Comments and forex-analytics from FBS Brokerage Company

FBS.com Official · July 13, 2011

Commerzbank: yen hit 4-month minimum versus US dollar

At the beginning of the day Japanese yen reached 4-month maximum at 78.45 versus the greenback, the highest level since March 17. Then the Asian currency pulled back down as the market thought that the nation’s monetary authorities may intervene selling the national currency as high yen has a negative impact on the nation’s exporters.

Yen’s surge may be explained by the high demand for it as a refuge due to the increased risk aversion caused by the euro zone’s debt crisis.

Technical analysts at Commerzbank expect the pair USD/JPY to consolidate in the near term. The specialists note that close to today’s minimum there is a 78.6% Fibonacci retracement target at 78.23 below which US currency will revisit its March record minimum of 76.25. Resistance for US dollar will lie at 80.26 and 80.49.

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FBS.com Official · July 13, 2011

JPMorgan Chase: division of opinions within the Fed

The minutes of FOMC June 21-22 meeting released yesterday showed that there’s the disagreement within the Federal Reserve on the necessity of further monetary stimulus.

It happens that some members of the Federal Open Market Committee believe that the central bank might have to consider the possibility of launching additional quantitative easing measures, especially if economic growth remains weak and insufficient to reduce the unemployment rate in the medium term.

A number of other FOMC members, on the contrary, think that as inflation risks increase it may mean that the economic conditions are likely to improve so that the Fed will be able to normalize its policy even earlier than projected now.

Analysts at JPMorgan Chase note that one camp is worried about what happens if growth slows more than expected, while the other – about what happens if the rise in inflation isn’t transitory. So, the policymakers think that they can’t ease monetary policy because inflation is rising nor tighten it as the unemployment rate is too high.

As a result, the Federal Reserve is likely to wait watching the economic developments and keeping the rates at the record minimum. Economists surveyed by Bloomberg News, that the rates in the United States will remain between 0 and 0.25% until the second quarter of 2012.

FBS.com Official · July 13, 2011

Morgan Stanley: pessimistic view on EUR/USD

The single currency went up today after hitting yesterday minimum at $1.3837 reaching $1.4100 on the talk that the ECB and China are buying the bonds of indebted peripheral euro zone’s nations.

Yesterday Moody’s Investors Service lowered Ireland’s debt rating from Baa3 to Ba1. As a result, Ireland became the third euro zone nation with credit rating below investment grade with Greece and Portugal already in this group.

The Italian Treasury is scheduled to sell as much as 5 billion euro ($6.99 billion) of bonds tomorrow.

Analysts at JPMorgan Chase are pessimistic on the situation in Europe. The specialists advise to sell EUR/USD on the rebound. The main theme on the market is now the fear of debt crisis contagion.

Strategists at Morgan Stanley think that the single currency still seems to be vulnerable. In their view, euro will slide to $1.36 by the end of 2011. The economists note that there are still big risk events ahead that may affect the European currency such as the bank stress tests.

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FBS.com Official · July 13, 2011

Commerzbank: comments on USD/CAD

The greenback jumped off the breached downtrend resistance line from August 2010 maximums.

Technical analysts at Commerzbank claim that if the pair USD/CAD closes above the week’s minimum at 0.9565, it will get chance to retest the 200-day MA at 0.9875.

The specialists say that if US dollar drops below 0.9565, the pair will be poised down to 0.9527/0.9449 support area representing the minimums of the beginning of April and the middle of May.

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ryuroden · July 13, 2011

Credit Agricole, BofTMUFJ, Investec: negative forecasts for euro

Strategists at Credit Agricole claim that the single currency has managed to rebound a bit as the initial panic caused by the surge of Italian yields faded. However, the fact that Italy got in the centre of market’s attention, which was previously focused mainly on Greece, Ireland, Portugal and Spain, seriously undermines euro. In the short term the pair EUR/USD may advance more. Then, however, it will retest 4-month minimum at $1.3837 and will fall to $1.3400 by the end of September.

Specialists at Bank of Tokyo Mitsubishi UFJ believe that Italy may once again make euro slump especially if the nation’s sovereign bond yields keep rising increasing the risk that Italian government will have to apply for external financial help. At the same time, the danger will remain even if the yields temper. The bank is getting more and more convinced that EUR/USD reversed down its uptrend from June 2010 lows. It’s more likely now that the ECB will pause monetary tightening this year.

Analysts at Investec expect the European currency will be gradually weakening during the second half of 2011 to end the year at $1.35. The economists think that in a year EUR/USD may fall to $1.25. According to them, if the situation in the euro area keeps worsening, euro may sink even faster.

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daily eurusd 18-40

Chart. Daily EUR/USD

FBS.com Official · July 14, 2011

Credit Agricole, BofTMUFJ, Investec: negative forecasts for euro

Strategists at Credit Agricole claim that the single currency has managed to rebound a bit as the initial panic caused by the surge of Italian yields faded. However, the fact that Italy got in the centre of market’s attention, which was previously focused mainly on Greece, Ireland, Portugal and Spain, seriously undermines euro. In the short term the pair EUR/USD may advance more. Then, however, it will retest 4-month minimum at $1.3837 and will fall to $1.3400 by the end of September.

Specialists at Bank of Tokyo Mitsubishi UFJ believe that Italy may once again make euro slump especially if the nation’s sovereign bond yields keep rising increasing the risk that Italian government will have to apply for external financial help. At the same time, the danger will remain even if the yields temper. The bank is getting more and more convinced that EUR/USD reversed down its uptrend from June 2010 lows. It’s more likely now that the ECB will pause monetary tightening this year.

Analysts at Investec expect the European currency will be gradually weakening during the second half of 2011 to end the year at $1.35. The economists think that in a year EUR/USD may fall to $1.25. According to them, if the situation in the euro area keeps worsening, euro may sink even faster.

Commerzbank: negative middle-term outlook on GBP/USD

British pound went up from Tuesday's minimum at $1.5775 almost reaching $1.6200 today before easing down to $1.6125.

Technical analysts at Commerzbank note that there’s a bunch of resistances in the $1.6211/62 area containing 38.2% Fibonacci retracement of the advance from December to April, June 22 maximum and the channel resistance line.

The specialists claim that the outlook for the pair GBP/USD will remain bearish in the middle term as long as it trades below $1.6262. In their view, sterling will drop to $1.5487 (50% retracement of the uptrend from 2010 to 2011) and $1.5347 (December minimum).

Sumitomo expects US dollar to weaken

Analysts at Sumitomo Trust & Banking Co. expect the greenback to weaken. In their view, US currency will be affected by the continuous debates about raising US government’s debt limit and reducing budget deficits ahead of the August 2 deadline.

The specialists claim that during the past few years the major central banks, especially Asian, tended to diversify their currency reserves decreasing the share of dollar assets. According to the bank, US dollar is gradually losing its status of the world’s main reserve currency. The debt-related factors add now to this pressure. One more reason for USD to weaken is the possibility of additional monetary stimulus in the United Stated confirmed yesterday by the Fed’s Chairman Ben Bernanke.

As a result, Sumitomo economists advise traders to avoid American currency. The analysts claim that it may be necessary to cut their forecast for USD/JPY by the beginning of 2012 from 88 to 85 yen.

The IMF data shows that the greenback’s share of global currency reserves declined in the first quarter to the minimal level since 1999 of 60.7%. Moody’s Investors Service put US top debt rating on the negative watch for the first time since 1995.

NAB: Aussie’s prospects in case of QE3 in the US

Yesterday the Federal Reserve’s Chairman Ben Bernanke claimed that the central bank will conduct more monetary stimulus in case of US economic growth slowdown.

Analysts at National Australia Bank claim that even if the Fed actually does more quantitative easing, Australian dollar won’t experience as big surge versus its US counterpart as the one seen at the beginning of this year.

The specialists note that in the last 2 rounds of QE the pair AUD/USD gained on average 7.0% in a month after the talk on the subject had begun and 11% in the six weeks afterwards. Aussie will be prevented from one more advance of that kind by the technical factors and the smaller size of any potential easing. Australian currency may rise from the current level to the levels in the $1.1100 area but it won’t manage to stay there for long. NAB strategists underlined that Australian dollar is already trading more than 20% above its fair value against the greenback.

Today Aussie eased down from highs in the $1.0790 area to the levels around $1.0740. Strategists at RBC Capital Markets note that the pair’s advance stemmed ahead of Italian debt auction. Resistance for the pair is at $1.0800. Economists at Barclays Capital have a more bullish point of view as they think that if AUD/USD gets above $1.0805, it will be able to climb to $1.0890 and then to this year’s maximum in the $1.1015 zone.

UniCredit about SNB intervention

Swiss franc keeps strengthening versus the single currency as investors regard it as a safe haven during the times of euro zone’s dent crisis and looming US debt. Analysts at Commerzbank claim that demand for franc will remain high as long as European and American debt problems remain unsolved. The pair EUR/CHF hit today the record minimum at 1.1492.

According to the Swiss National Bank’s Vice-Chairman Thomas Jordan, the central bank is concerned by such appreciation of the national currency and will be able to take the necessary steps in case deflationary risks reappear. SNB Chairman Philipp Hildebrand, however, noted that the central bank has no reason to take action at the moment as price stability was not threatened. Both of them declined to comment whether the SNB actually plans to intervene.

Earlier, during the period since March 2009 to June 2010 the SNB was conducting currency interventions before it posted the biggest annual $21-billion loss ever last year.

Analysts at UniCredit claim that even if the SNB tried to weaken the franc through renewed currency purchases it won’t achieve much as a lot of investors are using Switzerland as the only safe haven from the European crisis. In their view, the SNB can’t do anything because market forces are too powerful.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 15, 2011

Citigroup, RBS: bullish medium-term outlook for USD/JPY

Currency strategists at Citigroup believe that Moody’s giving the US the final warning will make the nation’s authorities hurry to reach a compromise the August 2 deadline. As a result, the specialists expect investors to stop selling the greenback.

The bank especially sorts out the pair USD/JPY that may start strengthening later this year. As for the near term, American currency will likely remain under pressure as traders who used to be short on yen may be trying to cover their positions. In addition, though Citigroup projects that Japanese importers may increase demand for dollars, it won’t happen until September.

However, it’s necessary to note that as Japanese monetary authorities are very concerned about the appreciation of the national currency, Japanese corporations may start buying dollars. According to the bank, USD/JPY will find support and bottom out at 77 yen.

Analysts at RBS Securities are also bullish on dollar-yen. In their view, US economy will add about 3.5% in the second half of the year and that will be enough to push rate expectations significantly higher. Among the other dollar-positive factors the specialists cite Japanese production of autos and auto parts and lower gasoline prices. The specialists advise investors to go long on the pair buying below 79.50 and holding position for 3-6 months.

Commerzbank: EUR/USD on the way down to $1.3911

The single currency went up from 4-month minimum versus the greenback at $1.3837, but its rebound was capped by the breached 2011 uptrend support line at $1.4247 and the 38.2% Fibonacci retracement of the decline from May to July at $1.4259.

Technical analysts at Commerzbank claim that the pair EUR/USD is now poised down to the June minimum at $1.4073 and the 200-day MA at $1.3911.

Wells Fargo: medium-term outlook for EUR/USD

One more medium-term forecast from analysts at Wells Fargo. In their view, the single currency will fall into the steady weakening pattern versus the greenback.

As the main factors generating negative pressure on euro’s rate the specialists cite euro zone’s slow economic growth (as one may see from the leading indicators) and the increasing likelihood of ECB pausing its monetary tightening.

Wells Fargo expects the pair EUR/USD to stay in range between $1.4100 and $1.4200 during the coming 3 months, then to drop to $1.4000 in the last quarter and slide to $1.3500 by the middle of the next year and to $1.3000 by the end of 2012.

HSBC, Barclays Capital: comments on GBP/USD and EUR/GBP

Analysts at HSBC note that the rate of British currently is currently determined more by the dynamics of euro and US dollar, rather than be the factors specifically related to sterling.

In their view, pound could gain independence in trading only if UK economic outlook changes either strongly improving or dramatically deteriorating. Until that happens GBP is going to find itself trapped between a rock and a hard place.

All in all, HSBC sees the prospects of British economy and currency as rather pessimistic.

Strategists at Barclays Capital note that the GBP/USD may be in a bear trap. The pattern will confirm if it closes today above $1.6140. As for EUR/GBP, the bank claims that after jumping from support in the 0.8745/40 zone it may be on its way up to 0.90. If euro drops below 0.8740, it will revisit May base in the 0.8610 region.

SocGen, UBS: the risk of euro’s collapse can’t be ruled out

Economists at Societe Generale and UBS are very pessimistic on the future of the euro area: the former advise investors to buy insurance against the collapse of the single currency, while the latter specify their recommendation say that Danish krone may be used for protection as the situation in the euro zone tends to worsen.

According to UBS, as the European crisis escalates, Danmark grows more and more likely to send the peg of its national currency to euro. After suffering from some volatility in the short-term, krone will later strengthen versus other Scandinavian currencies and euro.

The specialists claim that one shouldn’t lose time and has to hurry and hedge it money as the pair EUR/USD has mercifully returned above $1.40.

Nomura: EUR/CHF has potential for further decline

Strategists at Nomura Securities believe that in the current situation of high uncertainty about when the European leaders will come up with a solution of the debt crisis investors should avoid the single currency. The specialists warn that it may take weeks for some developments in dealing with the current problems of the indebted euro zone’s nations.

Nomura notes that EUR/USD is a very liquid instrument. For a long time the pair corresponded to the ups and downs in risk premiums on sovereign bonds. Since February, however, this correlation has become not that clear as the single currency gained versus the greenback on the rates differential between the European Central Bank and the Federal Reserve. Now the risk premium on euro has once again begun increasing, but the state of things in the region has significantly deteriorated.

As a result, the economists draw a conclusion that EUR/USD responds to sovereign risk only when it triggers systemic risk like it’s happening now.

That’s why Nomura recommends trading not EUR/USD, but EUR/CHF regarding short positions on this pair as a sure gain as this cross has been very closely correlated with measures of systemic risk in the monetary union. So, the bank recommends being bearish on euro versus franc even though the pair’s already trading at the record minimums.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 19, 2011

Commerzbank: negative outlook for EUR/USD

Technical analysts at Commerzbank note that though the single currency has rebounded last week versus the greenback from the 200-day MA at $1.3912, the outlook for the pair EUR/USD remains negative as long as it’s trading below the downtrend line at $1.4496.

Resistance levels are situated at Thursday’s maximum at $1.4282 and the 55-day MA at $1.4343. Euro went below support of June minimum at $1.4073, so the specialists believe that it’s currently on its way back down to the 200-day MA at $1.3912.

According to the bank, if EUR/USD breaches the 4-month minimum at $1.3837 hit last Tuesday, it will slide to the $1.3717/1.3680 area limited by the 2010-2011 uptrend line and the 55-week MA.

Nomura: EUR/CHF may drop to parity

Economists at OECD say that franc is overvalued by the European currency by 38% and by 46% versus the greenback. Never the less, different experts and strategists think that it still has room to continue appreciation.

John Taylor, the founder of the world’s largest currency hedge fund FX Concepts, believes that the single currency will fall to the parity with Swiss franc. The specialist claims that the European leaders haven’t come up with any solutions that would help to improve the situation in the euro zone in the longer term. As a result, demand for Switzerland’s currency as a safe haven is likely to remain high.

Currency strategists at Nomura International lowered their forecasts for EUR/CHF from 1.4 to 1.2 by the end of the year pointing out that the pair is likely to reach 1.10 over the next 3 months. In their view, the parity level is quite possible if the crisis keeps escalating.

The median forecast of economists surveyed by Bloomberg for the end of 2011 declined from April’s estimate of 1.34 to 1.26. The cost to hedge a drop in the euro versus the franc climbed to the maximum since January 2009.

Commerzbank, Barclays Capital: comments on EUR/CHF

The single currency has renewed today the record minimum versus Swiss franc by opening in the 1.1410 area, but then managed to restore to 1.1478.

Technical analysts at Commerzbank are bearish on EUR/CHF as long as it’s trading below June minimum of 1.1957. In their view, the pair will face resistance at 1.1555 and 1.1770.

The specialists note that as the European currency reached the base of 1-year downtrend channel at 1.1410, it may consolidate in the near term. However, euro risks dropping to 1.1290 and 1.1000.

Currency strategists at Barclays Capital point out that although there’s a chance that today's gap in EUR/CHF is the so-called exhaustion gap that indicates trend reversal, there should be a great number of long positions being opened in the coming sessions to make this come true. Until it happens the bank bets on EUR/CHF decline to 1.1250.

BBH: new rating cuts coming in Europe

Ratings agencies have great influence on the markets. On the one hand, Moody's and Standard & Poor's shook traders when last week they’ve warned about the potential US downgrade coming unless the debt ceiling is lifted up. On the other hand, such actions may hurry the nation’s authorities to reach compromise before the time runs out.

Strategists at Brown Brothers Harriman note that the agencies have missed their chance in the Asian crisis and during the boom of the dot coms, so they are probably trying to overcompensate that now.

Analysts at BMO Capital think, however, that rating agencies play a very important role in Europe. In their view, as the European Bank Authority released on Friday the results of stress test that turned out to be better than expected but very likely inadequate, only the rating agencies can provide insight in the more realistic picture.

Anyway, BBH specialists note that there will be further downgrades of Spain, Italy, Portugal and Ireland. Emerging markets, on the contrary, have solid chances for upgrades. The bank proposes investors to use this forecast while developing trading strategists in order to act ahead of the rating agencies.

FBS.com Official · July 19, 2011

Societe Generale: EUR/JPY may fall to 106.95

Technical analysts at Societe Generale believe that the single currency is on its way down to last week's minimums versus Japanese yen in the 109.60 area and then to the downtrend channel support at 109.20.

If the pair EUR/JPY breaks even lower, it will slump to the longer-term rising support line at 106.95.

According to the bank, on the upside resistance levels are situated at 111.35 and 112.35.

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FBS.com Official · July 19, 2011

Commerzbank: comments on EUR/USD

Technical analysts at Commerzbank note that yesterday the single currency found support in the $1.4000 area versus the greenback and managed to close in the $1.4100 zone posting some gains.

The specialists, however, retain their negative view on EUR/USD as long as the pair is trading below the downtrend line at $1.4487.

According to the bank, resistance for euro is situated at last Thursday’s maximum of $1.4282 and the 55-day MA at $1.4330.

Merrill Lynch: USD/JPY will test the record minimum

Currency strategists at Bank of America-Merrill Lynch think that the greenback won’t drop below the record minimum versus yen at 76.25 hit on March 17 after Japan was shaken by the severe earthquake.

Never the less, the concerns about the debt problems both in the euro area and the United States are likely to keep strengthening risk aversion. As a result, the specialists warn that the slide of the pair USD/JPY may turn out to be surprisingly big.

The net short position on Japanese yen that is currently aggregated by the FX margin trade is very large, so the sharp risk aversion may trigger stops provoking unwanted liquidations of investors’ short yen positions making Japanese currency surge.

According to BoA-Merrill Lynch, if the pair tests all-time minimum, the Bank of Japan would have to ease policy further, while the nation’s Ministry of finance would probably intervene to stop disorderly appreciation of the national currency.

Westpac recommends selling USD/CAD

The Bank of Canada will release its rate statement today at 5:00 pm (GMT+4). The majority of economists agree that the central bank will hold the borrowing costs at the current 1.00% level.

Currency strategists at Westpac note that Canadian economy is currently in a very good shape. The specialists reminded about the encouraging June employment report. In addition, Westpac is looking forward to see strong CPI data due on Friday at 3:00 pm (GMT+4).

According to the bank, it’s possible to expect that the BOC will sound more hawkish than at the May meeting, so the analysts advise investors to go long on loonie versus its American counterpart. The recommended strategy is selling USD/CAD at 0.9580 stopping above 0.9700 and targeting 0.9350.

Credit Agricole, Westpac: pessimistic view on Aussie

The minutes of the Reserve Bank of Australia’s last meeting released today made the odds of its interest rate hike lower. Analysts at Credit Agricole note that the RBA didn’t mention the necessity to tighten monetary policy at some stage and believe that Aussie will remain under negative pressure.

Strategists at Barclays Capital expect that the central bank will stay on hold in the near future, though they think that the nation’s monetary authorities are inclining more towards lifting up the borrowing costs than to reducing them. The RBA is keeping its benchmark interest rate at 4.75% since November.

Strategists at Westpac note that the pair AUD/USD, which has been staying between 1.0400 and 1.0800 since May, may breach the lower border of this range in the next few weeks. In their view, Australian dollar can slide to 1.0200 and then maybe even to the parity level with its American counterpart. As the reason for Aussie’s weakening the specialists cite the debt problems in the euro area and the United States.

It’s also necessary to note that Goldman Sachs that recommended buying AUD/JPY at the end of June revokes this advice.

TD Securities: RBNZ is ready to lift up the interest rates

Analysts at TD Securities believe that the Reserve Bank of New Zealand may increase the interest rates from the record minimum of 2.5% at its next meeting that is taking place on Thursday, July 28.

In their view, it may happen as the inflation rate in the second quarter and the first quarter GDP turned out to be higher than expected.

New Zealand’s economy gained 0.8% in the first 3 months of the year while the central bank was projecting only 0.3% growth. The nation’s CPI added 1% in the second quarter versus 0.8% forecast.

According to TD Securities, RBNZ may increase the borrowing costs next week by 50 basis points compensation the cut made on March 10 or at least prepare the markets for such move on September 15.

In the near term New Zealand’s dollar, however, will likely remain under pressure ahead of EU summit in Brussels scheduled on July 21, warns Ueda Harlow.

Barclays Capital: outlook for EUR/CHF and USD/CHF

Technical analysts at Barclays Capital believe that in order to reverse July's downtrend versus Swiss franc the single currency has to overcome 1.1650. In such case, EUR/CHF will be able to rise to 1.1810 and possibly to 1.20. Until that happens, the pair’s prospects will remain bearish and euro will be poised down to 1.1250.

Credit Agricole: the prospects of China’s interest rates

Currency strategists at Credit Agricole believe that the People’s bank of China will pause its monetary tightening cycle in the second half of the year as the nation’s economic growth and inflation pace is slowing down.

The specialists note that Chinese monetary authorities are content with the current state on the country’s economy – so called “soft landing” as this was exactly the goal they pursued by raising borrowing costs and reserve requirements rate.

Credit Agricole notes that China now needs to finish policy tightening before the economic growth declines more sharply.

The specialists believe that the PBOC will conduct no more deposit and credit rate hikes until the next year when the economy will once again starts gaining pace. Credit Agricole thinks, however, that the bank will keep sterilizing its currency interventions by increasing required reserve ratio. The bank is looking forward to 2 such hikes until the end of 2011.

China’s second quarter GDP growth was in line with the forecasts gaining 9.5% after 9.7% advance during the first 3 months of the year.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 20, 2011

Commerzbank: GBP/USD will face resistance

The greenback went up from Monday´s minimum in the $1.6000 area to yesterday’s maximum of $1.6177.

Technical analysts at Commerzbank claim, however, that though the near-term outlook has become neutral, the 3-month downtrend is still in place.

As a result, the pair GBP/USD will face resistance at $1.6220 strengthened by the 55-day MA at $1.6213 that is pointing lower. The specialists expect sterling to fall to $1.5778.

Westpac, Citi about the prospects of AUD/USD this year

Australian dollar has made significant advance versus its US counterpart gaining 21% this year due to the strong commodity prices and relatively high interest rates.

Apart from other Australian banks analysts at Westpac expect that the Reserve bank of Australia will reduce interest rates that will put Aussie under pressure for the rest of this year. In addition, the specialists express concerns about the euro area’s crisis having a negative impact on Australian consumer confidence.

Currency strategists at Citi, on the other hand, tend to be bullish on AUD/USD. In their view, the massive investments in the metals and the LNG space will provide solid support for Australian dollar during the next 5 years. The bank believes that the RBA rates will stay unchanged this year. The economists underline that the mining industry keeps performing quite well, while housing prices are still very high, so there’s no need for the central bank to cut rates.

As a result, building the trading strategy on AUD/USD one has to decide whether to focus on the miners or the consumers and be ready to adjust quickly.

Commerzbank, Citi: comments on USD/JPY

Technical analysts at Commerzbank are bearish on USD/JPY. Never the less, the specialists think that Fibonacci support at 78.23 will manage to hold the initial attack of the bears. The bank places resistance for the greenback at 79.57, 79.88 and the psychologically important level of 80.00.

Strategists at Citi believe that the Bank of Japan will conduct currency intervention if US dollar drops to 76 yen. In their view, the pair will move higher in a month as the market’s sentiment will probably improve and the uncertainty connected with the European and American debt issues eases. The analysts warn, however, that now it’s too early to start the trade as USD/JPY is likely to slide lower before bouncing on the BOJ intervention.

AllianceBernstein: all major currencies have weaknesses

Strategists at the fund AllianceBernstein revoked their bets versus the greenback changing the outlook to neutral as the euro area debt crisis escalates.

It’s necessary to note that though the fund managers’ sentiment towards US dollar has improved they didn’t become positive on dollar taking into account high indebtedness of the United States and its budget problems. In addition, the economists don’t think that the economic growth will slow down making dollar popular safe haven. AllianceBernstein expects slow and uncertain economic recovery and is cautiously bullish on the market.

The specialists are now bearish on the single currency and British pound and bullish on Scandinavian currencies and Swiss franc. According to them, the downside pressure on euro is stronger due to the ECB policy that is keener on targeting inflation while some economies of the currency bloc are too weak to bear tighter monetary policy.

Analysis conducted by the OECD on the basis of the purchasing power parity shows that US dollar is 8.3% undervalued versus euro. American currency lost 5.8% this year versus the European one. The situation has a bit improved as it managed to gain 2.3% in July.

All in all, the specialists say that it’s not the time for long-term trade and investments as all major currencies – dollar, yen and the European currencies – have their drawbacks, so it’s necessary to adjust to the changing conditions.

ZKB, Commerzbank: comments on EUR/CHF

Technical analysts at Commerzbank believe that as the single currency managed to break above resistance at 1.1556 trading versus Swiss franc, it may strengthen to 1.1770. Never the less, as long as EUR/CHF is staying below June minimum at 1.1808, the general outlook for euro will remain bearish.

Strategists at ZKB doubt that the pair will manage to rise above 1.1700. In their view, even if it does that euro’s advance will be likely contained by 1.1750. The specialists note that the EU summit that will take place tomorrow may disappoint the market.

JPMorgan: EUR/GBP is trapped in the narrow range

Analysts at JPMorgan believe that EUR/GBP is trapped at the current levels as in the short term both the euro zone and the UK faces serious risks that are affecting their currencies.

While in Europe the main threat comes from the debt crisis, Britain is in danger of economic recession.

The specialists expect euro to remain in a very tight trading range versus its British counterpart during the coming months between 0.8550 and 0.9100.

In their view, the trade’s volatility has heightened due to the unexpected crisis of confidence to Italy seen so far and the pat situation in America where the policymakers are trying to reach compromise on the debt ceiling.

According to the bank, when the pair EUR/GBP finally comes out of this range it will break it on the upside.

UBS: the odds of QE in the UK declined

British pound rose today versus the single currency and US dollar after the minutes from the Bank of England’s MPC meeting showed that the number of QE advocates has reduced.

The policymakers voted 7-2 to keep the benchmark interest rate unchanged this month as the majority of them said that the recent data shows that the near-term tightening isn’t necessary.

In contrast to the June meeting, there was no mention of other the MPC members calling for more bond purchases this month.

Right after the release of the minutes GBP/USD fell to the daily minimum of $1.6067, but soon recovered getting up to the $1.6130 area. Currency strategists at UBS claim that the outlook for the pair will become bullish if it manages to overcome resistance at $1.6194. Support for sterling is situated at $1.6006.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 21, 2011

Taylor expects severe global economic recession

John Taylor, the founder of the world’s biggest currency hedge fund FX Concepts, expects the euro area debt crisis to ease during the next 3 months.

The specialist thinks that the improvement of the market’s risk sentiment will help gold price surge to $1,900 by October. Taylor is also quite bullish on commodity currencies, in particular, on Australian and Canadian dollars.

Never the less, the economist thinks that the rally won’t last long. After reaching the record high gold may fall to $1,100 as the global economy gets into recession worse than the one in 2008.

According to Taylor, the United States will run out of means to prevent the economic slump. European economy is also likely to get into the declining path, says the analyst. In his view, the pair EUR/USD will drop to $1.15 hitting the parity level next year.

Commerzbank, Citi: comments on EUR/USD

The single currency keeps going up this week from Monday’s minimum at $1.4014.

Technical analysts at Commerzbank, however, keep giving bearish forecasts for EUR/USD. In their view, the pair’s advance will be limited by the 55-day MA at $1.4307. The specialists say that the outlook for euro will remain negative as long as it’s trading below the downtrend line at $1.4471.

Strategists at Citi note that plenty of positive news is already priced in, so investors should buy carefully. Resistance is situated in the $1.43 area where the 100- and the 55-day MA are meeting each other, while support is found at $1.4240, $1.4210 and $1.4180.

BMO Capital: loonie may be used as a refuge

Currency strategists at BMO Capital believe that though Canadian dollar tends to follow the dynamics of oil process and strengthen when the market’s risk appetite is up it may be used now as s safe haven against the euro zone’s and US debt issued.

According to the specialists, loonie has all needed to attract investors: Canada enjoys economic growth and has strong financial system. In addition, the Bank of Canada is likely to raise rates sooner than the other major central banks.

Analysts at BMO think that Canadian currency has much more upward potential than the classic refuge – Swiss franc – as it may gain on the oil price’s advance. As a result, the bank proposes to sell USD/CAD at the current levels.

EU summit: political background

During the whole week investors were looking forward to the EU emergency summit taking place today in Brussels hoping that the deals on the second bailout for Greece will be made.

German Chancellor Angela Merkel warned that it’s not possible to solve the crisis in “one spectacular step”, while the Greek Prime Minister George Papandreou, on the other hand, said that the summit will be very important either leading to a breakthrough or being a total failure.

Merkel and French President Nicolas Sarkozy have reached some agreement on the matter during their private negotiations. European Central Bank President Jean- Claude Trichet and European Union President Herman van Rompuy have also participated in the discussion.

Analysts at Barclays Bank note that Germany and France made some coordinated efforts preparing for the summit that may be very helpful for some decision to be made today.

Strategists at Mizuho Corporate Bank point out, however, that even if the European authorities manage to persuade the private sector to do a voluntary rollover, the reaction of the rating agencies is going to hit euro. The specialists say that the pair EUR/USD is likely to drop below $1.40.

Societe Generale, Lloyds, BarCap about the prospects of EU summit

Analysts at Societe Generale believe that the European leaders will manage to make a deal. The question is if it will be credible enough to improve the market’s sentiment at least for some time. All in all, the specialists think that despite the potential skepticism euro will find some support.

Strategists at Commerzbank think that the situation has gone too far and become too dangerous for the EU could skip an agreement. If Greece gets the second bailout, euro will resume its recovery, at least in the short term.

Economists at Lloyds expect a lot of announcements and commitments from today’s summit. According to them, there may be some additional plan for Greece along with a broadening of scope of the EFSF, for example the purchase of bonds on the secondary market. It’s necessary to understand that all issues of the euro area won’t be cured today. Never the less, commitment to establish a viable systemic framework of support may be enough to encourage investors’ risk appetite.

Specialists at Barclays Capital say that any discussions around a consolidated EU fiscal framework or common euro-bonds issuance may provide a signal for a more sustained advance of the single currency. Without that, any improvement in sentiment and tightening in spreads will likely provoke profit taking maintaining a highly volatile environment.

Capital Economics: debt crisis affects European economy

There was a bunch of economic activity indicators released today in China and Europe. PMI figures for France, Germany and the euro area as a whole turned out to be rather negative.

HSBC'S Chinese PMI showed that China's factory sector contracted in July for the first time in a year and at its fastest pace since March 2009. It happened due to the nation’s monetary policy tightening and low demand in the world.

The flash services PMI dropped from 53.7 in June to 51.4 in July, the minimal levels since September 2009. The reading turned out to be below the expectations of 53.0. The flash manufacturing PMI fell from 52.0 in June to 50.4 in July, also the minimal level since September 2009, below the forecast level of 51.5.

Analysts at Capital Economics note that the decline of the European indicators may mean that the debt crisis begins weighting on the region’s economic recovery.

Commezbank: comments on EUR/GBP

Technical analysts at Commezbank believe that as the single currency didn’t manage to overcome the 55-day MA at 0.8827 trading versus the British pound, it will decline to 0.8712 and 0.8700.

If the pair EUR/GBP gets even lower, it will be poised down to the 200-day MA at 0.8666.

RBS: British pound is undervalued

Currency strategists at Royal Bank of Scotland believe that British currency is, so it’s possible to invest in sterling undervalued in the long term looking forward to its steady appreciation. In their view, pound is 14% below its 10-year average in real terms.

The specialists think that the greenback is also cheap, while the single currency has become closer to its fair value.

The commodity currencies such as Australian, Canadian and New Zealand’s dollars, on the contrary, seem to be expensive though they keep getting support from the improving terms of trade. The most important question here is whether high commodity prices and strong export demand from Asia are structural or only cyclical factors.

RBS analysts think that in the longer term, if the world’s economic recovery gains pace pound will rise to the fair value versus commodity currencies. In the near future, however, state of the global economy is too uncertain and unsustainable for buying sterling.

EU summit: the draft plan of resolving the crisis

It seems that the European authorities have managed to make some progress in dealing with the Greek issue.

According to the report containing the draft plan of resolving the crisis, the European Financial Stability Facility will be allowed to buy bonds in the secondary market.

The plan also calls for a reduction in interest rates on EFSF loans to 3.5% while extending maturities from 7 ½ to 15 years.

The problem European banks will get help from the EFSF to recapitalize. Analysts at Brown Brothers Harriman point out that the ECB won’t need to be the purchaser of “last resort” in the euro zone.

The specialists note that the markets have become more optimistic as it looks as if the EU is going to increase the flexibility and the scope of the way the EFSF works.

The ECB also seems to give in and agree on accepting “selective defaulted” debt as a collateral, thus saving the Greek banking system.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 22, 2011

Commerzbank: outlook for pound has improved

British pound advanced yesterday versus the greenback gaining more than 170 pips. Sterling was encouraged by the improved market’s risk sentiment due to the EU summit that managed to show that the European authorities have made progress bringing the second bailout for Greece.

Technical analysts at Commerzbank claim that GBP/USD has overcome the 3-month downtrend at $1.6211, the 55-day MA at $1.6206 and the 50% Fibonacci retracement at $1.6265. As a result, the pair has got above the key short-term resistance levels and the bias switched from negative to neutral.

According to the bank, British currency may rise to the 78.6% Fibonacci retracement of the decline from April and May maximums in the $1.6540/47 area.

The main results of EU summit

The European leaders agreed yesterday on the 159 billion euro ($229 billion) second bailout package for Greece inducing the private bondholders to take part in financing the indebted nation.

109 billion euro will come from the euro region and the International Monetary Fund, while the rest 50 billion euro will be brought by the financial institutions after a series of bond exchanges and buybacks that will also reduce Greece’s debt burden. Investors will have the option to exchange existing Greek debt into four instruments: 3 will be fully collateralized by AAA-rated zero-coupon securities and have a 30-year maturity, and the fourth will be for 15 years and partially collateralized by funds held in an escrow account.

The 440-billion euro European Financial Stability Facility was authorized to buy debt of the peripheral euro zone’s nations in stress. In addition, the fund was enabled to help the problem banks (the stress tests showed that 24 out of 90 banks have financial difficulties) and offer credit-lines for the European nations that are losing investors’ confidence (the practice used by the IMF).

All in all, it\s necessary to note that the European policymakers tried to compromise and develop a strategy to support Greece and make sure that Greek crisis doesn’t spread.

Analysts at UniCredit believe that the measures taken by the EU officials create the best possible conditions for Greece and other peripheral countries. The specialists point out, however, that the market will keep pricing in some probability that these steps won’t be enough to stop the contagion.

SocGen, BarCap: euro may rise to $1.50

Analysts at Societe Generale believe that though the negative factors for euro are, of course, not all gone, the single currency may climb in the short term to $1.50 versus the greenback after the EU summit was successful enough.

Strategists at Barclays Capital advise investors to buy EUR/USD on its slide down to $1.4300/1.4280 or on the break above $1.4460. In their view, the pair may rise to the trend line resistance at $1.4580. If euro manages to overcome this level and close the week above it, it will be able to strengthen to $1.4700 and possibly $1.4950. The specialists note that the outlook for the pair will turn negative if the rate falls below $1.4180.

Commerzbank: watch today’s Canadian economic data

Yesterday the greenback went down versus its Canadian counterpart breaching support at 0.9450.

Analysts at Commerzbank believe that the market’s attention will be focused on Canada’s inflation report released today at 15:00 (GMT+4) and retail sales data published at 16:30 (GMT+4). For the timely information see our economic calendar (http://www.fbs.com/analytics/economic_calendar/).

The specialists note that Canadian June CPI data has to be surprisingly high, while May retail sales have to show solid growth. In such case the pair USD/CAD may fall below 0.9425 to July 2007 minimums in the 0.9060 area, especially if investors remain optimistic after the Greek bailout.

BarCap, Commonwealth: bullish forecast for Aussie

Australian dollar is on its way up versus the greenback and Japanese yen.

According to the data released today, Australia’s import prices added 0.8% in the second quarter while the economists were looking forward to 1.1% decline.

The CPI data due next week may show that inflation pace rose to the maximal level in more than 2 years – economists surveyed by Bloomberg expect consumer prices to 3.4% in Q2 from the 2010 level. As a result, the chances of the Reserve bank of Australia’s rate hike increase.

Analysts at Commonwealth Bank of Australia are very bullish on Aussie. In their view, after the inflation report there will be no more speculation about the reduction of Australian borrowing costs. Strategists at Citigroup also think that the next move of the RBS will be to raise the rates.

Specialists at Barclays Capital note that AUD/USD has manage to break above the upper border of its trading range at $1.0810 rising to 2-month maximums in the $1.0867 zone. The analysts think that the pair may go higher and climb to $1.0890 and then to May maximums in the $1.1010 area. The bank says that the outlook for Australian currency will remain bullish as long as it’s trading above $1.0765.

BBH, Saxo bank on the prospects of EUR/USD

Currency strategists at Brown Brothers Harriman believe that the single currency has strong chances rise to $1.47 versus the greenback if it manages to overcome $1.46. The specialists base their assumptions on the data from the CFTC and Tokyo Financial Exchange.

Analysts at Saxo bank add, however, that euro won’t be able to get higher than that and will fall to the $1.35 zone by the end of the summer.

In their view, the market’s optimism encouraged by the second bailout for Greece will fade away during the next few weeks. The bank underlines that the summit didn’t change enough as the insolvency issues are still solved by increased liquidity.

UBS: EUR/USD will drop to $1.40 in a month

Currency strategists at UBS are bearish on the single currency versus the greenback. The specialists expect EUR/USD to slide to $1.40 in a month. The 3-month target of the bank is at the same level. The specialists expect euro to decline despite yesterday's decisions of the European leaders to provide Greece with the second bailout.

Here are UBS targets for some other major currency pairs:

- EURCHF: 1-month 1.20; 3-month 1.25;

- USDCAD: 1-month 1.00; 3-month 1.00;

- EURGBP: 1-month 0.90; 3-month 0.86.

Westpac: the pair NZD/USD has renewed the record maximum

New Zealand’s dollar reached today the record maximum versus its American counterpart at $0.8674.

The sentiment all over the world improved after yesterday’s EU summit and investors seem to be optimistic on Greece. Analysts at Westpac claim that market’s attention will now switch to the US debt problems. In their view, the greenback will be declining until American debt ceiling is lifted up.

In the near term resistance for the pair NZD/USD is found at $0.8700, while support for the pair is situated at $0.8575.

Credit Suisse Group AG index based on swaps shows that the market expects the Reserve Bank of New Zealand to raise the interest rates during the next year by 94 basis points – that’s the maximal estimate since November.

New Zealand’s CPI rose gained 5.3% in the second quarter on the annual basis making the biggest advance since 1990. The RBNZ will hold a policy meeting on July 28.

Never the less, it’s necessary to be cautions with the long positions as kiwi is currently overvalued and technical indicators show that it’s rate has risen too quickly and risks to reverse.

On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

FBS.com Official · July 25, 2011

UBS, Credit Agricole: risk factors for the single currency

Currency strategists at UBS think that the United States may avoid default, but get downgraded by the ratings agencies.

At the same time, the situation in Europe is far from optimistic as there are the prospects of a selective default in Greece, the bailout implementation risks as the EFSF has not been expanded.

It’s also necessary to mention the renewed concerns about the peripheral euro zone’s nations and deteriorating data in the core economies of the region such as lower German and euro-zone PMI data and weaker German IFO.

As a result, the specialists advise to sell EUR/USD at its advances to $1.44/1.45.

Analysts at Credit Agricole also note that euro will remain very vulnerable to the negative news from the PIIGS this week. In addition, the bank points out that if the European economic data keeps worsening, investors may start wondering if the ECB had made the right decision to raise rates in April and June.

Commerzbank: GBP/USD will rise above $1.65

British pound gained last week about 130 pips versus its US counterpart consolidating in the $1.6300 area.

Technical analysts at Commerzbank believe that GBP/USD has broken up the key short-term resistance levels – its 3-month downtrend line at $1.6211, 55-day MA at 1.6204 and the 50% Fibonacci retracement at $1.6265.

The bank now expects sterling to rise to the previous 2010-2011 uptrend line at $1.6395 and 78.6% retracement of the decline from April and May maximums at $1.6540/47.

Standard Chartered cut UK GDP forecast

Analysts at Standard Chartered claim that the Bank of England will keep the borrowing costs at the current 0.5% level until the beginning of 2013.

The specialists lowered UK economic growth forecast in 2011 from 1.4% to 1.1%. In their view, inflation may surge in the coming months, but this increase is likely to be short-lived.

The economists expect consumer prices’ growth pace to return to the target levels by the end of 2012. As a result, British central bank will start tightening monetary policy in 2013.

Analysts at BNP Paribas advise investors to pay attention to the Britain’s preliminary GDP release on Tuesday, July 26, at 12:30 pm (GMT+4). According to them, UK economy won’t grow at all, while the market is looking forward to 0.2% advance.

BofNY Mellon, BOTMUFJ: US dollar prospects

Economists at Bank of New York Mellon note that once US government and Congress reach agreement on lifting up the debt ceiling, dollar’s rate will rebound. In their view, the greenback will show the most significant growth versus British pound as at the beginning of the year the market was too excited about the potential rate hikes in the UK where the inflation level is high, but the central bank is unable to tighten policy because of the low economic growth.

At the same time, analysts at Bank of Tokyo-Mitsubishi UFJ warn that if the debt problem remains unsolved by the deadline on August 2 the United States may face another recession. In their view, if the nation loses its top AAA credit rating, the near-term impact won’t be that strong, but in the longer time perspective it will seriously affect US currency.

Analysts at Barclays Capital believe that in the short-term the pair GBP/USD may rise to $1.6385 and $1.6425. Support is situated at $1.62. As for USD/JPY, the strategists advise investors to sell the greenback versus Japanese yen on its advance to 78.75. In their view, the pair is on its way down to 77.50.

Pimco: US risks to lose its credit rating

US President Barack Obama has asked for a $2.4 trillion borrowing boost in the $14.3 trillion debt ceiling. House Speaker John Boehner encouraged the Republicans to unite their efforts in order not to let Obama obtain the money at once without any guarantees of spending cuts.

Mohamed A. El-Erian, the head of Pacific Investment Management Co, the world’s largest manager of bond funds, believes that the United States may lose its top AAA credit rating even if US Congress agrees to lift up the debt ceiling.

The specialist notes that the nation already suffers from weak economic growth and high unemployment and the debates over the debt limit make the problems intensify.

Standard & Poor’s estimates the possibility of US rating cut within 3 months by 50%.

Yields on benchmark 10-year rose to 2.96% on July 22 but remain below the 5-year average of 3.71%.

Deloitte: forecast for the RBA rates

Analysts at Deloitte Access Economics expect the Reserve bank of Australia to raise the interest rates 3 times the next year, but not earlier.

The specialists base such forecast on the expectations that the mining boom encourages the growth of wages stimulating the economic recovery from the costliest floods.

According to Deloitte, Australian incomes will rise because of high commodity prices and strong demand. The number of people employed won’t be sufficient enough for the growing economy. As a result, the demand for labor will get higher than the supply and the wages will go up.

The last time the RBA changed rates was in November 2010. Since that time, the central bank’s benchmark rate accounts for 4.75%. During the period from April and June the number of jobs dropped by 5,400. Australian dollar appreciated by 22% during the past year.

It’s necessary to note that Australia’s recovery is two-speed as the mining industry flourishes, but other areas such as tourism, manufacturing, farming and retailers suffer from the strong national currency. That’s why the economists expect hikes in the longer term.

Mizuho, SocGen advise to sell USD/JPY

Currency strategists at Mizuho note that last week the greenback has posted another minimum versus Japanese yen. In their view, the downside momentum for USD/JPY has increased. The specialists say that all elements of the weekly Ichimoku chart indicate short position. In their view, the greenback is on its way down to 76.25.

Analysts at Societe Generale believe that as there’s some temporary improvement in Europe, all attention will switch to the United States. The economists claim that the situation in the US is very different from what’s happening in Japan. The bank reminded about the high current account surplus. As a result, Societe Generale recommends selling dollar versus yen with stops at 79.75 and target at 75.00.

FBS.com Official · July 26, 2011

Citigroup: US dollar may gain as a safe haven

Analysts at Citigroup believe that the demand for the greenback as a safe haven may rise in the situation of uncertainty caused by the lack of agreement between Barack Obama and US Congress on raising the $14.3-trillion debt ceiling and reducing the budget deficit.

The specialists remind that during the times of elevated risk aversion investors tend to seek most liquid and deepest markets and American Treasuries and dollars have traditionally been such.

As US authorities have reached the deadlock, stock markets are down so that investors’ risk sentiment worsens. That will make traders desert riskier assets.

House Speaker John Boehner who represents the main opposition force against the White House’s called for a 2-step debt-limit extension that would provide a roughly $1 trillion – less than Obama has requested – demonstrating his unwillingness to compromise and withstanding the threat of President’s veto.

Standard & Poor’s estimates the possibility of US rating cut from AAA to AA+ within 3 months by 50%.

BOTMUFJ: USD/CHF has potential for rebound

Technical analysts at Bank of Tokyo-Mitsubishi UFJ believe that the greenback may rise from the record minimum versus the Swiss franc in the 0.8000 area hit today.

The specialists underline that 14-day RSI (relative strength index) for USD/CHF dropped to 30 that may mean that its rate has fallen too rapidly and risks reversing. As a result, the economists see the chance of the pair’s short-term recovery.

In their view, US currency that is now at roughly 6% below the Ichimoku Cloud has to reach it in order to confirm the rebound and the change of trend.

Wells Fargo: EUR/USD won’t rise above $1.47

The single currency rose today to the 3-week maximum versus the greenback at $1.4500.

Analysts at Wells Fargo Bank claim, however, that though they have become more positive on euro, they think that its advance is going to be limited as there’s evidence of the euro zone’s economic slowdown and remained uncertainty about the possibility of further contagion.

According to the specialists, the pair EUR/USD has potential to gain during the next few weeks, but it will be capped by the June maximum in the $1.47 area.

The bank adds that commodity and emerging currencies may be the best performers in the longer term as the risks in Europe and United States ease down.

Commodity currencies have become less dependent on commodities

The currencies of the large exporters of raw materials are becoming less correlated with the dynamics of commodity prices as investors choose them as a refuge from the debt issues in Europe, the United States and Japan.

The following figures speak for themselves: S&P’s GSCI Total Return index of 24 commodities lost 8.45% since April, while Canadian, Australian and New Zealand’s dollars and Norwegian krone added 1% on average during the same period. Strategists at BMO Capital Markets claim that Canadian dollar seems to have outpaced its commodity-price fundamentals.

Analysts at Citigroup underline that the desire of the central banks, especially the Asian ones, to diversify their reserves is a significant driver of commodity currencies. Strategists at Mizuho Corporate Bank note that the greenback is slowly but surely losing its status as the world’s reserve currency, while Australian and Canadian dollar are now the majors with large markets.

According to the IMF data, the share of the world’s currency reserves denominated in “other currencies” such as Aussie, kiwi and loonie rose from 3.6% a year ago to 4.7% in the first quarter. The greenback that accounted for 72.7% of the reserved 10 years ago represented 61.8% in the first 3 months of 2010 and 60.7% at the beginning of 2011.

Another reason of commodity currencies’ strength is relatively higher interest rates. Investors will get about 4.35% more from 2-year government bonds in Australia, Canada, New Zealand and Norway than from Treasuries of similar maturity.

US dollar may suffer this week from the economic data

US Q2 GDP is released on Friday at 4:30 pm (GMT+4). If the reading is low, US dollar will get under a very negative pressure the debt burden will be accompanied by the nation’s economic weakness.

Economists surveyed by MarketWatch expect to see annual growth 1.6% after 1.9% in the first quarter.

During the past 7 quarters the growth accounted for 2.8% on average. Never the less, for US to enjoy the sustainable decline in unemployment, economic growth pace has to exceed 3%, so the results between 2.5% and 3% just won’t be enough.

It’s also necessary to note that many experts are already thinking about the third quarter hoping that the economic situation in the US will improve due to the increased auto output as the Japan supply-chain problems are resolved as well as lower commodity prices. However, if the Q3 data disappoints the market the sentiment will turn very negative as traders are tired of the constant bad news they have been getting so far.

Analysts at JPMorgan also advise investors to pay attention to US bond auctions. US Treasury will offer 2-year securities on Tuesday, 5-year papers on Wednesday and 7-year bond on Thursday. In their view, low demand for Treasuries will make dollar weaken versus Japanese yen, Swiss franc and the single currency.

MIG bank: strategists of selling USD/CHF

Technical analysts at MIG bank advise investors to sell US dollar versus Swiss franc.

The specialists give 2 possible strategies. Firstly, one may sell USD/CHF on its rebound to 0.81 with stops above 0.82 targeting 0.80, 0.7825 and 0.7650. Secondly, if the greenback doesn’t recover, the bank recommends opening shorts on the pair’s break below 0.7997 stopping above 0.8097 and targeting 0.77 and 0.76.

It’s necessary to remember about the fundamental factors though. Strategists at HSBC believe that American currency will gain support once US debt issue is resolved. In their view, if US lawmakers approve a package of at least $3.5 trillion of cuts, the danger of a credit downgrade should decrease.

BMO Capital: how to hedge from US default

Analysts at BMO Capital claim that there are 3 scenarios of the debt-ceiling debate:

1)The plan close to the one developed by the “Gang of Six” will be adopted.

2)President Obama will agree to a small extension of the debt limit to prolong the discussion of a major shift of the debt ceiling.

3)The worst case scenario: US will default or/and loses its top credit rating.

The specialists note that Standard & Poor's seems to be extremely worried by the dynamics of US debt and deficit, so the agency is likely to downgrade the nation even if the debt ceiling is raised.

Fearing the worst, one should sell Australian dollar, the classic riskier currency, versus Swiss franc, the classic safe haven. BMO recommends going short on AUD/CHF at 0.9073 stopping above 0.9203 and targeting 0.8503. Strategists at J.P. Morgan say that selling EUR/CHF may also suit as a strategy.

UBS: about the potential reduction of US debt

Analysts at UBS think that the United States may lose its top AAA credit rating in August if the White house and Congress agree to limited reductions of the budget deficit, while Standard & Poor’s and Moody’s Investors Service insist that $3-$4 trillion cuts are necessary.

According to the bank, the downgrade will certainly affect the prestige of America, but the impact on the greenback probably won’t be very significant as the central banks won’t sell Treasuries as they have to hold foreign-exchange reserves in liquid assets.

John Taylor, the head of the world’s largest currency hedge fund, believes that dollar won’t lose its dominance even in case of the nation’s downgrade.

FBS.com Official · July 27, 2011

Western Union: RBNZ may raise the interest rate

New Zealand’s dollar renewed today the record maximum versus its American counterpart rising to 0.8763. Resistance for NZD/USD is situated at 0.8800.

Analysts at Western Union claim that kiwi managed to strengthen because of US dollar’s weakness, positive domestic business confidence survey and Australian CPI data.

The Reserve bank of New Zealand will announce its interest rate decision on Thursday at 1:00 am (GMT+4). Although the consensus forecast is that the central bank will leave the borrowing costs unchanged at 2.5%, Western Union economists regard the chance of the rate hike as rather high.

The specialists underline that when the RBNZ cut the interest rates by 50 basis points in March it clearly signaled that this was a temporary measure taken in order to help the national economy overcome the consequences of devastating earthquake that occurred in February. In their view, it’s obvious now that the disaster wasn’t as great as everyone feared. In addition, there’s significant enough inflationary pressure – one more argument to look forward to the monetary tightening.

Commerzbank: bullish outlook for EUR/USD

The single currency is consolidating in the 1.4500 area versus the greenback.

Technical analysts at Commerzbank note that as long as EUR/USD is trading above the short-term uptrend line at 1.4324, the outlook for it will remain bullish.

According to the specialists, the pair will be trying to retest 1.4580 (July 4 maximum) and 1.4694/1.4704 (June maximum and 78.6% retracement of the decline from May highs).

RBS: sell dollar versus yen and franc

Currency strategists at the Royal Bank of Canada note that US authorities seem to make no progress in the debt deal.

In their view, if the market’s sentiment keeps deteriorating, it’s necessary to sell the greenback versus Japanese yen and Swiss franc. The specialists underline that these currencies were steadily appreciating since US debt issues escalated and the policymakers have reached a deadlock in trying to raise the debt ceiling and avoid default.

RBS advises to stay away from commodity currencies such as Canadian and Australian dollars as they are vulnerable to the rising risk aversion even despite the fiscal strength of these nations.

It’s very difficult to say how low US dollar will fall. However, some analysts think the greenback’s slide in case of the United States downgrade won’t be that strong.

Analysts at Well Fargo, for example, have studied other instances when a country has lost its AAA credit rating. The economists came to the conclusion that the impact of the rating cut will be moderate of 3-5%.

Fund managers look forward to US downgrade

The largest fund managers such as BlackRock, Loomis Sayles and Franklin Templeton Investments expect United States to be downgraded.

Analysts at BlackRock note that when the policymakers face the deadline, the debt ceiling will be raised. Never the less, the nation will be still likely to lose its top credit rating.

Specialists at Loomis Sayles Bond Fund doubt that the White house and the Congress will manage to reach an agreement and expect that at least one agency will reduce US debt rating. At the same time, the AAA or AA rating doesn’t exactly matter for US debt as the Treasuries will continue to be a large and liquid market, says the fund.

Strategists at BNP Paribas, however, do think that the credibility of US bonds is declining. Yields indicate investors are favoring bank or company debt over Treasuries. 10-year Treasury yield hit 2.97% level today, though it’s still below the decade’s average of 4.05%.

Economists at Franklin Templeton Investments say that the lack of long-term solution of American debt issues will cast doubt on the risk-free status of US Treasuries.

Mitsubishi UFJ, BarCap: comments on USD/JPY

Analysts at Mitsubishi UFJ Morgan Stanley Securities believe that Japanese monetary authorities have given up on verbal interventions as all comments fail to curb demand for yen as a safe haven.

In addition, the specialists note that the atmosphere seems to be calmer than in the past as the stock markets didn’t seriously suffer. Japan realizes that even though strong yen makes exports less competitive, it makes imports cheaper and the nation currently needs plenty of foreign materials for reconstruction from the March 11 earthquake and tsunami. It’s also necessary to note that the breakdown at the nuclear power plant increases Japan’s dependence on foreign fuel imports.

Strategists at Barclays Capital claim that support for USD.JPY is situated at 77.40. Below that level it will slump to the record minimum at 76.25 hit in March. According to the bank, the negative pressure on the pair will ease only if it overcomes 78.40.

GS, JPMorgan Chase, Merrill Lynch about US GDP forecast

Analysts at the major banks such as Goldman Sachs, JPMorgan Chase and Bank of America-Merrill Lynch have reduced US economic growth forecast in the second quarter from 3.25% to 2.5%.

In their view, slower recovery will make the Federal Reserve hold the borrowing costs at the record minimum of 0-0.25%. JPMorgan and Goldman Sachs don’t rule out the possibility of the recession in the United States.

The economists are worried as the growth in the second quarter was more due to the expansion of inventories rather than to demand. Domestic final sales which exclude inventories, exports and imports gained only 0.5% from April to June, while business inventories added 1% in both April and May.

The rise in inventories may be explained by the fact that Americans have become more worried about the future. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell in July to 63.8, the weakest reading since March 2009, three months before the recession ended. The deterioration in consumer confidence, in its turn, may be caused by the discouraging situation at the labor market. The unemployment rate rose in June to 9.2%.

Economists surveyed by Bloomberg News believe that US GDP added 1.8% in Q2 after rising by 1.9% during the first 3 months of the year. Data is released on Friday at 4:30 pm GMT.

Credit Agricole: US problems and EUR/USD dynamics

Analysts at Credit Agricole believe that the risks that the US will lose its top credit rating are high given the current impasse in the negotiations about the debt ceiling increase.

If the United States is downgraded, equity markets will fall and the bearish pressure on US dollar will strengthen, while the gold prices will rise. The bank thinks that shock to the American economy in case of the rating cut could lower the next quarter's real GDP growth close to zero, though 4Q growth is likely to show some rebound after a possible resolution to the budget standoff.

According to Credit Agricole, EUR/USD should remain supported for some time by the widening of yield spread between US and German government bonds. The specialists warn, however, that as investors’ demand for safe havens increases, Treasury yields may actually get lower.

In addition, the strategists underline that the August 2 deadline isn’t ultimate as the White house will have 1-2 weeks more before it runs out of cash. As a result, the panic seen so far seems to be exaggerated. The analysts say thus that euro’s advance is going to be limited. Strategists at Societe Generale agree. In their view, the pair can't hold above $1.45.

FBS.com Official · July 29, 2011

RBS: sell EUR/AUD and EUR/NZD

While the market’s attention was focused on the development of US debt debates, there’s a good chance to benefit from trading Australian and New Zealand’s dollars.

Strategists at Royal Bank of Scotland believe that both nations are likely to lift up the interest rates rather soon. The specialists note that there was a flow of encouraging economic data so far. That includes strong growth and confidence figures from New Zealand and higher than expected CPI in Australia. In addition, Aussie and kiwi will be driven by the demand for rising neighbouring Asian assets. The greenback, on the other hand, has little upward potential as there aren’t many positive factors to encourage it.

RBS also thinks that the problems in the euro area are going to escalate as the regions will be struggling to implement the second bailout for Greece. It will be very difficult for Europe to regain the market’s confidence as it may be seen from the rising Italian sovereign bonds.

The bank advises investors to sell EUR/AUD at 1.3010 stopping above on a 2-day close above 1.3500 and targeting 1.2000 by the first quarter of 2012. RBS recommend as well going short on EUR/NZD at 1.6500 stopping above on a 2-day close above 1.7000 and targeting 1.5000 by the first quarter of next year.

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FBS.com Official · July 29, 2011

Commerzbank: comments on GBP/USD

Technical analysts at Commerzbank note that this week for GBP/USD was quite volatile due to the high uncertainty at the market.

British pound didn’t manage to rise above $1.6380 and then eased down versus the greenback to the levels slightly above $1.6300. The bank thinks that the pair’s consolidating above June 22 maximum at $1.6260.

The specialists say that as long as sterling is trading above this level, it has chance to recover to the 78.6% Fibonacci retracement of the decline from April and May maximums in the $1.6540/47 zone.

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FBS.com Official · July 29, 2011

Reuters: Japanese authorities on stronger yen

As yen keeps appreciating versus its American counterpart and the markets are speculation on the potential intervention of Japanese monetary authorities, here are the key statements of the nation’s top officials as they are cited by Reuters.

Yoshihiko Noda, Finance Minister:

- “I am aware of various calls from the business sector and the severe situation Japanese companies face. We hope to take appropriate action with the cooperation of the Bank of Japan.”

- “We will take decisive action against excessive exchange rate volatility. I'd like to carefully examine how long we can leave current (exchange-rate) moves unattended.”

- “Movements have been one-sided. I think intervention has a certain effect temporarily. We should respond to excessive volatility and disorderly movements but it's not about (currency) levels.”

Kaoru Yosano, Economics Minister:

- “The yen's rise is not driven by domestic factors but by changes in global money flows ... The changes are occurring for a limited time period until August 2 so I hope the yen's rise will prove temporary...”

- “The government could counter a strong yen mainly by extending financial support to subcontractors and other firms suffering from the yen's rise... We have never thought about manipulating currency levels.”

- “Friday's economic data overall indicates the economy remains on a recovery trend, although employment is in a severe condition.”

Conclusion: if yen’s slump accelerates the intervention will come but it may happen at lower levels and after August 2.

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FBS.com Official · July 29, 2011

Lloyds: USD/JPY may test 76.00 yen

Japanese yen keep strengthening versus the greenback and the single currency.

The pair USD/JPY is under negative pressure as it seems that Japan’s monetary authorities won’t intervene before the uncertainty associated with US debt debates clears up. The deadline on the matter scheduled on August 2 is approaching.

Dollar fell to 77.45 yen, the lowest level since March 17 when it hit the postwar minimum at 76.25 yen.

Strategists at Ueda Harlow say that there seems to be no end of the debt ceiling discussion in America. In their view, the risk sentiment will keep worsening, so it’s necessary to buy Swiss franc and Japanese yen.

Analysts at Lloyds believe that yen is likely to gain more and even test 76.00 yen per dollar.

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FBS.com Official · July 29, 2011

BarCap: comments on the situation in the US

Analysts at Barclays Capital note that situation at the FX market is going to be more complicated than the one at the stock market.

While in case of the worst outcome in the US equities just pick up the bad news, the currency markets will face 2 impacts: the big negative shock to the US in particular and the global risk shock. The former to some extent offsets the latter when it comes to the overall influence on US dollar. The bank still thinks that the liquidity of American market and the dollar’s safe haven status will play its role.

The specialists believe that US authorities will reach a short-term deal before August 2 as it’s impossible to find long-term solutions ahead of that. The long-term deal is very important though, firstly, because of the potential S&P downgrade and, secondly, as this is a very serious issue and if US doesn’t get its fiscal house in order, the global economy will suffer.

BarCap says that further out on the time horizon, fiscal tightening will weigh on growth and weaken US currency as the Fed’s monetary policy will remain looser for longer than the market is currently expecting.

According to the bank, Barack Obama and the Congress speaker John Boehner aren’t willing to compromise now putting the decision off to the last moments as each of them hopes that the other will back down fist.

The economists believe that it’s not the time to get too risky and adventurous at the forex market. Barclays Capital says that at the moment the most attractive currency is yen as it allows enjoying the classic risk-off trade.

FBS.com Official · July 29, 2011

BNP Paribas: euro zone’s inflation has unexpectedly slowed down

According to the data, released today, euro zone's inflation slowed this month from 2.7% in June to 2.5% in July on the annual basis, while economists surveyed by Reuters expected consumer prices to gain 2.7%.

As a result, the possibility of the rate hike in the euro area has decreased. The European Central Bank got more room for manoeuvre: now it has reasons to pause the tightening cycle due to the signs of the economic slowdown in the region and the elevated risks related to the debt problems both in Europe and in the United States.

The ECB’s mandate is to keep inflation slightly below 2%. The central bank lifted up the benchmark rate twice this year to 1.5%.

Today’s data were quite surprising taking into account that German’s CPI growth rate reached in July the 3-month maximum of 2.4%.

Analysts at BNP Paribas claim that the main reason of inflation’s slowdown may be the changes in Eurostat's methodology in January when the list of factors regarded as seasonal was enlarged.

Economists at IHS Global Insight, the world's largest economics organization, believe that though interest rate hike in the fourth quarter is very possible the slowing European growth and debt issues will force the ECB to keep the rates on hold. It may also turn out that the second round inflationary effects from higher energy and commodity prices are being contained. The specialists project that the ECB will keep rates at 1.5% through the rest of 2011 and then lift them gradually to 2.25% by the end of 2012.

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FBS.com Official · July 29, 2011

Credit Suisse: SNB once again posted losses

Swiss National Bank has posted the loss of 10.8 billion Swiss francs ($13.5 billion) in the first half of the year as euro’s decline devalued the central bank’s currency reserves.

The exchange-rate-related losses accounted for 11.7 billion francs, while 1.55 billion francs were lost on gold holdings. During the same period last year the SNB lost 2.78 billion francs. All in all, in 2010 its balance sheet contracted by 21 billion francs.

During the 15 months through June 2010 the central bank increased its international reserves in 4 times through currency interventions as it was trying to stop excessive appreciation of the national currency.

Analysts at Credit Suisse doubt that the SNB will intervene in the coming months unless the franc gains sharply again.

Swiss currency gained 9.2% versus the single currency and 17% against the greenback this year.

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FBS.com Official · July 29, 2011

Moody’s put Spain's credit rating on revision

Moody’s Investors Service announced that it may lower Spain’s Aa2 credit rating. According to the agency, although Spain has relatively low public debt ratio compared to other European Union nations, “challenges to long-term budget balance remain due to Spain's subdued economic growth and fiscal slippage within parts of its regional and local government sector.”

The nation’s Prime Minister Jose Luis Rodriguez Zapatero claimed that the elections will be held November 20 instead of March in order to ease political tensions in the country. The ruling Socialist Party became unpopular as Zapatero began conducting austerity measures.

Analysts at Commerzbank pointed out that the concerns about the euro area are still very high that makes the single currency very vulnerable. The specialists are bearish on the single currency.

Spanish 10-year bond yields rose by 5 basis points to 6.09%, while Italian ones increased by 8 basis points to 5.92%, nearing the 6% mark seen as unsustainable in the long term. The pair EUR/JPY fell to 110.32, the lowest level since July 13.

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FBS.com Official · August 1, 2011

Compromise in the US: market’s sentiment improved

The pair USD/JPY jumped today from the 4-month minimum at 76.88 hit on Friday to 78.04 and then eased back down to the 77.30 area. The pair USD/CHF is also trading above the all-time minimum at 0.7853.

It happened as US President Barack Obama announced that the White house and the Congress have at last agreed on the plan to prevent a default. The agreement includes raising the nation’s debt limit by $2.1 trillion and cutting the federal budget deficit by $2.5 trillion over a decade.

The analysts at Canadian Imperial Bank of Commerce note that the tension level has eased as at the end of last week investors got nervous about the lack of compromise on the back of an approaching deadline. It’s necessary to note, however, that the risks of the United States losing top AAA credit rating remain high. Last week S&P said that if the spending cuts have to be lo less than $4 trillion to rule out the threat of the downgrade.

Currency strategists at Bank of America Merrill Lynch note that spending contraction will make the Federal Reserve keep the rates unchanged for a long time. In their view, there will be no hikes until US economic growth pace is below the long-term trend of 3%. Analysts at Barclays Capital think that the Fed will stay on hold during the whole next year.

According to the data from Commodity Futures Trading Commission, net bets against dollar rose to 310,222 contracts as of July 26 from 272,444 a week before.

BNP Paribas, JP Morgan: QE3 possible in the US

Analysts warn that the US economy risks falling in another recession.

American GDP gained 1.3% in the second quarter on the annual basis, while the first quarter figures were revised down to 0.4% that is the lowest level since the recovery began in June 2009.

The Q2 GDP accounted for $13.27 trillion that is lower than $13.33 trillion peak in the final quarter of 2007. It’s necessary to note that the recession data has been so far revised down by 25%: according to the latest figures, during the period from the fourth quarter of 2007 to the second quarter of 2009 US economy contracted by 5.1%, while the previously reported reading showed 4.1% drop.

The experts see the future outlook for America as rather dim. Economists at Deutsche Bank lowered the forecast for the third quarter from 3.5% to 2.5% and from 4.3% to 3 for Q4. Barclays Capital decreased estimates for the third quarter and the following five by a percentage point.

Analysts at BNP Paribas and JP Morgan believe that the slowdown may make the Federal Reserve consider the possibility of the third round of quantitative easing. Strategists at Societe Generale think that the greenback won’t be able to gain much in the current conditions.

Barclays Capital: comments on USD/JPY

Analysts at Barclays Capital note that at the beginning of today’s trading day the greenback managed to rise to 78.05 regaining the grounds lost on Friday but then was stopped by the resistance and returned down to the 77 yen area.

The specialists believe that the 78.05 level will now represent the key obstacle for USD/JPY. As long as the pair is trading lower, it risks falling to the record minimum at 76.25 hit on March 16. If US dollar closed higher, it will be able to rise to 79.35/60. According to Barclays, the first scenario seems to be more possible.

UBS: forecasts for USD/CHF and EUR/CHF

Swiss currency that eased down versus the greenback after the news that US authorities have reached compromise on the debt ceiling, has once again renewed the record maximum.

Currency strategists at UBS note that franc remains near all-time highs against all of its main counterparts as the uncertainty levels are still high.

According to Switzerland’s Economy Minister, the appreciation of the national currency isn’t temporary and one should expect it to decline soon. The official underline that this would affect the country’s economy. In his view, the unemployment is likely to increase.

UBS specialists give the following forecasts for USD/CHF and EUR/CHF: 0.86 and 1.20 respectively in a month and 0.89 and 1.25 – in 3 months.

Commerzbank: EUR/CHF keeps falling

The single currency once again renewed the record minimum versus Swiss franc falling to 1.1262.

Economists at Brown Brothers Harriman note that this means that the potential resolution to the US debt ceiling will turn the market's focus back to the euro-zone peripheral nations.

Technical analysts at Commerzbank believe that EUR/CHF is on its way down to the support line of the downtrend from April to July at 1.11.

According to the bank, the pair will find support at the psychological level of 1.10 and then only at 1.0775.

The unemployment rate isn’t likely to decline

The majority of analysts are rather pessimistic about US Non-Farm Payrolls data due on Friday, August 4, at 16:30 (GMT+4). It’s thought that the payrolls won’t rise high enough to reduce the unemployment rate.

Economists surveyed by Bloomberg News expect American employers to create 90,000 jobs in July after 18,000 in June, while the unemployment rate is seen at the same 9.2% level.

Analysts at ING Bank note that the US firms and households are very cautious due to the high uncertainty and the companies seem to be very reluctant about hiring new people. The shortage of jobs will likely affect consumer spending increasing the risks for the economic growth. Consumer spending added 0.1% in the second quarter, the smallest gain since the same period of 2009.

Analysts at Pierpont Securities note that for the unemployment rate to remain unchanged payrolls have to add 125,000 a month, while in order to reduce it by percentage point over a year they should increase by 200,000 a month.

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