ryuroden

RBC: good news are already priced in euro The single currency has been strengthening so far even without the resolution of the Greece’s negotiations with its private creditors. Analysts at RBC Capital Markets think that when Greek debt deal is reached, we won’t see much of euro’s advance as most of the good news for EUR is already priced in. In their view, austerity measures will cause severe slowdown of the region’s economy putting euro under negative pressure. The specialists propose going short on EUR/GBP at 0.8450 stopping at 0.8625 and targeting 0.8100. According to RBC, British economic outlook seems better than the euro zone’s one as the economists expect UK GDP to gain 1% this year, while the European economy will likely stagnate.

Dollar may strengthen versus Japanese yen Many experts began speaking about the reversal of US dollar’s downtrend against Japanese yen claiming that American currency may be supported by rising global equities, investment outflows from Japan, the Asian nation’s first in many years annual trade deficit as well as technical factors. More and more options traders start betting on dollar’s advance. Analysts at Royal Bank of Scotland think that the greenback will be slowly but surely rising versus Japanese yen. In their view, USD/JPY will reach 80 yen by March. Strategists at Bank of Tokyo-Mitsubishi UFJ note that as the risk sentiment revives investors will seek for profit going away from low-yielding Japanese currency. Some experts make bolder judgments and foresee more cardinal changes. For example, currency strategists at Wakabayashi claim that the 40-year cycle of yen’s appreciation from 357.41 yen per dollar in August 1971 to the record maximum of 75.31 yen per dollar on October 31, 2012 has finished. Note that 4 years ago these specialists predicted that dollar bottom around 74 yen in February 2012 and then recover. In their view, USD/JPY will rise to 180 yen by 2025. Analysts at Citigroup say that a move toward 100 yen by the end 2013, to the levels last seen in 2009, “may not be as incredible as it sounds today.” All in all, 40-year trend is a too strong tendency to analyze now. One may speak about a reversal like that only if USD/JPY gets above 88.70 yen. In the foreseeable future among the things to watch there is US economic momentum, Japanese investment flow trends and the nation’s trade balance. The greenback’s appreciation will likely be gradual as the Federal Reserve aims to keep interest rates at the record minimum until the end of 2014.

Danske Bank: EUR/USD forecast revised upwards Analysts at Danske Bank revised upwards their forecasts for the single currency versus the greenback. The specialists think that the downside risks for EUR/USD have decreased due to the dovish Fed’s statement, the positive impact of ECB’s 3-tear LTRO and extensive short positions on euro. According to the bank, the pair will trade at $1.30 in 3 months, $1.32 in 6 months and $1.36 in a year. At the same time, Danske urges investors to be cautious and hedge their long euro positions as downside risks to the global business cycle continue to translate into downside risks for euro.

J.P.Morgan: sell CAD/JPY Amid all talks about the euro area, don’t forget that a piece of traditionally watched US data is due on Friday: Non-Farm Payrolls figures are released on February 3 at 1:30 p.m. GMT. The consensus forecast is a 156K increase. Payrolls rose by 200K in December. Economists at Deutsche Bank think that American economy has added 210K jobs in January. Analysts at J.P. Morgan are less optimistic. In their view, the reading will be equal to 150K. However, J.P. Morgan thinks that even such number will be risk-on. In these circumstances the specialists recommend investors buying Canadian dollar versus Japanese yen at 75.00 stopping at 73.50 and targeting 79.50. As the reasons for such trade the bank names interest rates differential and rising commodity prices supporting loonie, while Japan posted first annual trade deficit in 31 years.

USD/CAD: upwards or downwards? At the end of last week the greenback hit the parity level versus its Canadian counterpart for the first time in 3 months. Bearish view Analysts at Morgan Stanley believe that USD/CAD will breach the 200-day MA in the 0.9955 area and become vulnerable for a decline to 0.9835. Bullish view Strategists at Brown Brothers Harriman, however, note that the pair has been declining for 3 consecutive weeks and say that technical indicators show that the downside momentum for the pair has started weakening. In their view, the pair will be able to bounce by 1% to 1.0135 and then probably to 1.0250/80.

BNP Paribas: comments on EUR/USD The single currency is trading today on the upside versus the greenback on the hopes for a Greek debt restructuring deal as the nation’s Prime Minister Lucas Papademos said that “significant progress” in talks had been made. Resistance for EUR/USD lies at $1.3244 (38.2% Fibonacci retracement of the euro's decline from October to January). Analysts at BNP Paribas claim that if the pair manages to overcome this level, it will rise towards $1.3500 on the short-covering. The specialists note, however, that such outcome will be possible only if Greece reaches the ultimate agreement with its private creditors. In addition, it’s the end of the month, so the managers may sell UD dollars to adjust their portfolios. At the same time, bear in mind that the Greek debt talks have yet to be resolved and the market seems really worried about Portugal’s future.

EU summit: Europe’s stuck in tensions European leaders met in Brussels on Monday to discuss the region’s debt crisis and other issues. Analysts at UBS claim that the lack of positive surprises at yesterday’s EU summit may lead to further disappointment of the market. In their view, “the positive news flow markets have enjoyed since the beginning of the year is proving hard to sustain and there will be far bigger challenges up ahead”. Euro zone’s future actually seems quite challenging: Britain’s Prime Minister David Cameron and French President Nicolas Sarkozy disagree on everything from the new treaty on tighter fiscal rules – which only Britain and the Czech Republic of the EU's 27 countries won't join – to a financial transactions tax, a single EU patent and industrial policy, reports Reuters. Among other sources of tension – the dissatisfaction of Poland and other several east European countries which aren’t fully included in euro zone summits (Poland. Hungary, the Czech Republic and Slovakia aren’t the members of the currency union, but they don't want to see Europe divided and want to attend the meetings) and concerns of Spain and other peripherals on the negative effects of severe austerity measures they have to conduct (Spain is tasked with reducing its budget deficit from 8% of GDP to 4.4% – the target almost impossible to reach for the stumbling economy). European finance ministers are meeting on February 12-13.

UBS: US dollar won’t decline much Analysts at UBS note that last week we saw an improvement of the market’s risk sentiment due to stronger-than-expected readings of some key euro zone’s indicators promises of the deal between Greece and the private creditors, successful bonds and T-bill auctions in peripheral euro zone debt markets (except worried about Portugal). In addition, the Fed decided to leave the interest rates at “exceptionally low” levels until late 2014 and indicated that further quantitative easing is possible if US economic fundamentals worsen. All that had negative impact on the greenback. Analysts at UBS, however, claim that as US GBP gained 2.8% in the fourth quarter on the annual basis after adding 1.8% in the previous 3 months (revised down), QE3 seems unlikely. As a result, the specialists think that the dovish stance of the Fed may be already priced in the greenback’s rate, so one shouldn’t become bearish on American currency. The specialists advise investors to pay attention to Ben Bernanke’s testimony to Congress on February 2.

Canadian dollar: prospects and forecasts Loonie and other commodity currencies Many experts think that Canadian dollar will outperform Australian and New Zealand’s dollars against their American counterpart. The explanation of this assumption seems to be simple enough: economic growth of the United States, Canada’s main trading partner (about 75% of Canadian exports go to the US) is gaining pace, while the growth of Chinese economy, Australia’s main trading partner (about 25% of Canadian exports go to China) is slowing down. According to Bloomberg’s purchasing power parity analysis, Australian currency is overvalued by 28.6% against USD, while Canada’s dollar is undervalued by 6.2%. The correlation between the currencies which tend to trade in tandem with stocks and commodity prices is declining: CAD weakened by 2.3% in 2011, while Australian and New Zealand’s currencies finished the year almost unchanged. Canada’s positive economic outlook Canadian growth data seems optimistic enough: leading economic indicators gained in December for the sixth month in a row, while the nation’s GDP added 2.7% in October from a year earlier (US economy increased in the fourth quarter by 2.8% y/y). The odds that the Bank of Canada will loosen its monetary policy declined. In addition, Canada’s trade balance switched to surplus of C$1.07 billion in November due to the increased exports of energy and automobiles. Data from Canadian Imperial Bank of Commerce shows that the demand for Canadian securities more than doubled last year from 2008’s record C$11 billion. Strategists at Nomura Securities have found out that for every C$10 billion of net investment into Canada’s bond market, loonie strengthens by 0.7% versus the greenback. USD/CAD prospects At the end of last week loonie reached the parity versus the greenback for the first time in almost 3 months. On January 26 the pair USD/CAD declined to 0.9980. Analysts at RBS claim that US economic outlook looks reasonably good and that has not yet been reflected in Canadian dollar’s rate. In their view, the currency is attractive because it hasn’t run up as much as some of the other commodity currencies. Economists at UBS are positive on loonie in the longer term. At the same time, the specialists warn that the problems in the euro area and Iran may worsen risk sentiment and make USD/CAD return to 1.04 before starting to decline. However, not everyone believes in loonie’s appreciation. Canadian banks, for example, aren’t bullish on the national currency. Toronto-Dominion Bank, the most bearish, expects loonie to weaken to C$1.09 per US dollar, while Bank of Nova Scotia, the least bearish, thinks that Canadian currency will decline to C$1.02 per dollar.

BMO: buy US dollar versus Japanese yen Currency strategists at BMO Capital think that though Japanese yen reached maximums in 2011, the things will be different this year. The specialists underline that last year Japan had positive balance of payments amid low global interest rates. This month, however, the nation announced that it ran a trade deficit in 2011 due to the increased energy import. According to BMO, this will likely become a trend. Moreover, Japan's debt exceeds 200% of GDP and the Bank of Japan has signaled that it wants to invest overseas which means buying foreign currencies. The bank recommends buying USD/JPY stopping at 74.90 and targeting 81.45. The specialists claim that this way one may both play the range and take advantage of the changing dynamics for 2012..

Euro’s on the downside ahead of EU summit The single currency declined versus the greenback ahead of EU summit later today. The European leaders meet in Brussels to make the final amendments to the deficit-control treaty and endorse the statutes of a 500 billion-euro ($659 billion) rescue fund to be set up this year. According to Financial Times, Greece’s finance minister Evangelos Venizelos rejected a German plan for the euro zone to impose to create a European Union “budget commissioner” with the power to veto Greek tax and spending decisions, saying it would improperly force his country to choose between “financial assistance” and “national dignity”. At the same time, euro found some support on the speculation Greece and its private-sector creditors will reach an agreement on a debt-swap plan this week. AUD/USD fell as Fitch Ratings placed Australia's four biggest banks on credit watch with negative outlook, though it’s necessary to note that the move only brought Fitch in-line with other major ratings agencies. In addition, many experts expected the People’s Bank of China to reduce reserve requirement ratio this weekend at the end of the New Year holiday but Chinese monetary authorities didn’t loosen monetary policy. If the PBOC cut RRR, this would encourage spending and boost demand for commodities. Important events today: • EU Economic Summit; • Italian will sell debt maturing in 2016, 2017, 2021 and 2022. On January 27 Fitch ratings lowered the ratings of Italy, Spain, Belgium, Slovenia and Cyprus, saying they lack financing flexibility in the face of the regional debt crisis.

Deutsche Bank, Goldman, Nomura on euro Analysts at Deutsche Bank think that the greenback will maintain its safe haven status, while the European currency will remain the “guiding light for the biggest risk swings”. In their view, the Fed’s actions will reinforce the risk-on sentiment and lead to the growth of stocks and higher-yielding currencies, while short positions on euro will squeeze. The bank claims that the fair value for EUR/USD after that squeeze will be at $1.3500. It will be possible to speak about some real recovery only if euro manages to rise above this level. Economists at Goldman Sachs note that the Federal Reserve’s statement may provoke fresh reserve diversification from US dollar into other currencies making American currency decline. According to the bank, euro and yen are the most likely candidates to benefit from such flows. At the same time, specialists at Nomura point at the fact that although some euro-zone asset markets appear to be recovering, euro-zone residents start to put capital to work in the US and elsewhere. In their view, this will put euro under the negative pressure versus mote counterparts and not just the greenback.

Euro’s rebound stalled The EUR/USD is currently trading in the $1.3100 area, down from this year’s maximum at $1.3184. The negotiations between Greece and its private creditors continue. The nation needs to make massive debt repayments in March, so it needs to make a deal soon. According to Olli Rehn, EU economic and monetary affairs commissioner, the deal will be likely at last reached at the weekend. Today euro’s advance stalled on the concerns about another European economy – Portugal. The markets worry that the country may follow Greece and seek another bailout. Yields on Portuguese government bonds renewed historical maximums – the 10-year yield passed yesterday above 15% level (today the yield is just below this mark). Analysts at ING warn that Portugal may trigger euro’s decline in February. The troika will be reviewing Portugal's adherence to its bailout package, while bond investors are already pricing in Portuguese debt’s restructuring. The specialists recommend selling euro at $1.3130/50 expecting it to break of channel support at $1.3020. Another blow for single currency dropped after US advance GDP disappointed the market: American economy grew at a 2.8% annualized rate in the fourth quarter below the expectations of 3%-growth.

Deutsche Bank: SNB may intervene any day Analysts at Deutsche Bank claim that in the near term the Swiss National Bank may start aggressive sell-off of Swiss franc versus the single currency trying to protect the floor for EUR/CHF. The specialists warn that the SNB’s intervention may occur any day. In their view, if Swiss monetary authorities act aggressively, investors will seek to sell franc in anticipation of central bank intervention. The pair EUR/CHF is trading within a very narrow range just below 1.2100 down from December maximums in the 1.2445 zone.

Kiwi keeps rising versus the greenback New Zealand’s dollar keeps rising versus its US counterpart continuing its 6-week advance: kiwi has already strengthened from December 15 minimum at $0.7460 to the levels above $0.8200. The Reserve bank of New Zealand decided this week to leave the rates unchanged at 2.50%, while the Federal Reserve pledged to keep borrowing costs at the record low between 0 and 0.25% until late 2014. New Zealand posted today its first trade surplus in 5 months: the nation’s exports exceeded imports by NZ$338 million ($278 million) in December, while the economists predicted a NZ$50 million deficit. Specialists at Commonwealth Bank of Australia underline that they are seeing ongoing offshore demand for kiwi dollars. In their opinion, New Zealand’s economy is going OK, and certainly some of the individual sectors of the country are doing quite well. Analysts at Westpac believe that NZD/USD may reach $0.8300 in the near term on positive global risk phase. However, the specialists underline that in the longer term they aren’t yet ready to abandon the view that NZD hits $0.7000’s this year. Strategists at Barclays Capital don’t see any signs of the top, so the pair, in their view, may retest $0.8345. According to the bank, support is situated at $0.8120. Never the less, it’s necessary to note that 14-day RSI is in the 76 zone, over the 70 level that signals an asset’s price may have risen too quickly. As a result, analysts at Standard Chartered think it’s natural to assume that there will be a period of consolidation. Strategists at Deutsche Bank also think that New Zealand’s dollar is now a bit overvalued and that its fair value lies at $0.7600. Specialists at Forecast Pte recommend selling Aussie and kiwi on the rallies reminding about the ongoing concerns over Greece.

Westpac: market’s risk sentiment improved Analysts at Westpac Institutional Bank claim that as the Federal Reserve announced that it plans to keep interest rates at the record low minimum until the end of 2014, one may trade on the risk-on sentiment. In addition, the bank expects the ECB to cut rates at the beginning of February and then conduct 3-year liquidity option later that month. This would also contribute to the market’s risk appetite. Moreover, Westpac says that there is potential for more quantitative easing in the UK where GDP contracted in the fourth quarter more than expected. The specialists advise investors to focus on the commodity currencies. In particular, the bank recommends selling British pound versus New Zealand’s dollar in the 1.9200 area, looking forward to the pair’s decline to 1.8700 and stopping at 1.9400.

Bernanke sticks to loose monetary policy The Federal Reserve predicted low interest rates until the end of 2014. The Federal Open Market Committee set formal inflation target at 2%. US central bank claimed that its growth estimate in the coming quarters worsened from “moderate” to “modest”. The Fed’s Chairman Ben Bernanke indicated that another round of quantitative easing remains as option saying that the Fed is “prepared to take further steps in that [easing] direction if we see that the recovery is faltering or if inflation is not moving toward target.” As inflation forecast for 2014 is at 1.6-2% – below the target – the FOMC can easily justify more easing. At the same time, it’s necessary to note that there are some deep divisions within the central bank: 3 out of 17 FOMC officials would like to raise rates this year, and 3 more in 2013, while 2 think the first rise should not come until 2016. Bernanke, however, tried to persuade investors that the date in the FOMC statement is more important and that the committee’s approach will prevail over individual forecasts. Deutsche Bank: “While the Fed’s characterization of the economy in the statement has not changed very much, the comment that conditions are likely to warrant exceptionally low levels for the funds rate ‘at least through late 2014’ is on the surface a major difference from the mid-2013 date given in the last statement.” Citigroup: “In the long and medium term this is all second order. But in the short term, it's more complicated. Investors will want to know what the meaning of "extended" is when Fed officials talk about keeping rates low for an extended period. If they conclude that means 2015 or 2016, it could hurt sentiment.” “Our positioning indicators show short euro position mainly against US dollar rather than on the crosses. That means the greenback is vulnerable. Also investors have discussed euro to death, but have been giving the greenback an easy ride. If they start to worry, American currency could be in for a rough ride in the immediate aftermath of FOMC, even if the long-term implications are limited.” Mizuho: “The Fed’s pledge for a prolonged easing of monetary policy boosted risk-on sentiment. Dollar selling is likely to continue across the board.”

SocGen, ING, JP Morgan about USD/JPY The greenback retreated versus Japanese yen from yesterday’s maximum in the 78.30 yen area to the levels around 77.50 yen after the dovish FOMC statement. Analysts at Societe Generale believe that support at 77.30 will help to contain the decline of USD/JPY. In their view, the pair will once again turn up from this point returning to 78.30 and then rising to October maximum at 79.55 yen. Strategists at ING, on the other hand, underline that if USD/JPY moves below 77.30/40 on sustained basis, the bullish momentum will be lost and the pair will slide to the previous range between 76.00 and 78.25 yen. Specialists at JP Morgan are bearish in the longer term. The bank claims that by the end of the year US dollar will likely fall to 70 yen level if American stocks keep rallying. JP Morgan says that the 5-year US real yields suggest USD/JPY should be around 75 yen

UK economy contracted in Q4 Data released today shows that British economy shrank in the fourth quarter by 0.2%, while the market was expecting only 0.1% contraction. The UK is now dangerously close to recession. The IMF reduced 2012 forecast for UK GDP growth from 1.6% to 0.6%. Britain’s economy is hit by the European debt crisis and austerity measures. Bank of England’s Governor Mervyn King claimed that the economy faced an “arduous, long and uneven” path to recovery but that once it does it will be on a “more sustainable footing than at any point in the past 15 years”. UK Prime Minister David Cameron claimed that “economy grew last year”. “More people in work today than at time of last election... Fall in GDP reflects higher food and fuel prices, euro zone crisis and debt overhang”. Billionaire investor George Soros said at the World Economic Forum which began today in Davos, Switzerland, that “to expect a rebound is unrealistic”. The specialist notes, however, that “Britain is benefitting from not being part of the euro. The outlook for the euro is truly dismal. The EU is undemocratic to the point where the electorate is disaffected and ungovernable”. Analysts at ING think that “UK economic activity is likely to get worse before it gets better, with a technical recession likely to be confirmed by first-quarter 2012 GDP numbers”. “Household spending is constrained by the fact that wages have failed to keep pace with the cost of living for four consecutive years while job insecurity is rising once again”. Economists at RBS note that “the primary source of negative news in Q4 was from the industrial sector where weakness in the UK’s key export markets is certain to have been a key factor, along with the unseasonably mild weather which depressed energy output.”

HSBC: RBA will cut rate in February According to the data released today, Australian consumer prices were unchanged in the fourth quarter of 2011 from the previous 3 months, while the market was looking forward to 0.2% increase. Annualized headline CPI was equal to 3.1%, the lowest level in four quarters. Economists at JP Morgan say that the drop in consumer prices wasn’t surprising given that fact that food price dropped in the last 3 months of the year by 13.4%. Analysts at HSBC think that the Reserve bank of Australia will cut rates on February 7 for the third consecutive meeting due to the worsening labor market, the tense situation in Europe and the global economic slowdown. The specialists note that low inflation will allow the RBA to ease its monetary policy. At the same time, it’s necessary to note that the average of the trimmed mean and weighted median inflation rose in December to 2.6% versus the forecast of 2.4%. As the figure remains within the RBA’s target of 2-3%, it won’t be an obstacle to the rate cut. At the same time, some experts argue that such reading may make the central bank pause after lowering the borrowing costs the next month and take time to watch inflation trend. The pair AUD/USD is consolidating within a rising wedge. If Aussie breaks higher, it will get chance to retest October maximums in the $1.0750 area. At the same time, the likelihood of rate cuts will weigh on sentiment. On the downside the pair will be supported by the 20-day MA at $1.0340. It may be sensible to trade at the edges of this range avoiding the middle.

Japan posted trade deficit in 2011 US dollar strengthened versus Japanese yen as according to the data released today, Japan posted bigger than expected trade deficit in December: the trade shortfall accounted for 0.57 trillion versus the forecast of 0.36 trillion. As this was the third monthly deficit in a row, Japan got annual shortfall for the first time since 1980 equal to of 2.49 trillion yen ($32 billion). Such figures may be explained by the surge of Japan’s energy import after the March 11 earthquake and by a shift of manufacturing overseas, for example, to lower-cost Thailand. As a result, Japan may lose the status as the world’s largest creditor which makes it a safe haven for investment. Though yen will weaken in this case letting the nation’s exporters breathe, it would become much more difficult for Japanese authorities to manage the largest debt in the world. As Japan’s population shrinks, the county, which has been for a long time considered a refuge, may be forced to depend on foreign investors to buy its bonds with the yields rising on the fiscal concerns. Economists at JPMorgan Securities expect the deficit to increase in the coming years. Specialists at Merrill Lynch think that even if the economy picks up, the balance will never return to the days of a 6 or 7 trillion yen surplus. According to the bank, imports of liquid gas from the emerging countries will keep growing and the balance will hover near 0 in the next couple years. However, analysts at Goldman Sachs think that that the situation of deficit is only temporary and that Japan's trade balance will likely return to monthly surpluses in the second half of 2012. In their view, the impact of last year’s disaster will likely fade out gradually, while the global economic cycle is expected to slowly recover. The specialists also claim that strong yen doesn’t have extraordinary impact on the nation’s exports as the latter are not declining more than global economic momentum even with the yen's continued rise. Japan's decline in overall competitiveness will be gradual due to its high-tech firms. The pair USD/JPY went up from the levels in the 77 yen area where it began yesterday’s trade testing the levels in the 78 yen zone. Analysts at MIG Bank think that the greenback may rise to 78.40, 79.55, 82.00 and then 83.30 yen.

Fed will release federal funds rate forecast Tomorrow the Federal Open Market Committee (FOMC) for the first time ever release its interest rate forecast extending to 2016 including individual rate expectations of the committee members'. The FOMC is trying to make its policy more transparent. In longer term, this new mechanism will provide the Fed with a potentially important tool to influence expectations, and therefore the course of the economy. Economists at Danske Bank think that the Fed might forecast its first hike at the end of 2013. Analysts at Nomura called the coming meeting “historic”. In their view, the market will get “an historic amount of new information to digest”. Although the recent economic data was positive and aroused investors’ optimism, US still faces serious challenges, such as high unemployment and the difficult situation at the housing market. The rate and the Fed’s statement will be published on Wednesday, January 25, at 7:15 p.m. GMT. The Fed’s chairman Ben Bernanke will hold press conference. The Fed funds rate is expected to stay between zero and 0.25% where it has been since December 2008. The majority of the experts don’t think that American central bank will launch another round of bond purchases, QE3.

BarCap: GBP/USD will reverse down Analysts at Barclays Capital note that the upward correction of British pound versus the greenback will likely be over within the next 24-48 hours. In their view, the end of the bullish squeeze will confirm if GBP/USD goes down below $1.5515. The specialists recommend selling sterling on any further advance stopping above $1.57.

Spain: successful debt auction Spain conducted successful debt auction today. Madrid sold: • 3-month bills, 1.4 billion, yield 1.285% (versus 1.735% in December), cover ratio 4.3 (vs. 2.9); • 6-month bills, 1.11 billion, yield 1.847% (vs. 2.435%), cover ratio 6.9 (vs. 4.1). At the same time, it’s necessary to note that the market is starting to get used to good Spanish auction results and doesn't react. EUR/USD consolidated today in the $1.3000 area. Spanish bond yields have eased down so far as the nation’s debt-servicing program is supported by the flood of cheap ECB money along with the bank's regular purchases of Spanish bonds on the secondary market.

Euro has become a funding currency Analysts at UBS claim that the European Central Bank will cut interest rates twice more by 25 bps each in March and April. As a result, the bank maintains bearish longer-term forecast on EUR/USD. Economists at Citigroup think that the ECB will reduce the borrowing costs in the second quarter, while strategists at Bank of Nova Scotia say that the central bank will cut rates to 0.5% by the end of the first quarter. Analysts at Morgan Stanley see a very clear breakdown in the correlation between the euro and risky assets. Euro is increasingly becoming a funding currency – one may significantly benefit from borrowing in euro and investing in Australia’s dollar, Brazil’s real, Mexico’s peso, South Africa’s rand and South Korea’s won. Specialists at Australia & New Zealand Banking Group claim that other currencies which have effectively low or 0 rates, such as the dollar and yen, are facing a slightly better growth profile. According to the World Bank, euro zone’s economy will contract by 0.3% in 2012, while the global economy will add 2.5%.