Comments and forex-analytics from FBS

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Nomura: EUR/USD will fall by the year-end

Analysts at Nomura expect the single currency to drop versus the greenback by the end of the year.

In their view, as the euro zone’s debt crisis escalates, European investors will likely stop repatriating their assets. That will be another blow for euro.

According to the data from the ECB, the region’s investors brought home 65.9 billion euro ($89 billion) in August and 11.6 billion euro in September – these figures significantly exceed 12-month average inflow of 629 million euro.

Such demand made EUR/USD trade in November in the $1.3871/1.3422 area which is at least 12% above its lifetime average of $1.2042. Nomura believes that the pair will end 2011 at $1.30.

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BMO: trading ahead of Supercommittee

Here is another trading strategy on the approaching deadline for US Congressional deficit Supercommittee.

Analysts at BMO Capital are pessimistic about the committee’s ability to come up with the budget solution.

The specialists note that there are 3 possible outcomes: Democrats and Republicans will reach a deal on reducing shortfall by more than $2 trillion, by just the required amount of $1.2 trillion or they’ll fail to find a compromise and the nation will face automatic cuts. In their view, the latter variant is the most likely one.

BMO advises traders to sell NZD/USD at current levels stopping above $0.7650 and targeting $0.7175.

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Moody's: France’s rating outlook may deteriorate

Moody's Investors Service repeated its October warning announcing that the outlook for France’s AAA may be changed to negative. The risks to the nation’s rating come from the sustained rise in its debt yields combined with weakening economic growth.

According to Agence France Tresor, France's average medium- and long-term financing costs for the first 11 months of the year accounted only for 2.78% – the second lowest level since the creation of the single currency. However, last week the nation’s 10-year bond yields surged to 3.7% and the spread over German bunds exceeded 200 basis points rising too the maximal level since France adopted euro.

Moody's warned that if the increase in yields by 100 basis points means the increase of funding costs by 3 billion euro a year. Taking into account the fact that French government projects 1% GDP growth in 2012, higher interest burden will make achieving targeted fiscal deficit reduction more difficult.

Many analysts believe that the only way to save the region from escalating borrowing costs and the potential recession is the bond buying at the secondary market by the ECB or the EFSF.

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UBS: forecasts for British pound

In the short term the specialists see British pound under pressure versus the greenback as the Bank of England went through additional QE last month.

In the medium term, however, UBS expects demand for sterling increase as the UK will act to reduce its budget shortfall and the declining inflation will make the real rates in Britain higher.

The bank lifted up its 3- and 6-month forecasts for GBP/USD from $1.48 to $1.52 and from $1.62 to $1.65 respectively. The estimates of EUR/GBP future rate were lowered from 0.88 to 0.85 in 3 months and from 0.83 to 0.81 in half a year.

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Commerzbank: comments on AUD/USD

Technical analysts at Commerzbank note that Australian dollar breached yesterday support versus its US counterpart in the $0.9929/10 area (August minimum, Fibonacci level).

The specialists expect AUD/USD to fall to $0.9688 (78.6% Fibonacci retracement) and plan to take profit at this point. If the bears keep pulling the market, the next downside target will lie at $0.9388 (October 4 minimum).

According to the bank, resistance levels are situated at $1.0127 (resistance line), $1.0340 (November 14 maximum) and $1.0445.

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Rating agencies affirmed US credit rating

The greenback managed to recover a bit higher versus Japanese yen at the beginning of today’s Asian session as the major rating agencies affirmed US credit grades:

- Standard & Poor’s: America will retain AA+ rating even if the Supercommittee fails to reach agreement on reducing the nation’s budget deficit by Thursday (US lost its top grade by S&P on August 5);

- Moody’s Investors Service kept US rating at the top Aaa level with negative outlook;

- Fitch Ratings repeated that there will likely be a downside revision to US rating outlook in case of the Supercommittee’s failure.

Risk sentiment has slightly improved. The pair USD/JPY managed to get above 77 yen. However, there hasn’t been enough positive news to detain yen’s appreciation and the pair soon resumed decline drifting lower.

Support levels for American currency are found at 76.75 (November 21 minimum) and 76.55 (November 18 minimum). Resistance levels for US dollar lie at 77.35 (today’s maximum), 77.50 (November 15 maximum) and 77.90 (November 9 maximum).

It’s also necessary to note that investors are closing positions ahead of Japan’s holiday tomorrow and US one on November 24.

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World Bank: East Asian economic prospects

China: the economists expect soft landing – the nation’s GDP growth will ease down from 9.1% on 2011 to 8.4% in 2012. The nation’s inflation rate will decline from 5.3% this year to 4.1% the next year.

Asia: economic growth of developing East Asia (without Japan, Hong Kong, Taiwan, South Korea, Singapore and India) will slow down from 8.2% in 2011 to 7.8% the next year.

According to the World Bank, Asia will be able to withstand the negative effects coming from the euro zone’s debt crisis with help of their high reserves and current account surpluses.

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Credit Suisse: the climax for euro area is approaching

Analysts at Credit Suisse believe that in order to save the single currency European leaders –primarily, France and Germany – will have to reach by the middle of January “a momentous deal” to increase the degree of integration and transform the monetary bloc into the fiscal and political union.

The specialists expect that in this case the ECB will agree to cut its benchmark rate and provide banks with longer-term funds and do all it can to prevent euro’s collapse.

In their view, during the most critical moment the Italian and Spanish 10-year bond yields may surge above 9% and French yields may bounce above 5%.

Bloomberg reports that for the hints on the euro zone’s future one should pay attention to the European Commission’s recommendations on euro-area debt which are to be published this week and by the French President Nicolas Sarkozy’s speech next month on the 20th anniversary of the Maastricht Treaty.

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MIG Bank, KBC Bank: euro’s gaining versus pound

The single currency is gaining versus British pound for the third day in a row as the market expects the Bank of England’s November meeting minutes (released tomorrow at 9:30 GMT) to show that the policymakers are inclining to more monetary stimulus to encourage the nation’s weak economic growth – UK Prime Minister David Cameron claimed yesterday that the growth figures are unsatisfactory.

As a result, investors’ pound-negative sentiment didn’t fade even as the Office for National Statistics reported that the country’s net excluding support for banks contracted from 7.7 billion pounds a year earlier to 6.5 billion pounds in October.

Analysts at MIG Bank note that the outlook for the pair EUR/GBP will turn bullish if manages to hold above 0.8652.

Strategists at KBC Bank claim that support for the single currency lies at 0.8595, 0.8553 (this week’s minimum) and 0.8518 (November 15 minimum), while resistance is seen at 0.8665 (50-day MA).

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JPMorgan Chase: forecast for USD/JPY

Analysts at JPMorgan Chase believe that the greenback may renew record minimums versus Japanese yen in 2012.

In their view, in the first half of the next year USD/JPY will stay range bound due to the recession in Europe and weak economic growth in the rest of developed world.

In the second half of 2012 global economy will start stabilizing and the euro zone’s crisis will be moving to the resolution. As a result, the risk sentiment will improve. The economists think that the demand for US dollar as a safe haven will fall and it will go down versus the most of its counterparts including Japanese currency.

The strategists claim that the next year the pair may hit the levels of 70-72 yen. According to JPMorgan Chase, the risk of the Bank of Japan’s interventions aimed to weaken the national currency won’t prevent investors from buying yen as their effect will still be too short-lived.

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Deutsche Bank: 2012 forecast for GBP/USD

Analysts at Deutsche Bank expect British pound to lose versus the greenback in the first half of the next year. At the same time, the specialists underline that sterling’s decline will be contained by $1.5100.

According to the bank, the pair GBP/USD will slide to $1.5300 in the first 3 months of 2012, and then fall to $1.5100 in the second quarter before rebounding to $1.5700 by the year-end.

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Consensus Economics: seasonal effect on euro

Consensus Economics, a macroeconomic survey firm, notes the demand for the single currency tends to pick up in December. It happens because portfolio managers buy euro as the riskier asset trying to get more profit to make their holdings look better ahead of the year-end.

According to the data processed by the company, the European currency usually gains about 0.4% and US dollar retains its value, while Canadian dollar and British pound weaken.

Strategists at BMO Capital Markets, however, underline that the euro zone’s debt crisis may change the situation and doubt that in the current circumstances euro will be able to get a lift from the seasonal effect.

Some experts say that taking into account everything mentioned above, the market’s pressure on the ECB to ease policy will play the role of euro's rate determinant.

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Societe Generale: commodity currencies are to decline

Analysts at Societe Generale warn that the failure of US Congressional supercommittee to agree on the debt-reduction measures will heavily weight on American economy affecting the rest of the world.

The specialists believe that the forced automatic spending cuts of $1.2 trillion will result in the fiscal drag of 1.5%. In other words, if US GDP growth is projected to be 1%, then the nation will face economic contraction. This combined with the European crisis will have a very negative impact on the global economy. As a result, the bank expects that commodity currencies which depend on the economic growth will get under pressure, while the greenback will restore its safe haven status.

Societe Generale is bearish on Canadian dollar as Canada’s economy is closely tied to the US one and Australian dollar which will suffer as the situation in the US and China deteriorates.

The strategists advise selling AUD/JPY being cautious about the Bank of Japan’s intervention risk. In their view, one may also open shorts AUD/USD and longs on USD/CAD.

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Commerzbank: comments on GBP/USD

Technical analysts at Commerzbank note that British pound fell versus the greenback below the $1.5615 level representing 61.8% Fibonacci retracement of its October advance. In their view, the outlook for GBP/USD is bearish.

The specialists believe that the pair’s on its way down to $1.5463 (78.6% Fibonacci retracement) and $1.5271 (October 6 minimum). In the longer term, the downside target will be found at the uptrend line from 2009 to 2011 at $1.5050. This support level will likely hold the initial attack of the bears.

According to the bank, resistance levels are situated at $1.5888 (November 18 maximum) and $1.6026 (downtrend line).

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Barclays Capital: survey about euro zone’s future

Analysts at Barclays Capital conducted survey among 1,000 of its clients asking their opinion about the euro area’s future.

The survey showed that the number of investors expecting at least one country to leave the currency bloc increased in 2 times since September: almost 50% of the respondents now think that this will happen the next year.

The majority of the surveyed believe that if some nation quits it would be Greece. 5% of the bank’s clients say that all 5 troubled peripheral nations – Greece, Portugal, Ireland, Italy and Spain – will desert the monetary union.

The region’s economic prospects are perceived as pessimistic: 70% of the respondents claim that Europe will fall into recession.

Barclays underlined that investors don’t think that Greece’s leaving will stop the debt crisis. The bank’s clients expect the European Central Bank to act helping euro zone’s economy with additional stimulus.

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European currency is again under pressure

The single currency declined today versus the greenback falling below $1.3400 and renewing more than 1-month minimum.

Belgian newspaper De Standaard reported citing no sources that Belgium and France were renegotiating the distribution of the costs of the rescue deal for bank Dexia. That made the markets fear that France’s share in the bailout may increase that, in its turn, could affect the nation’s credit rating.

Concerns about the euro area rose due to the unfavorable economic data. According to Markit Economics, financial survey company, the region’s composite manufacturing and services PMI rose from 46.5 in October to 47.2 in November, but remained below the 50.0 level that means that the European economy is expected to contract in the final quarter of the year. Economists at Markit note that the figures mean that the negative effects have spread from the peripheral economies to the core ones. Specialists at Capital Economics think that the euro zone will likely fall into deep and protracted recession.

In addition, new industrial orders fell by 6.4% in September compared with August level showing the biggest decline since December 2008 when the index was hit by the global financial crisis.

Analysts at Wells Fargo believe that EUR/USD will keep trading in a very volatile manner. In their view, low trading volumes this week due to the US holiday tomorrow will make the market moves even greater and sharper.

Support levels are situates at $1.3370, $1.3315 and $1.3260, while resistance lies at $1.3410, $1.3475 and $1.3570.

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Deutsche Bank: 2012 forecast for USD/JPY

Analysts at Deutsche Bank claim that Japanese yen will keep being supported by the concerns about global economic slowdown.

In their view, there are many factors pointing at yen’s appreciation, such as Japan’s current account surplus, high relative real yields and the inability of the nation’s policymakers to stem the advance of the national currency.

According to the bank, by the middle of the next year the pair USD/JPY will drop to 72 yen and then consolidate in the zone of 75 yen by the end of 2012.

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Deutsche Bank: comments on USD/CAD

Analysts at Deutsche Bank underline that Canadian economic figures are as discouraging as the US ones. Never the less, the specialists don’t think that the Bank of Canada will ease its monetary policy, even though the market’s pricing in 25-basis-point rate cut through March 2012.

According to the bank, loonie’s rate will as usual depend on the market’s risk sentiment. At the same time, all eyes are now focused on the euro area and the United States is no longer the epicenter of the crisis, while Canadian economy is closely connected with American one.

As a result, Deutsche Bank expects USD/CAD to test 2010 maximums in the $1.0800 area. The greenback will be capped by these levels unless we see “hard-landing” in Europe. All in all, the analysts think that the next year the pair will fluctuate around parity.

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Commerzbank, Wells Fargo: comments on EUR/USD

Technical analysts at Commerzbank note that the outlook for EUR/USD is negative as long as it’s trading below resistance at $1.3526. The specialists say that support for the pair lies at $1.3360 and $1.3281.

Currency analysts at Wells Fargo expect the single currency to fall in December to $1.2400 or lower. In their view, the European Central Bank will ease its monetary policy in order to help the region’s economy.

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Commerzbank: comments on USD/JPY

Technical analysts at Commerzbank note that the greenback has managed to break yesterday above the daily Ichimoku Cloud trading versus Japanese yen.

The specialists think that even though today USD/JPY has eased down, it will be able to resume the recovery. In their view, the pair will be supported at 76.22 (78.6% Fibonacci retracement) and 75.94 (August 19 minimum).

According to the bank, resistance for US currency lies at 79.56 (4-year downtrend line) and 80.37 (55-week MA). If US dollar overcomes these levels, the current trend will reverse.

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RBS: Bank of England will do more QE in February

This month the Bank of England's Monetary Policy Committee decided to keep the target level of quantitative easing at 275 billion pounds after raising it by 75 billion in October.

According to the MPC November meeting minutes released yesterday, the risk that British economy will suffer from the European debt crisis increased as well as the chances of a worst-case outcome in Europe. Specialists at Markit underline that the euro zone’s drama will be the determinant of Britain’s monetary policy.

The minutes showed that the policymakers expect UK economy to stagnate in the final quarter of 2011. Inflation is expected to fall significantly by the middle of the next year.

Strategists at RBS were expecting that at least one of the MPC members will vote for additional purchases, but the decision to keep things as they are was unanimous. So, more easing in December is unlikely, the probability of more QE January has been reduced significantly, so one should expect the central bank to act in February when the current QE is completed.

Analysts at Investec claim that taking into account the uncertain economic conditions the BoE will announce additional easing measures of 100 billion pounds over the course of 2012. Economists at Ernst & Young are sure that more QE is coming during the next months.

Analysts at Capital Economics admit that not all members seem entirely convinced more QE will be needed as some of them said that “the risks to inflation around the target are balanced”. However, others thought that the Inflation Report forecasts mean that “a further expansion of the asset purchase program might well become warranted in due course”. According to Capital Economics, more QE in February is quite likely.

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J.P.Morgan: forecast for ECB rates

Analysts at J.P. Morgan believe that as the euro area’s economy is in danger of recession the European Central Bank will lower its benchmark rate from the current level of 1.25% to 0.5% by the middle of the next year.

In their view, the ECB will narrow the interest rate corridor to +/-25 basis points, so that the deposit facility rate will fall to 0.25%.

In November the central bank reduced the rates from 1.5% to 1.25%. According to J.P. Morgan, in December the ECB will decrease rates to 1%.

It’s necessary to note that even during the recession in 2008-2009 the central bank didn’t cut the borrowing costs below 1%.

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MIG Bank: US dollar may advance to 94 yen

Technical analysts at MIG Bank believe that if the greenback manages to overcome resistance at 83.30 and 85.50 yen, it will be able to add more than 20% and rise to 18-month maximum at 94 yen.

Such forecast is based on the Elliott Wave theory. According to this theory, any market’s lifecycle may be divided into 8 waves: 5-wave major trend cycle and 3-wave corrective cycle.

The specialists claim that the 40-year cycle of the long-term impulsive wave on USD/JPY enters the phase of reversal. In their view, the fifth wave will end either in November or December and then dollar will start strengthening.

The bank thinks that the pair may revisit the record minimums before beginning to advance and even dip below 74 yen forming a spike down that, in its turn, will trigger a short squeeze and reversal.

If dollar manages to close above 80.60 yen, it will be the first sign that US currency is ready to rally.

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Analysts on the AUD/USD prospects

Analysts at NAB expect Australian dollar to trade versus the greenback between $0.95 and $1.03 in the near term. The risks for AUD/USD are to the downside as the market’s risk sentiment is affected by the euro zone’s debt crisis.

Economists at ANZ Bank believe that it’s becoming more and more likely that the Reserve Bank of Australia will cut interest rates in December. Strategists at JP Morgan, RBC, BNP Paribas and Citi are also almost sure in such outcome.

Analysts at Deutsche Bank, on the contrary, sound optimistic. In their view, earlier fall in oil prices and more stimulatory policy will lead to better growth and risk sentiment in the final quarter of the year. The specialists expect equities to gain reducing demand for the greenback. As a result, the economists believe AUD/USD will advance to $1.06 or even to $1.10.

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EUR/USD is on its way down to October low

Currency strategists at Morgan Stanley and Commerzbank think that the single currency is moving down versus the greenback towards October 4 minimum at $1.3145.

Analysts at Societe Generale are very bearish on EUR/USD. In their view, after the pair hits $1.3145, the next downside target will lie at $1.1875 (June 2010 minimum). In their view, support levels are found at $1.3240 and then $1.2860 and $1.2590.