keeping it from falling much below 76 yen. BOJ Deputy Governor Hirohide Yamaguchi repeated today that Japanese central bank is ready to act as the European debt crisis still poses a high threat to the global markets and economy. The nation’s Finance Minister Jun Azumi and Economy Minister Motohisa Furukawa spoke about the necessity to overcome deflation. Azumi underlined that “speculative moves are increasing in the market and we can’t overlook them” signaling that the Federal Reserve is partly to blame for yen’s recent advance. Strategists at Bank of America Merrill Lynch think that Japanese monetary authorities may intervene if USD/JPY falls below 75 yen in order to save the national exporters. Last year Japan sold 14.3 trillion yen ($187 billion). Never the less, analysts at JP Morgan believe that yen-selling intervention is highly unlikely even if the pair renews the record minimums as the United States strongly criticizes Japan's unilateral interventions. At the same time, Nomura Research Institute argues that Japan has to abandon the intervention approach as stronger yen makes lower the cost of fuel imports – a very important expense item for Japan given its current nuclear capacity issues.

AUD surges, Gillard’s comments Australia's Prime Minister Julia Gillard claimed today that the rate of the national currency versus the greenback will likely remain relatively high during the next several years. In her view, European debt turmoil made investors regard Australian dollar as a global safe haven for the first time in its history. As the euro zone’s issues are far from over, one should expect Aussie to remain strong. The nation still has the best triple-A credit rating. Last year offshore holdings of Australian government bonds increased to 80%. The pair AUD/USD rose by around 80% since 2008. The Prime Minister claimed that Australia’s economic outlook is positive and that the government is able to fulfill its pledge and deliver budget surplus in 2012-2013. Returning a budget surplus will ensure that the central bank has room to ease monetary policy if needed. AUD/USD bounced today to $1.0700. Analysts at Westpac think that Aussie is overvalued above $1.6000. The specialists underline that AUD/USD traded above $1.05 only for 1.4% of days since the 1983. In their view, Aussie may retrace to $1.0300 in near term, though the possibility of the Fed’s QE3 and additional stimulus from the ECB has potential to push the pair above $1.0800. The majority of economists believe that the Reserve Bank of Australia will reduce interest rates on Tuesday, February 7, though Aussie may show little reaction.

Westpac: sell AUD/NZD As Greece is trying to reach agreement with its private creditors, the market became worried about the situation in Portugal. Analysts at Westpac don’t think that Portugal is an immediate concern, though they admit that one has to be cautious about that. In their view, by the middle of the year the discussion about whether this nation will need the second bailout like Greece will be heating up. For now, the specialists say that it Greek deal is made and EUR/USD rises to $1.3400, one has to sell the single currency. At the same time, the bank underlines that the uncertainty surrounding the Greek negotiations and the prospect of the Fed’s Chairman Ben Bernanke’s testimony on Thursday makes it hard to trade EUR/USD, so one may better sell Australian dollar versus New Zealand’s dollar at 1.2930 stopping at 1.3115 and a targeting 1.2650. Westpac expects the Reserve bank of Australia to cut interest rates new week. In addition, “there has been renewed interest over the weekend of sovereign wealth funds buying kiwi assets”, say the analysts.

Nomura: forecasts for euro, yen and Aussie Analysts at Nomura claim that as the US and European macroeconomic data has so far improves reviving global market’s sentiment, negative risks for the euro area subsided. As a result, the bank revised up its currency forecasts. The specialists expect EUR/USD to trade at $1.20 by the end of the second quarter, at $1.23 by the end of the third quarter and finish 2012 at $1.25. In their view, the pair USD/JPY will end Q2 at 80 yen, Q3 as well at 80 yen and Q4 at 81 yen level. Nomura thinks that AUD/USD will reach $1.05 by the end of Q2, $1.07 by the end of Q3 and finish 2012 at $1.08