Comments and forex-analytics from FBS Brokerage Company

[FBS.com Official]

SNB cut rates to weaken franc

 

The Swiss National Bank loosened its monetary policy today in order to stem excessive appreciation of the national currency.

 

Comments from SNB:

 

- Franc is currently massively overvalued

 

- Switzerland’s economy at threat, outlook worsened

 

- Deflation risk grows

 

The central bank:

 

- is aiming to keep 3-month Libor rate as close to 0 as possible – the target range narrowed from 0.00-0.75% to 0.00-0.25%;

 

- will increase the supply of liquidity to franc’s money market during the next few days;

 

- is planning to expand banks’ sight deposits at the SNB from 30 to 80 billion francs;

 

- no longer renew repos and SNB Bills that fall due and will repurchase outstanding SNB Bills, until the desired level of sight deposits has been reached.

 

- is watching the foreign exchange market;

 

- will act to stem franc’s appreciation if it’s necessary.

 

The SNB’s move helped to ease Swiss franc down from its record maximums versus the single currency and the greenback. The pair EUR/CHF rose from 1.0794 to the levels above 1.1000, the pair USD/CHF went up from 0.7607 to the levels in the 0.7760 zone.

 

Paul Krugman: US has to increase but not reduce spending

 

Nobel Prize winner Paul Krugman believes that US President Barrack Obama was wrong to compromise with Republicans on the debt ceiling agreement that includes government spending cuts.

 

The famous economist thinks that the cuts will decrease the nation’s GDP while American economy is already weak.

 

Krugman underlines that the bill doesn’t imply such measures as the extension of unemployment benefits as it was widely expected, so the country is likely to face the severe fiscal tightening. In his view, the austerity measures mean that US authorities are making the same mistakes as during the Great Depression.

 

If the specialist was one in charge and there weren’t any political constraints he would increase spending as that could be financed at a relatively low interest rate.“The federal government can borrow. It can borrow with inflation-adjusted bonds at an interest rate at 0.3%. So this is a really good time to borrow for infrastructure spending, which we badly need and which would create jobs at a time when we badly need jobs,” says Krugman.

 

According to him, the unemployment benefits are necessary to sustain spending power, though Krugman understands that now America can’t afford health care or entitlement spending as it needs more revenue in the longer term.

 

Scotia Capital: low demand for both euro and dollar

 

With much struggle the euro area and the United States are both through the major decisions aimed to improve the situation and reduce risks. Never the less, investors don’t hurry to rush in euro and dollar.

 

Strategists at Scotia Capital believe that EUR/USD will trade in range between $1.3950 and $1.4700 and finish the third quarter at $1.45.

 

The specialists note that, on the one hand, the European economic outlook remains uncertain due to the risk of slowdown combined with austerity measures that will certainly keep euro under pressure.

 

On the other hand, dollar will suffer from high US fiscal deficit and debt and deteriorating economic prospects. The evidence for the latter is weak GDP readings, ISM PMI falling to 50.9 and declining consumer confidence.

 

Analysts at Goldman Sachs claim that the pair may climb to $1.55 in a year, though, according to their forecast, the single currency will be able to strengthen more due to the general weakness of the greenback than to some euro-related factors.

 

As a result, the odds are that EUR/USD will trade sideways for the rest of the year, so it’ probably better to trade another crosses.

 

BarCap, RBS: Japan will follow SNB's example

 

Analysts at Barclays Capital believe that franc may be no longer regarded as the safe haven after the Swiss National Bank eased monetary policy to keep franc from further appreciation, so investors will likely turn to Japanese yen. As a result, the pressure on Japan’s monetary authorities will strengthen. According to BarCap, Japan must act quickly to stem yen’s advance if it means to do so.

 

Strategists at RBS note that the Bank of Japan will seriously consider the option of easing monetary policy. The economists underline that Japan and Switzerland are facing similar challenges with regard to the strength of their currencies used as refuges from the European and US debt problems. In their view, it would be easier for Japanese officials to decide on intervention than it was for SNB which lost billions in 2010 trying to stem franc.

 

RBS expects Japan's MOF to intervene after US non-farm payrolls data is released on Friday.

 

UBS, UniCredit: comments on the SNB

 

Analysts at UniCredit believe that today’s move of the Switzerland’s central bank will help to stabilize franc’s rate even if from the fundamental point of view the situation hasn’t changed. The specialists think that the SNB was absolutely right to step in. As the Swiss National Bank mentioned that the nation’s growth outlook has substantially deteriorated, the risk of a recession strongly increased.

 

Strategists at UBS expect more interventions from the Swiss National Bank as the euro zone’s issues may keep the franc attractive for investors and more easing will be needed to stem its gains. In their view, the previous SNB interventions came at wrong times and acting at current levels could be more effective.

 

NBER Committee about US economic prospects

 

US economic recovery that has been lasting for 2 years is now obviously losing its pace. Economists at Business Cycle Dating Committee of the National Bureau of Economic Research, which determined the dates of recessions, don’t seem very optimistic about the nation’s growth prospects.

 

Committee members believe that weakness in housing, employment, and business confidence and efforts to reduce debt by consumers and government are the main obstacles to growth.

 

While the committee doesn’t forecast the odds of a recession, individual members can make their own predictions. Here are their comments reported by Bloomberg.

 

Martin Feldstein (Harvard University): now there’s the 50% chance of the US falling into new recession.

 

Robert Hall (Stanford University): the slower the growth rate, the more likely it is that an adverse shock would cause a recession. Consumption declines as debt repayments are reducing spending even this long after the crisis.

 

Christina Romer (University of California): the risks of another recession have gone up for compared to what was 6 months ago. The economist expects anemic, but positive, growth.

 

James Stock (Harvard University): new shock could spark a downturn, similar to the contraction after oil prices jumped with Iraq’s invasion of Kuwait in 1990. Business confidence has been shaken by the months-long debate over raising the debt ceiling.

 

Jeffrey Frankel (Harvard University): spending cuts will reduce US economic growth next year.

 

Robert Gordon (Northwestern University): the aftereffects of the housing bubble keep affecting the economy.

 

Moody’s and Fitch about US credit rating

 

Moody’s Investors Service and Fitch Ratings confirmed US top credit ratings but warned that the nation may be downgraded if it doesn’t manage to reduce the debt and its economy continues weakening.

 

Moody’s claimed that the decision on the rating may be made within 2 years or “considerably sooner”.

 

According to Fitch, the ratio of general government debt, including state and local governments’ debt, will reach 100% of GDP in 2012. That’s the most of any AAA-ranked country. The agency points out that while the rating may be cut in the medium term, the near-term risks aren’t very high as the agreement on lifting up the debt ceiling and cutting deficit is only a first step. Fitch plans to finish the rating’s review in August.

 

For now the threat of US downgrade was overweighed by concerns about the nation’s economic slowdown that has been supporting demand for Treasuries. The yield on the 10-year bonds fell to 2.59% approaching the minimal levels since November and staying below the decade’s average of 4.05%.

 

Analysts at JPMorgan Chase believe that in case of the downgrade US borrowing costs will be increasing by $100 billion a year, while 50-basis-point increase in Treasury yields would reduce American economic growth by about 0.4 percentage points.

[FBS.com Official]

Scotia Capital: recommendations ahead of BoE and ECB meetings

 

There are 2 central banks’ meetings today – the market will be watching Bank of England’s rate decision at 3:00 pm (GMT+4) and the European Central Bank’s one at 3:45 pm (GMT+4).

 

Analysts at Scotia Capital believe that both central banks will keep the borrowing costs unchanged. In their view, there will be nothing worth attention about the BoE comments, while ECB President Jean-Claude Trichet may sound cautious that will put the single currency under negative pressure.

 

The specialists recommend opening shorts on EUR/GBP in the 87.40 area stopping at 88.50 and targeting 84.00.

 

Commerzbank: comments on USD/CHF and EUR/CHF

 

The greenback rebounded from the record minimum versus Swiss franc in the 0.7600 area and is on its way up to 0.7800.

 

Technical analysts at Commerzbank note that there are signs of reversal after the Swiss National Bank eased yesterday its monetary policy. The RSI on dollar shows that it’s oversold.

 

The specialists expect the pair USD/CHF to stabilize above the 25-year support line at 0.7554/50 that connects the minimums from 1987.

 

As for the pair EUR/CHF, it also is trying to stabilize after it once again tested 1.0795/1.0800, claims the bank. According to Commerzbank, resistance levels for the pair are situated at 1.1216 (38.2% Fibonacci retracement of the most recent decline) and 1.1365 (July 18 minimum). As long as the single currency is trading below these levels it risks falling to 1.0775 and 1.0550.

 

Yoshihiko Noda: Japan conducted one-sided intervention

 

Japanese Finance Minister Yoshihiko Noda confirmed that the Bank of Japan intervened today in the interbank market buying US dollars versus yen. Noda didn’t unveil the details such as the scale and the levels of the one-sided intervention.

 

According to the market’s estimates, the BOJ sold more than 1 trillion yen. Some traders even think that the amount may be even higher than that of the biggest one-day intervention conducted on September 15.

 

Japan’s central bank stepped in trying to stem the appreciation of the national currency after the Swiss National Bank moved yesterday in the same direction.

 

Both Japanese yen and Swiss franc are safe haven currencies that tend to strengthen during the times of high risk aversion like it has been so far. That makes Japan’s and Switzerland’s economies hurt.

 

The pair USD/JPY surged from 76.95 and approached the 80.00 level.

 

Analysts’ comments on BOJ intervention

 

Mizuho: it was the right timing to step in taking into account the weak manufacturing PMI data and due to the fact that after Switzerland’s action yesterday there was a risk that yen would have extended gains alone.

 

UBS: it’s not clear whether the intervention is designed to slow the yen's gradual advance or to defend a line in the sand. Any attempt to encourage a reversal of the yen's multi-year uptrend will fail. Japanese Finance Minister Yoshihiko Noda has already noted that the nation’s monetary authorities may use the tactics deployed in 1995 that involved an eight-month campaign of sporadic and sometimes daily interventions. So, investors should be ready to more active steps of the BOJ.

 

Westpac: historical experience allows assuming that the BOJ action will support USD/JPY for a few days maximum, but won’t be able to change the general downtrend.

 

RBS: monetary authorities won’t be able to change USD/JPY downtrend. US dollar will remain weak due to the concerns about American economic slowdown and expectations of more quantitative easing by the Federal Reserve.

 

Societe Generale: the BOJ aims for new range and not for trend reversal. Yen is driven primarily by falling US yields. It’s good for Japan that taking into account US debt issues American yields can't fall much further. Today’s intervention may help dollar to get firm support at 76.00. However, in order to return to the levels in the 80.00 area the outlook for Fed’s rates, not for BOJ ones, has to change.

 

Citigroup: BOJ may have greater resolve than in March or September. The pair USD/JPY is facing resistance in the 79.50/80.00 zone.

 

Credit Suisse: intervention can’t be called successful until yen gets below 80 against US dollar.

 

BBH: comments on euro zone’s agenda

 

Analysts at Brown Brothers Harriman note that today’s ECB meeting will be very important taking into account intensifying stresses in the euro area.

 

The specialists underline that the markets will watch if Trichet gives hawkish comments using his coded language.

 

It may happen that the European Central Bank will decide to pause its tightening cycle given the fact that the region’s economy is weak and the Swiss National Bank eased its monetary policy yesterday.

 

In addition, there will be some political news from Europe. Italian Prime Minister Silvio Berlusconi will speak before parliament and Spain’s Prime Minister Jose Luis Zapatero canceled his holiday in order to address problems in Spain.

 

BBH specialists, however, think that such measures won’t help to increase investors’ confidence in the ability of euro zone’s authorities to overcome the crisis. In their view, European policymakers will act only in case another serious slump of the market.

[fallenDC]

Citigroup: buy yen and franc though with caution

 

Japanese yen and Swiss franc are traditionally seen as the safe haven currencies. However, the Bank of Japan’s intervention made yen slump by 300 pips in several hours ruining investors’ positions, while the Swiss National Bank’s pledge to keep the interest rates near zero also hit the market players. That’s not what one expects from the refuge currencies.

 

Currency strategists at Citigroup claim that the speculators will now get more cautious, but the demand for yen and franc will remain high in times of extreme risk aversion such as the one that would occur in case of a global double-dip recession.

 

As a result, yen and franc may be still used to avoid high risk, but one should watch out for central banks.

 

[spoiler=USDJPY]http://static.fbs.com/upload/image/technical_analis/August2011/05_08_11/6effcb6418d19a28f430accc771c0915.gif

 

Edited August 5, 2011 by fallenDC

[fallenDC]

BNY Mellon: euro will get support from interventions

 

Analysts at Bank of New York Mellon believe that while both the BOJ and the SNB are making enormous efforts to weaken their national currencies will make investors less certain about buying them.

 

The specialists note that the interventions will give the European currency some support. According to the bank, euro performed well enough when Japan intervened in September.

 

At the same time, it’s necessary to note that Bank of New York Mellon isn’t bullish on euro. The analysts just think that the pair EUR/USD won’t sink to $1.30 or lower during the next few months.

 

[spoiler=EURUSD]http://static.fbs.com/upload/image/technical_analis/August2011/05_08_11/5d412bc31d00f026bebd0d63a49447e0.gif

 

[fallenDC]

Commerzbank: EUR/CHF remains under pressure

 

The single currency remains under pressure versus Swiss franc due to the global risk-off sentiment. The concerns are partly caused by risk that the debt crisis will spread to other euro zone nations.

 

Technical analysts at Commerzbank underline that EUR/CHF didn’t manage to rise above the 38.2% retracement of the recent decline at 1.1216.

 

According to the specialists, the pair will slide to support in the 1.0550 area.

 

[spoiler=EURCHF]http://static.fbs.com/upload/image/technical_analis/August2011/05_08_11/6978cca03cbf11c676465fe8bcdae74e.gif

 

[fallenDC]

UBS: Japanese authorities will remain active

 

Analysts at UBS believe that Japanese monetary authorities understand that they won’t be able to reverse yen’s uptrend, so they have more modest goals.

 

The specialists think that the nation’s Ministry of Finance is trying to push USD/CHF to the range within it was trading before the US debt limit debates escalated negative pressure on the greenback. In their view, the realistic short-term target for the pair is situated in the 79.00 zone.

 

The bank underlines that 2 days ago Takehiko Nakao succeeded Rintaro Tamaki as Vice Finance Minister for International Affairs inheriting operational responsibility for intervention. That may mean that the MoF and the Bank of Japan may elaborate more active approach.

 

Japan’s Finance Minister Yoshihiko Noda has already pointed out that the nation’s monetary authorities may turn to the tactics widely used in 1995 that involved the chain of interventions that lasted 8 months. So, investors should be prepared to see the BOJ continuously acting at the forex market.

 

[spoiler=USDJPY]http://static.fbs.com/upload/image/technical_analis/August2011/05_08_11/fb7c8232fc9cc8f79186e28bc4aa39f1.gif

 

[fallenDC]

BOTMUFJ: EUR/USD may fall to $1.39

 

Technical analysts at Bank of Tokyo-Mitsubishi UFJ claim that the single currency may fall versus the greenback to the 3-week minimum at $1.39 (200-day MA, orange on the chart) in a week.

 

The specialists note that EUR/USD formed the “dead cross” yesterday: the 5-day MA (green) for the pair went down below the 20-day MA (brown) – the bearish signal.

 

In addition, there are 3 declining trend lines: the first one connects May 4 and July 4 maximums, the second – daily minimums since July 28, and the third – July 27, August 1 and August 4 maximums.

 

According to Bank of Tokyo-Mitsubishi UFJ’s forecast, the pair that’s declining since May is likely to keep falling during another several months, though the odds of breaking below $1.39 aren’t high.

 

[spoiler=EURUSD]http://static2.fbs.com/upload/image/technical_analis/August2011/05_08_11/6e76c913d12f3ae7abd9b5c1b636d40b.gif

 

[FBS.com Official]

S&P reduced US credit rating

 

Standard & Poor’s reduced US credit rating by one notch on August 5 stirring up concerns about the nation’s fiscal health.

 

The agency kept negative outlook for American rating as it’s not clear whether the Congress will end Bush-era tax cuts or tackle entitlements. According to S&P, if spending reductions are lower than agreed to, interest rates go up or the general government debt rises, the rating may be cut from AA+ to AA within 2 years.

 

The other leading agencies – Moody’s Investors Service and Fitch Ratings – confirmed their top estimates of US debt on August 2 when President Barack Obama signed a bill that helped United States avoid default. Moody’s and Fitch also underline the possibility of downgrades if lawmakers fail to enact debt-reduction measures and the economy weakens.

 

The pair USD/CHF hit the record minimum in the 0.7530 area. The pair USD/JPY dropped from the intervention maximum at 80.23 hit on August 4 to the levels in the 77.80 zone.

 

Commerzbank: comments on USD/CHF and EUR/CHF

 

Technical analysts at Commerzbank claim that below the 25-year support line in the 0.7554/0.7550 area the greenback has no support versus Swiss franc until 0.7410 and then 0.7160, the base of the 2010-2011 channel.

 

In the near-term the divergence in 4-hour charts and the divergence of the daily RSI indicate the possibility of an upside correction.

 

The specialists note that resistance for USD/CHF is situated at 0.7725. In order to strengthen to the 6-month downtrend line at 0.8285, US dollar has to overcome the accelerated downtrend at 0.7944.

 

The bank recommends squaring trades, attempting tiny shorts on a rebound to 0.7725 adding at 0.7825, stopping at 0.7945 and covering position at 0.7410.

 

UBS: the pair AUD/USD will fall to parity

 

Technical analysts at UBS give bearish outlook for AUD/USD. In their view, Australian dollar will go down well below the parity with its US counterpart.

 

The specialists note that S&P’s decision to downgrade the US will strongly increase the market’s risk aversion in the coming days.

 

Aussie may get under significant downside pressure due to the weaker equities and falling commodity prices as well as due to the general increase in forex volatility, claims UBS.

 

On the downside, support levels for the pair are found at 1.0330 and 1.0290. On the upside, resistance levels lie at 1.0440 and 1.0470.

 

BBH: dollar won’t suffer much from US downgrade

 

Currency strategists at Brown Brothers Harriman believe that US downgrade won’t strongly affect US dollar’s rate. According to BBH, American currency will be driven by the rating cut only in the shortest term.

 

The specialists expect the greenback to consolidate versus its main counterparts. In their view, the pair EUR/USD will stay in the recent broad range between $1.4000 and $1.4600. The analysts think that the pair GBP/USD will keep trading between $1.6200 and $1.6600.

[fallenDC]

S&P reduced US credit rating

 

Standard & Poor’s reduced US credit rating by one notch on August 5 stirring up concerns about the nation’s fiscal health.

 

The agency kept negative outlook for American rating as it’s not clear whether the Congress will end Bush-era tax cuts or tackle entitlements. According to S&P, if spending reductions are lower than agreed to, interest rates go up or the general government debt rises, the rating may be cut from AA+ to AA within 2 years.

 

The other leading agencies – Moody’s Investors Service and Fitch Ratings – confirmed their top estimates of US debt on August 2 when President Barack Obama signed a bill that helped United States avoid default. Moody’s and Fitch also underline the possibility of downgrades if lawmakers fail to enact debt-reduction measures and the economy weakens.

 

The pair USD/CHF hit the record minimum in the 0.7530 area. The pair USD/JPY dropped from the intervention maximum at 80.23 hit on August 4 to the levels in the 77.80 zone.

 

[spoiler=USDCHF]http://static2.fbs.com/upload/image/technical_analis/August2011/08_08_11/.thumbs/4a6ec8ddd30d1cf5d84b3881e9340349_500_0_0.jpg

 

[fallenDC]

Commerzbank: comments on USD/CHF and EUR/CHF

 

Technical analysts at Commerzbank claim that below the 25-year support line in the 0.7554/0.7550 area the greenback has no support versus Swiss franc until 0.7410 and then 0.7160, the base of the 2010-2011 channel.

 

In the near-term the divergence in 4-hour charts and the divergence of the daily RSI indicate the possibility of an upside correction.

 

The specialists note that resistance for USD/CHF is situated at 0.7725. In order to strengthen to the 6-month downtrend line at 0.8285, US dollar has to overcome the accelerated downtrend at 0.7944.

 

The bank recommends squaring trades, attempting tiny shorts on a rebound to 0.7725 adding at 0.7825, stopping at 0.7945 and covering position at 0.7410.

 

[spoiler=USDCHF]http://static1.fbs.com/upload/image/technical_analis/August2011/08_08_11/.thumbs/54105ec3b7c1d272ae5c75ca1be323d4_500_0_0.jpg

 

 

As for the pair EUR/CHF, Commerzbank expects in to consolidate in the near-term underlining that the single currency hasn't broken up the first resistance level. Then euro will survive another slump to 1.0550. If the ECB doesn’t manage to support euro and franc keeps appreciating, the Swiss National Bank will intervene, thinks the bank.

 

[spoiler=EURCHF]http://static2.fbs.com/upload/image/technical_analis/August2011/08_08_11/.thumbs/4890defd7733e310615262f08d93b6b7_500_0_0.jpg

 

[fallenDC]

UBS: the pair AUD/USD will fall to parity

 

Technical analysts at UBS give bearish outlook for AUD/USD. In their view, Australian dollar will go down well below the parity with its US counterpart.

 

The specialists note that S&P’s decision to downgrade the US will strongly increase the market’s risk aversion in the coming days.

 

Aussie may get under significant downside pressure due to the weaker equities and falling commodity prices as well as due to the general increase in forex volatility, claims UBS.

 

On the downside, support levels for the pair are found at 1.0330 and 1.0290. On the upside, resistance levels lie at 1.0440 and 1.0470.

 

[spoiler=AUDUSD]http://static1.fbs.com/upload/image/technical_analis/August2011/08_08_11/.thumbs/501b2e1d77eb46e271cd801c68446336_500_0_0.jpg

 

Edited August 8, 2011 by fallenDC

[fallenDC]

BBH: dollar won’t suffer much from US downgrade

 

Currency strategists at Brown Brothers Harriman believe that US downgrade won’t strongly affect US dollar’s rate. According to BBH, American currency will be driven by the rating cut only in the shortest term.

 

The specialists expect the greenback to consolidate versus its main counterparts. In their view, the pair EUR/USD will stay in the recent broad range between $1.4000 and $1.4600. The analysts think that the pair GBP/USD will keep trading between $1.6200 and $1.6600.

 

[spoiler=EURUSD]http://static.fbs.com/upload/image/technical_analis/August2011/08_08_11/.thumbs/85d05e744081055cb1d330352d532898_500_0_0.jpg

 

[fallenDC]

Moody’s once again confirmed top US rating

 

Moody’s Investors Service confirmed US top Aaa rating for the second time in a week. It happened after another major rating agency, Standard & Poor’s, downgraded the world’s largest economy.

 

It’s necessary to note that Moody’s left the outlook for American debt ranking negative. The agency underlines that the greenback remains the main reserve currency and this fact allows the United States to have higher debt levels than other countries. In addition, Moody’s notes that US authorities have made much effort to fix the debt & deficit issue. The agency also pointed out that the nation has “unparalleled size and diversity” and enjoys “political and institutional stability”.

 

According to Moody’s, to keep the top rating the US has to hold its debt at “not far above” 75% of GDP by about 2015 – this ratio is forecasted for 2012, this year it’s expected to be 69.8%. The downgrade may happen before 2013 if US fiscal discipline or economic outlook deteriorates.

 

American stock markets fell by the most since December 2008. By the end of Monday’s US trading session Down Jones Index fell by 5.55%, S&P 500 contracted by 6.66%, while Nasdaq 100 lost 6.11%. At the same time, US dollar rose as even now it’s still perceived as a refuge. Yields on Treasury 2-year notes reached a record low.

[fallenDC]

RBS, SocGen on ECB's decision to buy Spanish and Italian debt

 

As the euro zone’s policymakers failed to stop the spreading of Greek debt crisis the European Central Bank had to start acting to save euro: yesterday it began buying Italian and Spanish assets.

 

To do this, the ECB will need to expand massively its balance sheet. Moreover, the central bank risks being accused of breaching a key principle in the euro’s founding treaty by bailing out the nations that didn’t abide the terms of Stability and Growth Pact.

 

Since starting its bond purchases in May last year, the ECB has bought about 74 billion euro of assets to help stabilize Greek, Irish and Portuguese markets. Four months ago the ECB ceased bond purchases trying to force the governments to find the solution of the debt issues on their own and engaged in counter-inflation moves.

 

Daiwa Capital Markets notes that the ECB may lose its credibility. According to the analysts, the euro area’s central bank will have to buy about 200 billion euro ($287 billion) of Italian bonds and 60 billion euro of Spanish securities to ease the pressure on these nations.

 

Strategists at ING warn that as the ECB will have to spend very large sums – about 50 billion a week – to make an impact on the market, it may not be able to continue to sterilize its purchases by absorbing the equivalent amount from banks via term deposits. That would significantly increase the money supply in the region stimulating inflation that opposes the central bank’s principles.

 

Economists at Royal Bank of Scotland expect ECB to buy on average about 2.5 billion euro of bonds a day – that would make 600 billion euro in a year. The specialists note that the European Central Bank may keep doing that until the European Financial Stability Facility is allowed to purchase bonds on the secondary market and could end with the half of the traded Italian and Spanish debt in its assets.

 

Analysts at Societe Generale believe that the ECB purchases may do some good, but won’t solve the fundamental problems. In their view, the euro area has to become fiscal union for that.

 

[spoiler=EUEUSD]http://static1.fbs.com/upload/image/technical_analis/August2011/09_08_11/.thumbs/56a86ede33af8ae4bf4b14f86191d761_500_0_0.jpg

 

[fallenDC]

BBH about potential rating’s cuts

 

Economists at Brown Brothers Harriman believe that France, Belgium, UK, Japan and the most of peripheral euro zone’s nations are the next in the list of potential downgrades.

 

The specialists expect British pound and the single currency to get under bearish pressure. In their view, it’s necessary to buy Swiss franc as the demand for the safe havens is likely to remain high.

 

In addition, the bank thinks that US dollar won’t be affected from the S&P’s move as hard as many think as the market doesn’t have better alternative than Treasuries.

[fallenDC]

Kenneth Rogoff: the Fed may relaunch QE

 

Harvard University economist Kenneth Rogoff sees the possibility of the third round of monetary easing in the United States as high. In his view, the Fed is likely to act to support US economy. The specialist says that US central bank has to be more decisive in this.

 

At the same time, Rogoff claims it’s not clear whether the Federal Reserve’s Chairman Ben Bernanke will manage to immediately gain the support of Federal Open Market Committee members for more easing. Last month after QE2 ended in June Bernanke outlined policy options including additional asset purchases or strengthening the commitment to low interest rates.

 

The FOMC meeting takes place today and its statement is released at 10:15 pm (GMT+4).

 

Analysts at JPMorgan Chase, BNP Paribas and Goldman Sachs also believe that the Fed will pledge to maintain record monetary stimulus. According to them, the central bank will probably make commitment to hold its $2.87 trillion balance sheet steady for an extended period.

[fallenDC]

Rabobank: Swiss franc will keep strengthening

 

Currency strategists at Rabobank believe that the demand for Swiss franc as a refuge will remain high and the Swiss National Bank is unable to prevent the strengthening of the national currency.

 

The central bank has already cut the borrowing costs last week narrowing the range of the interest rates from 0.00-0.75% to 0.00-0.25%. Another reduction simply won’t have much impact at the currency market, while the intervention will be too costly, says the bank.

 

According to the specialists, there’s a strong risk that the situation in the euro zone deteriorates, so the odds that franc will keep appreciating are high.

 

The single currency has renewed today the record minimum versus franc sliding to 1.0476. Analysts at Commerzbank note that as long as the pair EUR/CHF is trading below 1.1020, it will remain under bearish pressure. The pair USD/CHF has also dropped to the all-time low at 0.7359.

 

[spoiler=USDCHF]http://static1.fbs.com/upload/image/technical_analis/August2011/09_08_11/.thumbs/ca993c97bf81c7dc8917eaa092719d73_500_0_0.jpg

 

[fallenDC]

Jyske Bank: EUR/USD will break down current range

 

Technical analysts at Jyske Bank believe that the pair EUR/USD will continue trading within the recent range between 1.4055 and 1.4450 for some time. Then the specialists expect the single currency to break down falling to 1.3746 in the middle of August.

 

[spoiler=EURUSD]http://static.fbs.com/upload/image/technical_analis/August2011/09_08_11/.thumbs/abb9a9d5f39059077057e57dec4b55c1_500_0_0.jpg

 

[fallenDC]

UBS: bearish view on USD/CHF

 

Technical analysts at UBS are bearish on USD/CHF. The pair is currently trading just above the record minimum at 0.7359. The specialists say that there isn’t much support for the greenback until the psychological level at 0.7000. Resistance for American currency is found at 0.7741.

 

[spoiler=USDCHF]http://static.fbs.com/upload/image/technical_analis/August2011/09_08_11/.thumbs/22cd59df290fa5e9f59b01eb39a5b3d4_500_0_0.jpg

 

[fallenDC]

Societe Generale: China’s inflation reached new maximum

 

According to the data released today, China’s inflation pace rose to the maximal level in 3 years. Consumer prices increased in July by 6.5% on the annual basis, while the economists expected the CPI to rise by 6.4% as it was in June. The nation’s PPI added 7.5% last month from the previous year, showing the biggest gain in almost 3 years, while food costs climbed by 14.8%. The Shanghai Composite Index fell by 20% from its maximum in November.

 

Analysts at Societe Generale note that in normal conditions rising inflation would make Chinese authorities raise the borrowing costs, but given the current uncertainty at the global financial markets the policymakers will likely delay tightening.

 

Analysts at Royal Bank of Canada expect one more rate hike in the next few months, while UBS and Standard Chartered forecast no more rate increases this year. The specialists at UBS claim that the pace of CPI growth may decline to 4% by the end of the year. Analysts at Mizuho Securities believe that the average inflation this year will be at 5.3% that’s 1.3 percentage points higher than the government’s target.

 

Economists at Credit Suisse remind that China will get vulnerable if the global economy slows down sharply as that will have negative impact on Chinese exports and consumption. Strategists at Bank of America Merrill Lynch think that in order to support national economy China may use fiscal measures such as increase of spending on social housing and water infrastructure instead of easing its monetary policy.

[fallenDC]

The results of the FOMC meeting

 

Here are the essentials of the Federal Reserve’s yesterday’s statement:

 

- The Federal Funds Rate is likely to remain low at least through the middle of 2013 due to the poor economic conditions (the Fed left the borrowing costs unchanged in 0-0.25% range).

 

- Economic growth this year is considerably lower than committee had expected. The nation’s economy is seen recovering at slower pace during the coming quarters, while the unemployment will decline only gradually.

 

- American central bank is ready to use additional tools to stimulate the national economy. However, 3 FOMC members – Fisher, Kocherlakota and Plosser – are against action, preferring to retain extended period language.

 

US monetary authorities didn’t mention the possibility of the third round of quantitative easing (QE3). At the same time, many economists think that there will be comments on this topic at the Jackson Hole Fed’s summit that will take place at the end of August. In 2010 the Fed’s Chairman Ben Bernanke announced the QE2 at that meeting.

 

The Fed’s comments didn’t calm the market’s concerns about the global economic slowdown encouraging demand for refuge currencies such as Japanese yen and Swiss franc.

[fallenDC]

Nomura: euro area is the main source of risk

 

Currency strategists at Nomura note that though the major part of the recent concerns was about the United States, the real threat comes from Europe.

 

The specialists note that Spanish and Italian bond yields climbed so high that the European Central Bank was forced to step in. The ECB is currently trying to stabilize the markets by purchasing the government debt of the nations in question.

 

Nomura analysts, however, believe that as the rollover needs in Italy and Spain are very large the central bank will have to buy huge amounts of bonds to succeed. The bank thinks that the ECB doesn’t have enough funding, so it finds itself in a very difficult position. The bank advises to sell euro against Swiss franc.

 

[spoiler=EURUSD]http://static1.fbs.com/upload/image/technical_analis/August2011/10_08_11/.thumbs/5370c5172d5a288605e2d952bd8e01fc_500_0_0.jpg

 

[fallenDC]

Commerzbank: comments on USD/CHF

 

The greenback slumped yesterday versus Swiss franc to the record minimum at 0.7064.

 

Technical analysts at Commerzbank note that USD/CHF has reached the bottom of the downtrend channel within which the pair was trading in 2010 and 2011. The specialists see no signs of the trend reversal. On the downside US dollar has support at the psychological level at 0.7000.

 

According to the bank, resistance levels are situated at 0.7353 and 0.7530/0.7675. The strategists say that the bearish pressure on US currency will ease only if it breaks above the accelerated downtrend at 0.7888.

 

[spoiler=USDCHF]http://static.fbs.com/upload/image/technical_analis/August2011/10_08_11/.thumbs/1d4a4d9e6e78e7a8e4dd649a3742c1e2_500_0_0.jpg

 

[fallenDC]

Societe Generale: SNB once again tries to weaken franc

 

The Swiss National Bank made another attempt to weaken the national currency.

 

The central bank said today that it will significantly increase the supply of liquidity the Swiss franc market. The SNB announced that it will expand banks’ sight deposits from 80 to 120 billion Swiss francs ($166 billion). In addition, it will conduct foreign-exchange swap transactions to create liquidity.

 

The SNB pledged to keep acting against franc’s appreciation which threatens price stability in Switzerland by increasing deflation risks.

 

The majority of experts criticize SNB’s actions. Strategists at Societe Generale believe that investors will be buying francs even with the negative Libor rate.

 

Analysts at Credit Suisse note that increasing liquidity by using forex swaps is costly. The specialists doubt that the lower relative attractiveness will manage to stop safe-haven inflows.

 

Economists at Commerzbank also think that the SNB won’t be able to achieve its goals. According to them, the Switzerland’s central bank simply expanded the inappropriate easing measures, while market was looking forward to some signs of intervention.

 

The pair EUR/CHF rose from the levels close to parity – from the record minimum at 1.0065 – to the current daily high at 0.0525.

 

http://static.fbs.com/upload/image/technical_analis/August2011/10_08_11/.thumbs/fd928f13dd177a35712a7a3a63ff0594_500_0_0.jpg

[fallenDC]

UBS: Japan risks being downgraded after the US

 

Analysts at UBS Securities believe that S&P’s decision to downgrade the United States means that Japan with its huge levels of government debt is in danger of rating’s cut. In their view, to avoid such prospects Japanese authorities have to demonstrate clear approach to economic and fiscal policy.

 

UBS underlines that Japanese policy moves have become less predictable and more random since the March earthquake. The specialists advise Japan not only to conduct austerity measures, but also try to encourage the corporate sector to take risks. According to them, the economic growth may be able to strengthen the nation’s sovereign creditworthiness.

 

The USD/JPY erased the advance achieved by last week’s currency intervention. The bank sees the main support levels at 76.25 and 75.00.

 

http://static.fbs.com/upload/image/technical_analis/August2011/10_08_11/.thumbs/a1af81dac6f901ed2cf995d02b1a6842_500_0_0.jpg