Comments and forex-analytics from FBS

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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

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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.

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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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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

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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.

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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

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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

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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.

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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.

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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.

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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.

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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.

[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.

[FBS.com_official]

BNY Mellon: EUR/CHF will resume its decline

The single currency managed to make yesterday the biggest advance versus Swiss franc since it was launched in 1999 – the pair EUR/CHF climbed from 1.0252 to the day’s maximum of 1.0929.

It happened as franc slumped after the Swiss National Bank’s Vice President Thomas Jordan claimed that there’s a possibility of franc’s temporary peg to euro.

Currency strategists at UBS think that such measures would require constant efforts on the SNB’s part to defend franc’s trading range as investors continue buying franc as a refuge. As a result, the central bank more obligations to intervene.

Analysts at Bank of New York Mellon believe that the SNB won’t be able to defeat the high demand for franc as for the safe haven and Swiss currency will resume strengthening the next week.

HSBC: investors bet on euro’s collapse

Analysts at HSBC believe that the fact that investors are massively selling Italian and Spanish bonds means not only that they have negative view on the prospects of these nations, but that the market fears the single currency will collapse.

According to the economists, if euro breaks apart, some former European currencies such as the Deutschemark will gain, while the others like Italian lira will weaken.

To trade on this assumption means to sell Italian debt versus German one and that’s exactly what has been happening during the last few weeks, says HSBC.

The strategists say that Italy's fiscal management has been better than that in several other countries, so the market players bet not against Italy specifically, but against the euro.

BoA Merrill Lynch: dollar will keep being steady

Analysts at Bank of America Merrill Lynch note that after the S&P cut US credit rating the greenback performed surprisingly well. In their view, dollar will keep being steady at rather strong positions.

The specialists say that investors are going to the nations where growth prospects look stronger. Never the less, the bank doubts that US currency will weaken even if the Federal Reserve goes down the path of quantitative easing over the next 6 months.

The economists claim that though in the past, when the U.S. economy has weakened, it's been negative for the greenback, if the slowdown spreads to the rest of the world and to the emerging markets in particular, the impact on US dollar will be quite positive. According to Bank of America, there’s a real possibility of the global economic slowdown.

As for the short term, however, the specialists favor British pound and Japanese yen. In their view, sterling is a good alternative for those who are nervous about US dollar or the single currency, while yen will be supported by strong fundamentals despite the risk of Bank of Japan’s interventions.

BBH: trading recommendations on EUR/USD

Currency strategists at Brown Brothers Harriman advise traders to watch next week the economic data as well as the tensions in the euro zone peripheral nations and the signal from the equity market.

Euro area’s flash GDP for the second quarter is released on Tuesday, August 16, at 1:00 pm (GMT+4). Weaker Euro zone growth in an environment of slowing global activity, government austerity and a banking crisis would add pressure on the euro and global economic confidence.

French President Nicolas Sarkozy meets German Chancellor Angela Merkel meet the same day in Paris amid market turmoil that prompted France to speed up completion of its 2012 budget. The French government’s commitment to its deficit goals is “untouchable,” Sarkozy said. BBH expects that the meeting will provide an initiative in an attempt to stem the slide in French bank shares.

According to BBH, EUR/USD will remain in the recent range between $1.40 and 1.45. The specialists recommend selling euro as it rises to the top of this area until the European authorities do something more concrete to stem the crisis.

[ryuroden]

Goldman Sachs: QE3 in the US is very likely

Analysts at Goldman Sachs are sure that the third round of quantitative easing in the United States is coming later this year or at the beginning of 2012. The reason why the additional monetary stimulus is needed is the US economic growth slowdown and high unemployment rate.

The possibility of QE3 rose as on it last meeting that took place on August 9 the Federal Open Market Committee pledged to keep the interest rates at the record low at least until the middle of 2013 that means that US monetary authorities are ready to act employing more policy tools if the economic outlook keeps worsening.

According to Goldman, though not all members of the FOMC support the idea of the new QE – Presidents Fisher, Kocherlakota and Plosser spoke against loosening policy – that won’t stop the Fed’s Chairman Bernanke from pushing through the measures.

It’s necessary to note that though there are different forms of stimulus from the small steps such as a commitment to keep the balance sheet large, a gradual shift of the securities portfolio into longer maturities or a cut in the interest rate on excess reserves from 0.25% to 0% to very aggressive ones such as rate caps (a form of QE in which the Fed promises to buy as many securities as needed to hit a longer-term yield target), a price level or nominal GDP target, or interventions in non-government securities markets (for which funding from Congress would be needed). Goldman specialists say that from all the measures mentioned the conventional QE seems to be the most acceptable option.

To sum up, the economists expect quantitative easing to be resumed, but see several risks to such forecast: stronger economic performance, higher inflation and public backlash. As for the latter, the Fed may try to smooth the situation by proposing monthly numbers that not look as big as the $600 billion purchase over 8 months announced last year. In addition, the decision of continuing the program may be made on the monthly basis as well that would also improve the negative sentiment.

Danske Bank: EUR/USD will rise in a year

Currency strategists at Danske Bank came up with concrete forecasts for the pair EUR/USD.

The specialists note that the United States face weaker than expected growth, long period of minimal interest rates, large current account deficit as well as the serious fiscal challenges and increased political risks.

As a result, in medium-term the bank is bearish on the greenback and thinks that in such conditions the single currency will be able to gain.

According to Danske Bank, euro will rise to $1.50 versus its American counterpart in a year. The previous forecast was at $1.36. The 3-month estimate though was reduced to $1.42 on the expectations of weak macro data during the next few months.

Commerzbank: comments on GBP/USD

Technical analysts at Commerzbank note that if British pound managed to rise versus the greenback above the downtrend resistance line from May maximums in the $1.6444 zone, it will head up to $1.6539/47 (78.6% Fibonacci retracement of the decline from April peak and May high).

Never the less, pound still didn’t manage to overcome the mentioned resistance: the pair GBP/USD slid today from August high at $1.6475 posting the low at $1.6347.

BarCap: Merkel and Sarkozy disappointed investors

Yesterday’s meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel didn’t bring much results.

The leaders of the biggest euro zone’s economies, which are expected to lead efforts to contain the debt crisis, spoke about the plan to form a euro-zone economic council, but didn’t voice support for the creation of the common euro-zone bonds at it may affect the region’s healthiest economies. The market regards the common bonds as the last chance to improve the situation.

Merkel and Sarkozy called for spending cuts and other long-term measures to bring down debt levels but offered no immediate solutions.

Analysts at Barclays Capital note that the markets were disappointed by the focus on long-term governance issues lack of the concrete steps at the time when it’s very important to encourage the economic growth.

In the second quarter German GDP growth pace slowed down to 0.1%, while the economists were looking forward to 0.5%. The economic growth pace of the entire euro area during the same period accounted only for 0.2%, while during the first 3 months of 2011 this indicator was equal to 0.8%

[ryuroden]

BNP Paribas: SNB failed to affect the market

The Swiss National Bank for the third time tried to weaken the national currency.

Switzerland’s central bank announced today that it will boost liquidity to the money market expanding banks’ sight deposits from 120 to 200 billion francs ($253 billion). The SNB also decided to repurchase outstanding SNB Bills and use foreign-exchange swap transactions.

Economists at Credit Suisse think that the SNB has other means of action, but for it just keeps pursuing this liquidity strategy.

Analysts at BNP Paribas note that the market was looking forward to interventions or a peg and got disappointed by the outcome. In their view, it will be very difficult for the Swiss monetary authorities to act against the market that’s seeking refuge in franc. The bank thinks that it would be near impossible for policy makers to peg the franc to the euro and commit to unlimited currency interventions as it would be too expensive and wouldn’t guarantee success.

UBS specialists think that the SNB’s move didn’t impress the market. Taking into account the lack of results after yesterday's Franco-German bilateral summit, the bank says that euro may drop back to 1.10 and even lower.

The pair EUR/CHF is still trading under 1.5000. Today it hit the low at 1.1221.

Commerzbank: EUR/USD will go down again

In the morning the single currency hit the day’s minimum versus the greenback at $.4320. Then it found support and jumped above the 4-month downtrend resistance line at $1.4435.

Never the less, technical analysts at Commerzbank believe that euro’s advance will stall in the between the broken resistance and July 27 maximum at $1.4537 and the pair EUR/USD will return down to the 38.2% Fibonacci retracement at $1.4259.

MPC unanimously voted to keep rates at 0.5%

According to the minutes of the Bank of England’s Monetary Policy Committee August meeting released today, the 9-member MPC unanimously voted to leave the benchmark interest rate unchanged at 0.5%.

The two hawks – the BoE’s chief economist Spencer Dale and the external policymaker Martin Weale – abandoned their calls for the rate hike.

It’s also necessary to note that the odds of the second bout of quantitative easing in the UK have strengthened. This time only Adam Posen repeated his proposition to raise the QE program by 50 billion pounds to 250 billion pounds, several other members seems to consider the idea.

The debt crisis in the euro area, US economic slowdown and UK's own problems persuaded the committee that inflation would fall to its 2% target without the increase of the borrowing costs. The pace of British CPI growth rose from 4.2% in June to 4.4% in July.

Rabobank International notes that the minutes were clearly dovish, though the BoE Governor Mervyn King had already indicated earlier that central bank could remain on hold until 2012.

Currency strategists at Credit Suisse believe that if cyclical indicators deteriorate during the next few weeks, there will be likely more votes for QE in September.

[ryuroden]

BBH: USD/CAD will keep declining

The greenback gained nearly 6.5% versus Canadian dollar after it hit the 4-year minimum in the 0.9400 area at the end of June and tested on August 9 the levels above the parity for the time since February. Then, however, US dollar weakened to the 0.9830 zone erasing about a third of its advance.

Analysts at Brown Brothers Harriman claim that the pair USD/CAD may decline more. In their view, in the coming days US dollar may fall to 0.9700 and 0.9640 versus its Canadian counterpart.

The specialists note that Canadian dollar strengthened due to the revival of the equity markets, in particular, US S&P 500 (CAD’s one-month correlation coefficient with the benchmark American stocks index reached 0.89). In addition, the price of the crude oil, Canada’s largest export, has also risen supporting the nation’s currency (one-month correlation coefficient is at 0.45).

Strategists at MF Global advise investors to watch loonie on Friday: Canada’s CPI release and the Bank of Canada Governor’s Mark Carney’s and the Finance Minister Jim Flaherty’s speeches on the euro zone’s debt crisis and the US budget deficit will likely make the trade more volatile. Analysts at Royal Bank of Canada believe that the officials will sound more cautious than they did in the middle of July.

BOTMUFJ: comments on EUR/USD

The single currency went down versus the greenback from yesterday’s maximum at 1.4518 to the levels in the 1.4400 area.

Analysts at Bank of Tokyo-Mitsubishi UFJ believe that EUR/USD may fall to Wednesday's minimum at 1.4320. The specialists advised investors watch US economic indicators due at 4:30 and 6:00 pm (GMT+4).

RBC: comments on USD/JPY

Analysts at RBC Capital Markets note that despite the fact that the market’s risk sentiment has worsened the greenback has managed to stay within its recent trading range above 76.40 yen.

The pair USD/JPY has found support due to the information that Japanese Ministry of Finance and the Bank of Japan agreed to join their efforts and to work as one in order to fight yen’s strength.

The specialists note that investors are now cautious of interventions. However, if US dollar doesn’t show significant advance during the next 1-2 days, the market may lose confidence in the intervention pledges and USD/JPY will go to the record minimum at 76.22 yen.

[ryuroden]

BBH, Commerzbank: comments on EUR/CHF and USD/CHF

Analysts at BBH think that all the talk about intervention will keep EUR/CHF between 1.12 and 1.15. Economists at ZKB note that the resistance for euro lies at 1.1555. If the single currency breaks above this level, it will manage to rise to 1.1665, while if it drops below 1.1350 would make it slide to 1.1165.

Currency strategists at Commerzbank think that the Swiss National Bank should act more decisively in order to weaken franc as the increase of liquidity has failed to solve the problem.

As for the USD/CHF, the bank believes that the pair currently risks to go down to 0.7802, but if it manages to rise above 0.8034, the greenback will be able to rise to the 55-day MA at 0.8157 and then to the 2011 downtrend line at 0.8184.

EUR/USD: all attention on US inflation data

US CPI data are released today at 4:30 pm (GMT+4). If inflation has risen, the odds of the new round of quantitative easing will decline that would be positive for the greenback. If the figures are, on the contrary, lower than projected, the pair EUR/USD may jump higher.

Economists surveyed by Bloomberg think that American consumer process gained 0.2% in July after a 0.2% slide in June. The annual inflation rate is seen declining from 3.6% in June to 3.3% last month. The core CPI without food and fuel is expected to add during the year through July 1.7% after rising by 1.6% during 12 months through June.

Analysts at BMO Capital Markets think that US inflation is leveling off as energy prices decreased. As the nation’s economic growth isn’t high any strong upward pressure on consumer prices is unlikely.

Citi, Commerzbank, BBH: GBP analysis

EUR/GBP

The single currency declined from the levels around 0.8800 to the 0.8700 zone. Technical analysts at Commerzbank note that support for EUR/GBP lies at 0.8668/44 (August minimum). The slide below this area will bring euro down to the 55-week MA at 0.8612 and to the 4-year uptrend line at 0.8556. If the pair climbs above 0.8883/86 (late July maximum and current August peaks) it will be able to stabilize and get chance to rise to 0.8977/0.9000.

Currency strategists at Citi believe that EUR/GBP may move only a bit down on the fears about the euro zone’s debt crisis as the pound may suffers as well because UK banks have a sizable 14% GDP exposure to weak euro-zone countries, surpassing that of Germany and France, while that the euro zone remains the UK's largest trading partner and exports are seen as a preferred way out of the crisis in the UK.

GBP/USD

Analysts at Brown Brothers Harriman believe that British pound is overbought versus the greenback. In their view, GBP/USD may consolidate between 1.6480 and 1.6600.

According to Citi, the pair will keep getting support from the fiscal austerity in the UK, though the further deterioration of the economic growth will likely put sterling under negative pressure.

[ryuroden]

Morgan Stanley: US growth forecast reduced

Analysts at Morgan Stanley reduced their forecast global economic growth in 2011 from 4.2% to 3.9% and in 2012 – from 4.5% to 3.8%.

As the main reason for the downside revision the specialists cited the debt burdens of developed nations.

According to the bank, the policymakers didn’t do enough to contain the euro zone’s debt crisis, while the business and consumer confidence weakened due to the German economic slowdown and the looming threat of the recession in the United States. In addition, the situation is complicated by the fact that many governments have to conduct austerity measures.

The bank diminished prediction for G10 nations from 1.9% to 1.5% this year and from 2.4% to 1.5% in 2012.

Fiscal tightening will have a negative impact on the demand in the Western world that, in its turn, will affect Chinese economy. Morgan Stanley cut the projections for China’s growth from 9% to 8.7% (in 2012), while Deutsche Bank lowered the forecast from 9.1% to 8.9% (in 2011).

Pimco: Greece has to dafault to save Spain and Italy

Economists at Pacific Investment Management Co., the world’s largest bond fund manager, believe that the European policymakers should allow Greece, Ireland and Portugal default making sure that Italy and Spain will be able to avoid this fate.

The specialists note that while the region’s authorities are reluctant to admit the necessity of such desperate step, the situation keeps deteriorating.

According to Pimco, Germany, France, the International Monetary Fund and the European Central Bank have to come up with a huge bailout package available to the entire euro zone, except for Greece, Ireland and Portugal, thus letting these indebted peripheral nations default and making Italy and Spain safe.

As French President Nicolas Sarkozy and German Chancellor Angela Merkel rejected at their summit on Tuesday, August 16, the idea of creating the common euro zone bonds and the expansion of the 440 billion-euro ($633 billion) rescue fund, Pimco thinks that the most likely scenario will be that the ECB will keep supporting the problem nations, while it itself will be bailed out by Germany.

MIG Bank: bullish view on GBP/USD

The pair GBP/USD climbed from August 11 minimum at $1.6110 to yesterday’s maximum at $1.6591. Technical analysts at MIG Bank believe that although today sterling has pulled back to the $1.6475 area, the outlook for British currency remains positive.

The specialists think that when pound once again overcomes the $1.6476/78 zone, it will gain enough strength to rise to $1.6747. In their view, support for GBP/USD lies at $1.6111.

It’s also necessary to note that pound has risen above the long-term trend-line resistance (watch the weekly chart).

[ryuroden]

Commerzbank: USD/JPY will test the record minimum

The greenback keeps failing to jump above 77.00 yen. US currency remains in the dangerous closeness to the record minimum at 76.22 hit on March 16 that’s regarded at the key support level.

Technical analysts at Commerzbank believe that USD/JPY will retest this mark today. The specialists say that if the pair goes below there, it will drop to the psychological support at 75.00 and the support line of the downtrend from 2009 to 2011 at 74.23.

According to the bank, resistance for US dollar is found at 78.04 (August 1 maximum), 78.45 (July 13 minimum) and 79.16/69 (55-day MA, May and June minimums).

Japan urged G7 for more coordination

Japan called on Group of Seven nations to work together to counter market turmoil. It happened after equities fell in Asia hitting consumer and business confidence and worsening the global economic outlook that is already undermined by the debt problems of the developed nations. The main reason of fear is the risk that US economic recovery has stumbled.

The nation’s Finance Minister Yoshihiko Noda underlined that during the next few weeks G7 has to cooperate very closely. Noda reminded that on August 8 the group’s finance ministers and central bank governors pledged to do all that is needed to ensure financial stability and growth.

According to Bloomberg, Japanese Topix index fell today to 2-year minimum; China’s Shanghai Composite Index went down by 1.4%; Hong Kong’s Hang Seng index dropped by 2.4%; South Korea’s Kospi index lost about 6%.

The last time G7 nations acted together was in March when they performed joint intervention to calm down volatile yen moves after the nation’s March earthquake.

RBC: euro zone nations lack cooperation

Analysts at RBC Capital Markets note that the euro area faces serious political risks.

The specialists note that while European nations are supposed to show strong cooperation and coordination, the latest debates about the Greece’s second bailout indicate the opposite.

The matter is that Finland that was reluctant of supporting indebted peripheral countries forced Greece to agree to put up collateral in exchange for a bailout loan. This made other nations – Austria, Slovenia, Slovakia and the Netherlands – demand the same from Greece.

As a result, Greece will have to spend scarce money on collateral rather than on getting its house in order, while the process of July deal’s implementation stalled. There’s the risk now that other countries who do not receive collateral may not vote in favor of the loan bailout casting doubts on the survival of the currency bloc.

[ryuroden]

RBC: euro zone nations lack cooperation

Analysts at RBC Capital Markets note that the euro area faces serious political risks.

The specialists note that while European nations are supposed to show strong cooperation and coordination, the latest debates about the Greece’s second bailout indicate the opposite.

The matter is that Finland that was reluctant of supporting indebted peripheral countries forced Greece to agree to put up collateral in exchange for a bailout loan. This made other nations – Austria, Slovenia, Slovakia and the Netherlands – demand the same from Greece.

As a result, Greece will have to spend scarce money on collateral rather than on getting its house in order, while the process of July deal’s implementation stalled. There’s the risk now that other countries who do not receive collateral may not vote in favor of the loan bailout casting doubts on the survival of the currency bloc.

Morgan Stanley increased yen forecasts

Japanese currency is still very strong staying in the area of 76.40 yen per dollar.

Analysts at Morgan Stanley argue that by the end of the year yen will climb even higher and rise to the record maximum versus its US counterpart. In their view, the actions of the nation’s monetary authorities won’t manage to change yen’s uptrend.

The specialists revised down their forecasts for the pair USD/JPY from 81 to 74 yen and for and EUR/JPY from 110 to 101 yen. According to the bank, yen remains extremely overvalued relative in the longer term.

Citigroup reduced US GDP forecast

Analysts at Citigroup lowered US economic growth forecast from 1.7% to 1.6% in 2011 and from 2.7% to 2.15% in 2012. The estimates for the S&P 500 Index’s earnings per share were reduced from $98 to $97 this year and from $105 to $101 next year.

The analysts claim that the main reason to cut the outlook for American GDP growth rate was the potential inability of political parties to agree on reducing the budget deficit as well as the fiscal tightening. Citigroup warns that if there’s no agreement, both tax increases and spending cuts larger than expected would be automatically triggered, so that very sharp tightening steps would occur in 2013 and could be sensed in financial market expectations during 2012.

Yesterday there was a bunch of negative news in the United States: S&P 500 lost 4.5%, Philadelphia manufacturing PMI dropped to the minimal level since 2009, unemployment claims and consumer prices rose, while existing home sales decreased.

Citigroup, however, doesn’t speak about recession. According to the bank, the US is going through weak recovery that won’t be able to gain full force.

[Jeremiah]

thanks for your job, that's interesting to read

Edited August 21, 2011 by Jeremiah

[ryuroden]

BNP Paribas, BBH: EUR/USD will pull back down

The single currency rose versus the greenback from the levels in the $1.4050 area to the $1.4400 zone.

However, currency strategists at BNP Paribas believe that EUR/USD will fail to rise above $1.45. In their view, the pair is struck between $1.41 and $1.45. The specialists note that euro will get under negative pressure in case of weak euro-zone data such as PMIs, ZEW and IFO that are released this week.

Analysts at Brown Brothers Harriman claim that as the deterioration of the global economic outlook and renewed fears about European banks strengthened investors’ risk aversion and made stock markets slump last week, the demand for riskier currencies such as euro will be low and the pair EUR/USD will fall to $1.4000.

[ryuroden]

Commerzbank: comments on USD/JPY

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

[ryuroden]

Commerzbank: comments on GBP/USD

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