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Michael Spence: 50% possibility of global recession Nobel Prize winner Michael Spence sees the 50% chance of global economic recession. In his view, the main risks come from Europe and the United States – the combined contraction of their GDPs will affect China’s exports and growth hitting other emerging economies. Spence thinks that though after the 2008 crisis China managed to cushion the blow with a stimulus program, this time it wouldn’t be able to solve the problem that easily: with inflation that has reached 6.5% it would be insane for the nation’s authorities to encourage further credit growth. Wells Fargo, Citigroup: US dollar-positive factors Bloomberg says that US dollar has added 1.2% in August versus a of the developed world’s nine most-traded exchange rates after losing 14% from this time last year through July. Currency strategists at Wells Fargo advise investors to buy the greenback versus Japanese yen and Swiss franc through the end of the third quarter as yen and franc are already very expensive and the Swiss National Bank and the Bank of Japan intervene to stem their gains. At the same time, analysts at Citigroup claim that the currencies of commodity-producing nations such as Australia, New Zealand and Canada lose some of their attractiveness due to the global economic slowdown. In their view, if the commodities and equities keep suffering, one should buy US currency in the short term. According to the data from the Organization for Economic Cooperation and Development, the greenback is undervalued by 47% versus CHF and by 31% against JPY. The OECD also says that USD is 37% below fair value against AUD and 20% versus CAD. Never the less, economists at Royal Bank of Scotland believe that until dollar can demonstrate some independent strength, in particular, until it is supported by stronger economic data, it won’t show much of advance. The bank forecasts the greenback to end the third quarter at $1.45 versus euro and at $1.06 versus Aussie.

Commerzbank: technical comments on EUR/CHF Technical analysts at Commerzbank note that the single currency has broken above 4-month downtrend resistance line at 1.1772 and tested the levels above the 32.8% Fibonacci retracement of the decline from 2010 to 2011. In their view, this means that the pair EUR/CHF has potential for an advance to 1.2346/1.2400 (December 2010 and March 2011 minimums and June 2011 peak). The long-term target for euro is set at 1.2708 (55-week MA). However, in the short run the bank expects the European currency to stall below the psychological resistance at 1.20. In their view, support for the pair is found at 1.1809 (June minimum) and 1.1557 (August 17 maximum). ING: USD/JPY will trade in the 75/85 yen area for 6 months Currency strategists at ING Commercial Banking believe that Japan has so far elaborated a more interventionist approach concerning the appreciation of its national currency. The specialists refer to the steps taken by Japanese authorities – the creation of a credit facility which encourages Japanese corporations to invest overseas and monitoring of open positions at the commercial banks. According to ING, Japan is now more likely to intervene if USD/JPY approaches 75 yen. As US currency remains weak, the analysts expect the pair to trade during the next 6 months between 75 and 80 yen. BMO Capital: trading on hurricanes The Atlantic hurricane season is traditionally lasting from June 1 to November 30, so even though Irene that kept US under a strain last week has passed, there may be other storms. Currency strategists at BMO Capital note that it’s possible to gain on the hurricanes which are likely to go through the Gulf and disrupt oil production. In their view, it’s necessary to catch the moment when the storm begins to build off Africa and start buying the currencies of oil-exporting countries like Canada and Norway.

Noda will become Japan’s Prime Minister Japan’s finance minister Yoshihiko Noda was elected head of Democratic Party of Japan, the nation’s ruling party, and is on his way to take the prime minister’s seat. Tomorrow the DPJ is going to use its majority in the lower house to appoint him as premier to succeed Naoto Kan. The main challenges for Noda will be to help the economy that contracted during the 3 quarters in a row and restore confidence in his party. Noda’s expected to lift up the taxes in order to pay for reconstruction and shore up the welfare system – the policymaker has recently claimed that there should be no retreat from a pledge to double the sales tax to 10% by the middle of the decade. Analysts at Nomura Securities note that this might support Japanese bond market. Japanese authorities plan to spend 19 trillion yen ($248 billion) over the next 5 years to rebuild from the earthquake and tsunami. Strategists at Barclays Capital think that Japan's currency interventions policy won’t change as the DPJ's regime will maintain. However, the specialists say that the situation will change if Noda manages to form coalition with the Liberal Democratic Party and the New Komeito – Kan failed to do that after March 11 earthquake. On August 24 Moody’s Investors Service lowered Japan’s credit rating by one step to Aa3 due to the government’s lack of efforts about reducing the nation’s huge debt. Citigroup is bullish on USD/CHF and EUR/CHF Technical analysts at Citigroup believe that as the pair USD/CHF managed to close yesterday above the 55-day MA at 0.8089, it will be able to rise to the 200-day MA at 0.8921 climbing to the levels last seen in May.

The results of the central bankers’ meeting in Jackson Hole The main message of the central bankers’ meeting that took place in Jackson Hole, Wyoming, this weekend was that monetary policy can’t sustain the expansion of the global economy alone. Federal Reserve Chairman Ben Bernanke called American authorities to improve the situation at the housing market and be careful not to harm the short-term economic growth. Ewald Nowotny, the member of the European Central Bank’s Governing Council, said that the euro zone nations have to expand the bailout fund. August was a rather difficult month for the Fed and the ECB as the central banks were forced to support the economy: the Fed pledged to keep the borrowing costs at the record minimum at least until the middle of 2013, while the ECB began buying Spanish and Italian bonds to ease the concerns about the debt crisis. The IMF Managing Director Christine Lagarde, who took the post in July, warned that the world’s economy is entering dangerous phase. In her view, the risks are higher as the policy makers aren’t determined to take the necessary decisions. The greenback weakened after Bernanke’s speech Here are the key points of the Federal Reserve’s Chairman Ben Bernanke’s Friday speech: - The Fed has a range of tools that it may use to encourage the nation’s economy if needed (though Bernanke didn’t signal QE3). - September FOMC meeting is stretched for 2 days and will take place on September 20-21 (Bernanke may try to take time and convince FOMC, primarily Fisher, Kocherlakota and Plosser, in the necessity of more monetary easing). Analysts at Barclays Capital believe that the decision to lengthen the meeting will keep the market expecting more monetary stimulus. European and Asian stocks are up, the pair EUR/USD reached maximum at $1.4550, though strategists at UBS advise investors to be cautious because euro is facing the risks from German economic slowdown and concerns about euro zone's debt markets.

Jyske Bank: EUR/USD will break the «wedge» Currency strategists at Jyske Bank note that from the beginning of the week EUR/USD remained in range between $1.4350 and $1.5000 ahead of Ben Bernanke’s Jackson Hole speech. However, the latest trend on yield spreads, equities and commodities shows that the pair has strong downward potential. That’s why the specialists recommend selling the single currency stopping above $1.4580 and targeting $1.3855. In their view, euro is trading within the “symmetrical wedge” and will break this formation this week. The bank forecasts that if the Fed’s Chairman announces QE3, EUR/USD will break the model to the upside; otherwise there will be a downside breach. Martin Weale on the prospects of further QE in Britain Martin Weale, the Bank of England’s Monetary Policy Committee member, doesn’t think that it’s necessary to expand the central bank’s emergency 200 billion pound ($326 billion) bond-purchase program now. However, the official says that his opinion may change if UK economy significantly weakened and inflation falls below the 2% target level. According to Weale, more QE will be necessary if the nation’s banks become more reluctant to lend, though he doesn’t believe such outcome is very likely.

The background of Bernanke’s speech All eyes today are on Ben Bernanke’s speech that will take place at 6:00 pm (GMT+4). The market is speculating whether the Federal Reserve’s Chairman signals the third round of quantitative easing or not. Professor Lew Spellman, from the McCombs School of Business at the University of Texas at Austin takes a glance back examining how the Fed’s monetary policy has been changing since 2008. Spellman points out that the Federal Reserve’s approaches towards QE1 and QE2 were quite different: QE1 was a defensive step aimed to contain GDP collapse, while QE2, on the contrary, was an offensive measure. It’s difficult to assess the results of QE2 and definitely say whether this program helped the recovery or not. The clear thing is, however, that the inflation expectations have increased – the main argument of those who don’t expect QE3. At the same time, it’s also important to realize what the general approach of Bernanke is – as his colleagues say, the central banker is a man of action: he would rather err doing too much, rather than too little, when dealing with the consequences of financial crisis. Bernanke is also known for criticizing Japanese monetary authorities in 1999: in his view, the Bank of Japan didn’t do enough to fight deflation and encourage economic growth, while it should have kept interest rates low until inflation picked up and buy government bonds. Commerzbank: EUR/USD prospects after Bernanke Analysts at Commerzbank note that investors are very nervous. If the comments of the Fed’s Chairman sound uncertain, the pair EUR/USD will get under pressure. However, the specialists believe that as Bernanke used weak economy to justify the previous QE steps, there’s little chance that he admit that the strategy of monetary stimulus was wrong. So, it may happen that Bernanke’s views on economy aren’t as pessimistic as many are thinking. In such case the markets will likely calm down and EUR/USD will get some support.

BBH and UBS regard QE3 as unlikely Analysts at Brown Brothers Harriman believe that the although investors’ sentiment has worsened during the last several weeks, the markets will get disappointed as the Fed, in their view, won’t announce the third round of quantitative easing in the current circumstances. According to the specialists, the markets will remain in the risk-off mode and the demand for safe haven currencies will continue being high. Strategists at UBS also don’t expect the QE3. The bank thinks that the Fed will try to reassure investors by outlining the central additional monetary policy tools against the nation’s economic weakness without committing to use them. As a result, that might disappoint dollar bears. The Federal Reserve’s Chairman Ben Bernanke will speak tomorrow at 6:00 pm (GMT+4) in Jackson Hole, Wyoming.

UBS: pound may rise above $1.66 Technical analysts at UBS are bullish on GBP/USD despite the fact that pound didn’t managed today to overcome resistance at $1.6575. In their view, sterling will eventually rise to $1.6618 and $1.6661. The specialists think that the key support for British currency lies at $1.6421.

Jyske bank recommends buying USD/JPY Currency strategists at Jyske bank advise investors to buy the greenback versus Japanese yen stopping below 75.75 and targeting 79.50 as they think that the pair USD/JPY will move gradually up on the expectations of the Bank of Japan’s interventions. Charmer Charts: comments on EUR/USD Technical analysts at Charmer Charts note that if the single currency manages to stay above $1.4330/55 versus the greenback, it will manage to rise to 1.4520. The specialists warn, however, that if the pair EUR/USD slides below 1.4330, it will be poised down to 1.4285.

NAB: Aussie rose versus the greenback Australian dollar rose today versus its US counterpart from the day’s minimum at $1.0385 to the levels in the $1.0500 area. There are 2 reasons for Aussie’s gains: firstly, the better-than-expected Chinese Manufacturing PMI data that brightened the market’s sentiment and, secondly, comments by the Reserve Bank of Australia's deputy governor, Ric Battellino. The HSBC preliminary PMI went up from 49.3 in July to the 2-month maximum at 49.8 in August. Analysts at Bank of Tokyo-Mitsubishi believe that the figures mean that investors don’t need to be too pessimistic about the growth pace in China. Battellino claimed that inflation remains a big concern for the RBA. The official underlined that the strength of the national currency doesn't warrant intervention by the central bank and in the current situation the attempts to weaken Aussie’s rate would bring no results. Economists at National Australia Bank think that such remarks mean that the central bank will stay on hold on the September 6 meeting, while the fixed-income market has been widely expecting about the possible rate cuts.

TD Securities, ANZ: outlook for NZD RBNZ The Reserve Bank of New Zealand's quarterly survey shows that the CPI expectations for the year ahead were 2.94% compared with 3.12% in a similar survey held the previous quarter, while inflation expectations for the next 2 years decreased from 3.00% in the previous survey to 2.86%. Strategists at TD Securities note that during the next 2 years inflation expectations are likely to stay higher than actual inflation. In their view, in September the RBNZ can reverse its emergency 50-basis-points rate cut made in March after a massive earthquake in the nation's second largest city. Then the central bank is expected to stay on hold for several months judging the impact of the overseas economic issues on the outlook for exports and commodity prices. Impact of China’s PMI Analysts at ANZ believe that New Zealand’s currency is supported by the positive preliminary HSBC China Manufacturing PMI data. Investors’ risk sentiment has slightly improved after the Asian stocks performed well. The market players will look for the drivers mainly from the global risk picture. On Wednesday, however, one should watch important 2Q retail sales figures. Technical analysis NZD/USD broke above resistance at $0.8320. According to ANZ specialists, support for kiwi lies at $0.8220. If things go bearish and the pair falls below the psychological level of $0.80, it may drop to the 3-month minimum sliding during the next 2 weeks to its 200-day MA at $0.7868.

Commerzbank: comments on GBP/USD Technical analysts at Commerzbank note that the pair GBP/USD has climbed from the minimums in the 1.6110 area hit at the beginning of August to last week’s maximum at $1.6617. In their view, pound is now going to consolidate at the current levels during the next few days. On the upside, sterling’s attempts will be limited by the resistance at $1.6617.

Commerzbank: comments on USD/JPY On Friday the greenback renewed the record minimum against Japanese yen by falling to 75.94. However, the pair USD/JPY managed to jump above the previous lows in the 76.25/30 area and return to the former trading range, reports Commerzbank. The bank specialists expect American currency to stay there during the coming days. In their view, the bias will be slightly positive.

BNP Paribas, BBH: EUR/USD will pull back down The single currency rose versus the greenback from the levels in the $1.4050 area to the $1.4400 zone. However, currency strategists at BNP Paribas believe that EUR/USD will fail to rise above $1.45. In their view, the pair is struck between $1.41 and $1.45. The specialists note that euro will get under negative pressure in case of weak euro-zone data such as PMIs, ZEW and IFO that are released this week. Analysts at Brown Brothers Harriman claim that as the deterioration of the global economic outlook and renewed fears about European banks strengthened investors’ risk aversion and made stock markets slump last week, the demand for riskier currencies such as euro will be low and the pair EUR/USD will fall to $1.4000.

RBC: euro zone nations lack cooperation Analysts at RBC Capital Markets note that the euro area faces serious political risks. The specialists note that while European nations are supposed to show strong cooperation and coordination, the latest debates about the Greece’s second bailout indicate the opposite. The matter is that Finland that was reluctant of supporting indebted peripheral countries forced Greece to agree to put up collateral in exchange for a bailout loan. This made other nations – Austria, Slovenia, Slovakia and the Netherlands – demand the same from Greece. As a result, Greece will have to spend scarce money on collateral rather than on getting its house in order, while the process of July deal’s implementation stalled. There’s the risk now that other countries who do not receive collateral may not vote in favor of the loan bailout casting doubts on the survival of the currency bloc. Morgan Stanley increased yen forecasts Japanese currency is still very strong staying in the area of 76.40 yen per dollar. Analysts at Morgan Stanley argue that by the end of the year yen will climb even higher and rise to the record maximum versus its US counterpart. In their view, the actions of the nation’s monetary authorities won’t manage to change yen’s uptrend. The specialists revised down their forecasts for the pair USD/JPY from 81 to 74 yen and for and EUR/JPY from 110 to 101 yen. According to the bank, yen remains extremely overvalued relative in the longer term. Citigroup reduced US GDP forecast Analysts at Citigroup lowered US economic growth forecast from 1.7% to 1.6% in 2011 and from 2.7% to 2.15% in 2012. The estimates for the S&P 500 Index’s earnings per share were reduced from $98 to $97 this year and from $105 to $101 next year. The analysts claim that the main reason to cut the outlook for American GDP growth rate was the potential inability of political parties to agree on reducing the budget deficit as well as the fiscal tightening. Citigroup warns that if there’s no agreement, both tax increases and spending cuts larger than expected would be automatically triggered, so that very sharp tightening steps would occur in 2013 and could be sensed in financial market expectations during 2012. Yesterday there was a bunch of negative news in the United States: S&P 500 lost 4.5%, Philadelphia manufacturing PMI dropped to the minimal level since 2009, unemployment claims and consumer prices rose, while existing home sales decreased. Citigroup, however, doesn’t speak about recession. According to the bank, the US is going through weak recovery that won’t be able to gain full force.

Commerzbank: USD/JPY will test the record minimum The greenback keeps failing to jump above 77.00 yen. US currency remains in the dangerous closeness to the record minimum at 76.22 hit on March 16 that’s regarded at the key support level. Technical analysts at Commerzbank believe that USD/JPY will retest this mark today. The specialists say that if the pair goes below there, it will drop to the psychological support at 75.00 and the support line of the downtrend from 2009 to 2011 at 74.23. According to the bank, resistance for US dollar is found at 78.04 (August 1 maximum), 78.45 (July 13 minimum) and 79.16/69 (55-day MA, May and June minimums). Japan urged G7 for more coordination Japan called on Group of Seven nations to work together to counter market turmoil. It happened after equities fell in Asia hitting consumer and business confidence and worsening the global economic outlook that is already undermined by the debt problems of the developed nations. The main reason of fear is the risk that US economic recovery has stumbled. The nation’s Finance Minister Yoshihiko Noda underlined that during the next few weeks G7 has to cooperate very closely. Noda reminded that on August 8 the group’s finance ministers and central bank governors pledged to do all that is needed to ensure financial stability and growth. According to Bloomberg, Japanese Topix index fell today to 2-year minimum; China’s Shanghai Composite Index went down by 1.4%; Hong Kong’s Hang Seng index dropped by 2.4%; South Korea’s Kospi index lost about 6%. The last time G7 nations acted together was in March when they performed joint intervention to calm down volatile yen moves after the nation’s March earthquake. RBC: euro zone nations lack cooperation Analysts at RBC Capital Markets note that the euro area faces serious political risks. The specialists note that while European nations are supposed to show strong cooperation and coordination, the latest debates about the Greece’s second bailout indicate the opposite. The matter is that Finland that was reluctant of supporting indebted peripheral countries forced Greece to agree to put up collateral in exchange for a bailout loan. This made other nations – Austria, Slovenia, Slovakia and the Netherlands – demand the same from Greece. As a result, Greece will have to spend scarce money on collateral rather than on getting its house in order, while the process of July deal’s implementation stalled. There’s the risk now that other countries who do not receive collateral may not vote in favor of the loan bailout casting doubts on the survival of the currency bloc.

Morgan Stanley: US growth forecast reduced Analysts at Morgan Stanley reduced their forecast global economic growth in 2011 from 4.2% to 3.9% and in 2012 – from 4.5% to 3.8%. As the main reason for the downside revision the specialists cited the debt burdens of developed nations. According to the bank, the policymakers didn’t do enough to contain the euro zone’s debt crisis, while the business and consumer confidence weakened due to the German economic slowdown and the looming threat of the recession in the United States. In addition, the situation is complicated by the fact that many governments have to conduct austerity measures. The bank diminished prediction for G10 nations from 1.9% to 1.5% this year and from 2.4% to 1.5% in 2012. Fiscal tightening will have a negative impact on the demand in the Western world that, in its turn, will affect Chinese economy. Morgan Stanley cut the projections for China’s growth from 9% to 8.7% (in 2012), while Deutsche Bank lowered the forecast from 9.1% to 8.9% (in 2011). Pimco: Greece has to dafault to save Spain and Italy Economists at Pacific Investment Management Co., the world’s largest bond fund manager, believe that the European policymakers should allow Greece, Ireland and Portugal default making sure that Italy and Spain will be able to avoid this fate. The specialists note that while the region’s authorities are reluctant to admit the necessity of such desperate step, the situation keeps deteriorating. According to Pimco, Germany, France, the International Monetary Fund and the European Central Bank have to come up with a huge bailout package available to the entire euro zone, except for Greece, Ireland and Portugal, thus letting these indebted peripheral nations default and making Italy and Spain safe. As French President Nicolas Sarkozy and German Chancellor Angela Merkel rejected at their summit on Tuesday, August 16, the idea of creating the common euro zone bonds and the expansion of the 440 billion-euro ($633 billion) rescue fund, Pimco thinks that the most likely scenario will be that the ECB will keep supporting the problem nations, while it itself will be bailed out by Germany. MIG Bank: bullish view on GBP/USD The pair GBP/USD climbed from August 11 minimum at $1.6110 to yesterday’s maximum at $1.6591. Technical analysts at MIG Bank believe that although today sterling has pulled back to the $1.6475 area, the outlook for British currency remains positive. The specialists think that when pound once again overcomes the $1.6476/78 zone, it will gain enough strength to rise to $1.6747. In their view, support for GBP/USD lies at $1.6111. It’s also necessary to note that pound has risen above the long-term trend-line resistance (watch the weekly chart).

BBH, Commerzbank: comments on EUR/CHF and USD/CHF Analysts at BBH think that all the talk about intervention will keep EUR/CHF between 1.12 and 1.15. Economists at ZKB note that the resistance for euro lies at 1.1555. If the single currency breaks above this level, it will manage to rise to 1.1665, while if it drops below 1.1350 would make it slide to 1.1165. Currency strategists at Commerzbank think that the Swiss National Bank should act more decisively in order to weaken franc as the increase of liquidity has failed to solve the problem. As for the USD/CHF, the bank believes that the pair currently risks to go down to 0.7802, but if it manages to rise above 0.8034, the greenback will be able to rise to the 55-day MA at 0.8157 and then to the 2011 downtrend line at 0.8184. EUR/USD: all attention on US inflation data US CPI data are released today at 4:30 pm (GMT+4). If inflation has risen, the odds of the new round of quantitative easing will decline that would be positive for the greenback. If the figures are, on the contrary, lower than projected, the pair EUR/USD may jump higher. Economists surveyed by Bloomberg think that American consumer process gained 0.2% in July after a 0.2% slide in June. The annual inflation rate is seen declining from 3.6% in June to 3.3% last month. The core CPI without food and fuel is expected to add during the year through July 1.7% after rising by 1.6% during 12 months through June. Analysts at BMO Capital Markets think that US inflation is leveling off as energy prices decreased. As the nation’s economic growth isn’t high any strong upward pressure on consumer prices is unlikely. Citi, Commerzbank, BBH: GBP analysis EUR/GBP The single currency declined from the levels around 0.8800 to the 0.8700 zone. Technical analysts at Commerzbank note that support for EUR/GBP lies at 0.8668/44 (August minimum). The slide below this area will bring euro down to the 55-week MA at 0.8612 and to the 4-year uptrend line at 0.8556. If the pair climbs above 0.8883/86 (late July maximum and current August peaks) it will be able to stabilize and get chance to rise to 0.8977/0.9000. Currency strategists at Citi believe that EUR/GBP may move only a bit down on the fears about the euro zone’s debt crisis as the pound may suffers as well because UK banks have a sizable 14% GDP exposure to weak euro-zone countries, surpassing that of Germany and France, while that the euro zone remains the UK's largest trading partner and exports are seen as a preferred way out of the crisis in the UK. GBP/USD Analysts at Brown Brothers Harriman believe that British pound is overbought versus the greenback. In their view, GBP/USD may consolidate between 1.6480 and 1.6600. According to Citi, the pair will keep getting support from the fiscal austerity in the UK, though the further deterioration of the economic growth will likely put sterling under negative pressure.

BBH: USD/CAD will keep declining The greenback gained nearly 6.5% versus Canadian dollar after it hit the 4-year minimum in the 0.9400 area at the end of June and tested on August 9 the levels above the parity for the time since February. Then, however, US dollar weakened to the 0.9830 zone erasing about a third of its advance. Analysts at Brown Brothers Harriman claim that the pair USD/CAD may decline more. In their view, in the coming days US dollar may fall to 0.9700 and 0.9640 versus its Canadian counterpart. The specialists note that Canadian dollar strengthened due to the revival of the equity markets, in particular, US S&P 500 (CAD’s one-month correlation coefficient with the benchmark American stocks index reached 0.89). In addition, the price of the crude oil, Canada’s largest export, has also risen supporting the nation’s currency (one-month correlation coefficient is at 0.45). Strategists at MF Global advise investors to watch loonie on Friday: Canada’s CPI release and the Bank of Canada Governor’s Mark Carney’s and the Finance Minister Jim Flaherty’s speeches on the euro zone’s debt crisis and the US budget deficit will likely make the trade more volatile. Analysts at Royal Bank of Canada believe that the officials will sound more cautious than they did in the middle of July. BOTMUFJ: comments on EUR/USD The single currency went down versus the greenback from yesterday’s maximum at 1.4518 to the levels in the 1.4400 area. Analysts at Bank of Tokyo-Mitsubishi UFJ believe that EUR/USD may fall to Wednesday's minimum at 1.4320. The specialists advised investors watch US economic indicators due at 4:30 and 6:00 pm (GMT+4). RBC: comments on USD/JPY Analysts at RBC Capital Markets note that despite the fact that the market’s risk sentiment has worsened the greenback has managed to stay within its recent trading range above 76.40 yen. The pair USD/JPY has found support due to the information that Japanese Ministry of Finance and the Bank of Japan agreed to join their efforts and to work as one in order to fight yen’s strength. The specialists note that investors are now cautious of interventions. However, if US dollar doesn’t show significant advance during the next 1-2 days, the market may lose confidence in the intervention pledges and USD/JPY will go to the record minimum at 76.22 yen.

BNP Paribas: SNB failed to affect the market The Swiss National Bank for the third time tried to weaken the national currency. Switzerland’s central bank announced today that it will boost liquidity to the money market expanding banks’ sight deposits from 120 to 200 billion francs ($253 billion). The SNB also decided to repurchase outstanding SNB Bills and use foreign-exchange swap transactions. Economists at Credit Suisse think that the SNB has other means of action, but for it just keeps pursuing this liquidity strategy. Analysts at BNP Paribas note that the market was looking forward to interventions or a peg and got disappointed by the outcome. In their view, it will be very difficult for the Swiss monetary authorities to act against the market that’s seeking refuge in franc. The bank thinks that it would be near impossible for policy makers to peg the franc to the euro and commit to unlimited currency interventions as it would be too expensive and wouldn’t guarantee success. UBS specialists think that the SNB’s move didn’t impress the market. Taking into account the lack of results after yesterday's Franco-German bilateral summit, the bank says that euro may drop back to 1.10 and even lower. The pair EUR/CHF is still trading under 1.5000. Today it hit the low at 1.1221. Commerzbank: EUR/USD will go down again In the morning the single currency hit the day’s minimum versus the greenback at $.4320. Then it found support and jumped above the 4-month downtrend resistance line at $1.4435. Never the less, technical analysts at Commerzbank believe that euro’s advance will stall in the between the broken resistance and July 27 maximum at $1.4537 and the pair EUR/USD will return down to the 38.2% Fibonacci retracement at $1.4259. MPC unanimously voted to keep rates at 0.5% According to the minutes of the Bank of England’s Monetary Policy Committee August meeting released today, the 9-member MPC unanimously voted to leave the benchmark interest rate unchanged at 0.5%. The two hawks – the BoE’s chief economist Spencer Dale and the external policymaker Martin Weale – abandoned their calls for the rate hike. It’s also necessary to note that the odds of the second bout of quantitative easing in the UK have strengthened. This time only Adam Posen repeated his proposition to raise the QE program by 50 billion pounds to 250 billion pounds, several other members seems to consider the idea. The debt crisis in the euro area, US economic slowdown and UK's own problems persuaded the committee that inflation would fall to its 2% target without the increase of the borrowing costs. The pace of British CPI growth rose from 4.2% in June to 4.4% in July. Rabobank International notes that the minutes were clearly dovish, though the BoE Governor Mervyn King had already indicated earlier that central bank could remain on hold until 2012. Currency strategists at Credit Suisse believe that if cyclical indicators deteriorate during the next few weeks, there will be likely more votes for QE in September.

Goldman Sachs: QE3 in the US is very likely Analysts at Goldman Sachs are sure that the third round of quantitative easing in the United States is coming later this year or at the beginning of 2012. The reason why the additional monetary stimulus is needed is the US economic growth slowdown and high unemployment rate. The possibility of QE3 rose as on it last meeting that took place on August 9 the Federal Open Market Committee pledged to keep the interest rates at the record low at least until the middle of 2013 that means that US monetary authorities are ready to act employing more policy tools if the economic outlook keeps worsening. According to Goldman, though not all members of the FOMC support the idea of the new QE – Presidents Fisher, Kocherlakota and Plosser spoke against loosening policy – that won’t stop the Fed’s Chairman Bernanke from pushing through the measures. It’s necessary to note that though there are different forms of stimulus from the small steps such as a commitment to keep the balance sheet large, a gradual shift of the securities portfolio into longer maturities or a cut in the interest rate on excess reserves from 0.25% to 0% to very aggressive ones such as rate caps (a form of QE in which the Fed promises to buy as many securities as needed to hit a longer-term yield target), a price level or nominal GDP target, or interventions in non-government securities markets (for which funding from Congress would be needed). Goldman specialists say that from all the measures mentioned the conventional QE seems to be the most acceptable option. To sum up, the economists expect quantitative easing to be resumed, but see several risks to such forecast: stronger economic performance, higher inflation and public backlash. As for the latter, the Fed may try to smooth the situation by proposing monthly numbers that not look as big as the $600 billion purchase over 8 months announced last year. In addition, the decision of continuing the program may be made on the monthly basis as well that would also improve the negative sentiment. Danske Bank: EUR/USD will rise in a year Currency strategists at Danske Bank came up with concrete forecasts for the pair EUR/USD. The specialists note that the United States face weaker than expected growth, long period of minimal interest rates, large current account deficit as well as the serious fiscal challenges and increased political risks. As a result, in medium-term the bank is bearish on the greenback and thinks that in such conditions the single currency will be able to gain. According to Danske Bank, euro will rise to $1.50 versus its American counterpart in a year. The previous forecast was at $1.36. The 3-month estimate though was reduced to $1.42 on the expectations of weak macro data during the next few months. Commerzbank: comments on GBP/USD Technical analysts at Commerzbank note that if British pound managed to rise versus the greenback above the downtrend resistance line from May maximums in the $1.6444 zone, it will head up to $1.6539/47 (78.6% Fibonacci retracement of the decline from April peak and May high). Never the less, pound still didn’t manage to overcome the mentioned resistance: the pair GBP/USD slid today from August high at $1.6475 posting the low at $1.6347. BarCap: Merkel and Sarkozy disappointed investors Yesterday’s meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel didn’t bring much results. The leaders of the biggest euro zone’s economies, which are expected to lead efforts to contain the debt crisis, spoke about the plan to form a euro-zone economic council, but didn’t voice support for the creation of the common euro-zone bonds at it may affect the region’s healthiest economies. The market regards the common bonds as the last chance to improve the situation. Merkel and Sarkozy called for spending cuts and other long-term measures to bring down debt levels but offered no immediate solutions. Analysts at Barclays Capital note that the markets were disappointed by the focus on long-term governance issues lack of the concrete steps at the time when it’s very important to encourage the economic growth. In the second quarter German GDP growth pace slowed down to 0.1%, while the economists were looking forward to 0.5%. The economic growth pace of the entire euro area during the same period accounted only for 0.2%, while during the first 3 months of 2011 this indicator was equal to 0.8%