Comments and forex-analytics from FBS

[FBS.com_official]

Analysts comment on RBA minutes

According to the minutes of the Reserve bank of Australia’s June meeting released today, the central bank officials think that it’s “prudent” to keep the borrowing costs at the current 4.75% level as the euro area’s debt crisis may escalate affecting the markets.

Analysts at Credit Agricole think that though the RBA is concerned about global financial problems, it’s aware of the steady growth of domestic wages. As a result, the specialists believe that the central bank will have to tighten monetary policy at some point. The bank notes that investors were quite long on risk currencies, so some profit-taking is likely now.

Strategists at UBS pushed back its expectations for the next RBA rate hike from August to October. In their view, the central bank may increase rates in August if CPI at the end of July will turn out to be higher than expected. In such case this would be the only RBA move this year.

Australia’s GDP dropped by 1.2% in the first quarter, the most since 1991, while consumer prices added 1.6% showing the biggest advance since 2006. Australian economy was affected by the torrential rains in Queensland that damaged crops and made coal mines shut.

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Commerzbank: USD/CAD will rise to 1.0592 in a year

Technical analysts at Commerzbank believe that the bearish trend for the pair USD/CAD has finished when the greenback hit the minimum of 0.9445 on May 2.

The specialists claim that US dollar is currently trading within a clear minor uptrend channel versus loonie. In their view, the pair will reach 1.0208 in 6 months and climb to 200-week MA of 1.0592 in a year.

[FBS.com_official]

Deutsche Bank: EUR/GBP forecast

Analysts at Deutsche Bank claim that the single currency will stay in range of 0.80/0.90 versus British pound until the end of 2011.

The specialists say that, on the one hand, sterling will remain under pressure as UK economic weakness will prevent the Bank of England from tightening monetary policy through a sustained hiking cycle. On the other hand, concerns about peripheral euro zone’s nations will weight on euro limiting EUR/GBP on the upside.

As for the longer term, the bank expects the pair to trade at 0.79 by the end of 2012 and then slide to 0.77 by the end of 2013.

[FBS.com_official]

RBS: pessimistic view on US economy

Analysts at Royal Bank of Scotland believe that the Federal Reserve could have underestimated the negative factors affecting US economic growth as some of them may be not as transitory as the Fed has hoped.

In the first quarter American GDP rose by 1.8% on the annual basis, while the economists were looking forward to 2.2% advance.

It’s expected that US economy will expand by 2.3% in the second quarter and by 3.2% in the third one. RBS specialists claim that these figures may also be disappointing. According to the bank, US economic growth for 3 months from April to June will be less than 2%.

[FBS.com_official]

CBA, Commerzbank expect EUR/USD to decline

The single currency weakened versus the greenback due to the concerns that it would be very difficult for George Papandreou’s government to pass the austerity package through parliament even after winning a confidence vote. The parliament debate on the issue will take place on June 28-30. Papandreou will meet his ministers today to discuss a draft law for the government’s 5-year fiscal plan, one of two laws needed to pass by the end of the month to qualify for EU aid.

Strategists at Commonwealth Bank of Australia claim that it’s good that the prime minister survived as it means that Greece at least has a functioning government. However, it’s still necessary to push through the legislation for the austerity measures. According to the bank, too much positive news is currently prices in euro’s rate, so the European currency may ease down a bit more.

Analysts at Commerzbank believe that the EU summit on June 23-24 is unlikely to bring any news. In their view, the major downtrend in EUR/USD caused mainly by the greenback’s weakness will once again become clearly seen. Economists surveyed by Bloomberg News expect euro to decline to $1.41 by the end of the year.

[FBS.com_official]

Morgan Stanley: currency forecasts revised

Analysts at Morgan Stanley revised down forecasts for some major currency pairs by the end of the year:

- For EUR/USD – from 1.49 to 1.36;

- For AUD/USD – from 1.12 to 1.01;

- For GBP/USD – from 1.62 to 1.49.

The specialists note that euro area’s economic outlook has deteriorated as the leading indicators tend to decline, investments inflows are slowing down. As a result, the single currency is going to stay under pressure.

In addition, the concerns about global growth are strengthening that’s affecting pro-cyclical and commodity currencies.

According to the bank, demand for the greenback in the second half of the year will be rather high. However, US rising debt burden makes Morgan Stanley doubt whether American currency will be able to keep rebounding in 2012.

[FBS.com_official]

BNP Paribas, Societe Generale about euro's rebound

Economists at BNP Paribas expect EUR/USD to rebound to $1.4500 in the short term. The banks says that the obstacles for euro seem to be much less great after Germany agreed to make significant concessions on the terms of the second bailout package for Greece and Papandreou's government won its confidence vote. According to BNP Paribas, if the Greek budget is passed in parliament next week, risk currencies and euro will surge.

Strategists at FX Concepts, the world’s largest currency hedge fund, say that resistance for EUR/USD is found at $1.4470 and $1.4495. In their view, these levels will hold euro’s advance this week. The next week, however, the pair may strengthen to $1.4585. The outlook for the European currency will become negative if it closes below $1.4160. However, the specialists believe that any aggressive weakness will be postponed for two weeks or so.

Analysts at Societe Generale claim that for the single currency to climb to $1.5000 versus the greenback there should be 3 factors: firstly, the successful resolution of the Greek crisis for a few months at least; secondly, confirmation that US economy is going through the “soft patch” and nothing more serious, and, finally, the evidence that Chinese monetary tightening cycle has approached the end.

[FBS.com_official]

Deutsche Bank: pound drops on MPC minutes

British pound fell to the 2-week minimum versus the greenback in the 1.6110 area.

According to the Bank of England’s Monetary Policy Committee June meeting released today, the policymakers voted 7-2 to keep the benchmark interest rate at the record minimum of 0.5%. In May the division of opinions was 6-3.

Strategists at Deutsche Bank regard the minutes as dovish. The central bank seems determined to keep the borrowing costs low in order to help the national economy recover. As a result, the specialists expect sterling to stay under negative pressure versus its US counterpart.

Support levels for the pair GBP/USD are found at 1.6109 and 1.6078. Resistance levels for pound lies at 1.6264, 1.6333 and 1.6383.

The new member of MPC Ben Broadbent, who has replaced hawkish Andrew Sentance, voted with the majority to leave interest rates on hold. As a result, only Spencer Dale and Martin Weale are left voting for a hike and even they agreed that the recent economic data as very weak.

Strategists at Daiwa Capital Markets don’t expect MPC to raise rates this year. Economists at Investec and Societe General pointed out that some of the MPC officials are talking about the possible need for more asset purchases.

[FBS.com_official]

BBH, Commerzbank: comments on EUR/CHF

Strategists at Brown Brothers Harriman, the oldest and largest private bank in the United States, believe that recent demand for Swiss franc was due to the fears that Greek crisis may have global consequences. According to them, now when the Greek government has won the confidence vote, the situation improved and euro will form a base and start rebounding.

Technical analysts at Commerzbank, however, are pessimistic about euro’s prospects versus franc. In their view, resistance for EUR/CHF is found at 1.2169 and 1.2177. As long as the pair trades below the latter, the outlook for euro remains negative. If the European currency declines, it will be supported by the record minimum at 1.1950. If euro breaks below this level, it will be poised down to 1.1790 and 1.1600.

[FBS.com_official]

Commerzbank: German companies survey on EUR/USD and USD/CHF

According to Commerzbank’s monthly survey, German companies are bullish on the single currency in the short term. The firms are paying more attention on the factors negative for US dollar rather than on the Greek debt crisis. However, in the medium term German businesses expect euro to weaken.

It’s also necessary to note that the corporations of the most powerful euro zone’s economy don’t think that the advance of Swiss franc is sustainable – more than a half of respondents believe that the pair EUR/CHF will gain in 6-12 months. As for the near term outlook for euro/franc the opinions of the surveyed equally divided.

[FBS.com_official]

UBS: bearish view on USD/JPY

The greenback keeps trading in a very narrow range of 35 pips versus Japanese yen since the beginning of the week.

Technical analysts at UBS are bearish on the pair USD/JPY. In their view, if US dollar breaches 80.00, it will be poised down to May 5 minimum of 79.57.

According to the bank, if the pair goes up it will face resistance at June 13 maximum of 80.68.

[FBS.com_official]

Barclays Capital: outlook for GBP/USD and USD/JPY

Analysts at Barclays Capital claim that the market’s turning negative on British pound. The specialists see bearish signals on monthly and weekly GBP/USD charts. As a result, they think that sterling will be under pressure during the whole summer. According to BarCap, pound has finished a large 5-month topping pattern and the pair will sink below $1.60 to the minimum at 1.5970 and then to 1.5940 and 1.5660. The economists believe that the negative bias will remain as long as the pair is trading below 1.6170.

[FBS.com_official]

Nomura: forecast for EUR/CHF

Analysts at Nomura believe that Swiss currency is going to depreciate only in 2012.

In their view, during the next 3-6 months franc will remain strong encouraged by the high demand for it as a safe haven and rather good shape of Switzerland’s economy. The specialists forecast EUR/CHF to trade at 1.22 by the end of this year.

Then, in the longer term, franc will get constrained by expensive valuation and rate differentials, claims the bank. According to Nomura, the pair will recover to 1.42 by the end of 2012.

[FBS.com_official]

The Fed leaves door for QE3

The Federal Reserve completes this month its $600-billion QE2 program. However, the Fed’s Chairman Ben Bernanke left open door for new round of monetary stimulus in case American economy doesn’t rebound.

According to Bernanke, US will soon get rid of constraints from elevated energy prices and disruptions to manufacturing caused by Japanese earthquake. However, the nation is still facing such severe issues as declining home prices, high unemployment and weaknesses in the financial system that pose risks for its recovery in the longer term.

The Fed’s head also said that the prospects of American economy depend on what will happen to Greece as the country’s default will affect global financial markets.

The Fed left yesterday its benchmark interest rate in range of 0-0.25% where it’s been since December 2008. Bernanke pointed out that borrowing costs will remain low for an extended period that means at least for another 2-3 FOMC meetings.

US economic growth slowed down from 3.1% in the final quarter of 2010 to 1.8% in the first 3 months of this year. The unemployment rate rose to 9.1%.

[FBS.com_official]

RBS: euro will fall to $1.30 by the beginning of 2012

Currency strategists at Nomura International claim that the underlying debt issue in peripheral euro zone’s nations will keep justifying high risk premium on euro. The situation in the region keeps being very tense and uncertain.

Financial Times reports that Antonis Samaras, leader of the opposition in the Greek parliament, said that party will vote against the government’s new austerity measures on June 28. On July 3 European finance ministers will decide whether Greece has met conditions for its next aid payment. In addition, European Central Bank President Jean-Claude Trichet warned that euro zone’s financial stability is danger as the debt crisis threatens to infect banks.

Analysts at Royal Bank of Scotland advise investors to sell the single currency at $1.4420 as they believe that the pair EUR/USD will drop by 9.8% hitting $1.30 at the beginning of 2012. Among the reasons for such forecast the specialists cited the future slowdown of European inflation and stumbling Spanish economy on the back of US economic rebound.

[FBS.com_official]

UBS expect EUR/USD to decline

Analysts at UBS expect the single currency to weaken versus the greenback to $1.30 by the end of the year.

The specialists note that the Fed’s Chairman Ben Bernanke made no pledge to keep the balance sheet at its current elevated level for an extended period.

In their view, letting the balance sheet to contract passively may be the first normalization step. As a result, UBS concludes that at least some members of the FOMC want to maintain an ability to tighten if necessary.

According to the bank, the possibility of QE3 isn’t high.

[FBS.com_official]

BBH: outlook for EUR/USD and GBP/USD

EUR/USD

Technical analysts at Brown Brothers Harriman, the biggest and oldest private bank in the United States, say that the single currency has fallen sharply today and got below $1.4200.

According to the specialists, the pair EUR/USD may find support at $1.4160. However, the bank warns that euro may be poised down to $1.4080 and hit this level before the weekend unless there is some positive news for the pair.

GBP/USD

The strategists also think that British pound will keep depreciating versus its American counterpart as it has already dropped below the 200-day MA for the first time since the beginning of the year. In their view, the pair GBP/USD is moving down to $1.59.

[FBS.com_official]

Bank of Canada: comments on Greece and Canadian economy

Though Bank of Canada’s chief Mark Carney called yesterday the situation in Greece “manageable” in the context of the European Union, he warned that in case the euro zone’s debt crisis escalates, Canada will be exposed trough indirect links with banks in other countries.

So, Carney joined Finance Minister Jim Flaherty who had earlier proposed to create a “firewall” around Greece to ensure the nation won’t contaminate the global financial system.

Carney projects Canadian economic growth to slow and inflation to remain above 3% (BoC target is at 2%) in the short term. Later this year the nation’s economic should gain pace, says the central banker. It’s also necessary to note that Carney underlines that Canada’s central bank retains the flexibility to hike interest rates if necessary.

[FBS.com_official]

Deutsche Bank: franc remains competitive

Analysts at Deutsche Bank claim that Swiss franc that gained the most among the major currencies (17% up, according to Bloomberg Correlation-Weighted Indexes) during the past year remains competitive.

Investors’ demand for franc is high as it’s regarded as safe haven because of Switzerland’s role as neutral financial center and exporter of precision products.

The specialists note that though Swiss currency may reach levels that would harm the nation’s pharmaceuticals and watches, Switzerland’s trade balance and exports are all the same in rather good shape. As a result, franc, in their view, isn’t actually as overvalued as it’s widely thought.

Switzerland’s trade surplus rose from 1.44 billion francs in April to 3.31 billion francs ($3.95 billion) in May. Exports fell only by 1.5%, while imports slumped by 8.4%. Exports account for 50% of Swiss economy. During the past year CHF gained 32% versus the greenback and 14% against euro.

[FBS.com_official]

Commerzbank: GBP/USD will consolidate before falling down

British pound dropped from Wednesday’s maximum versus the greenback at 1.6262 testing March minimum at 1.5940.

Technical analysts at Commerzbank expect the pair GBP/USD to consolidate in the near term and then resume downtrend moving down towards 1.5831 (55-week MA) and 1.5510/00.

[FBS.com_official]

If Greece decided to leave the euro area

When the European common currency was designed, it wasn’t thought that any member would ever want to leave, so euro architects prepared no exit route. As the euro zone’s debt crisis escalates, the option of Greece leaving the currency block doesn’t sound absurd anymore.

Analysts at the think tank Open Europe claim that though European policymakers aren’t working on the plan that would regulate the process of abandoning the monetary union it’s vital to develop such. In their view, one of the only ways to exit would be through a disorderly default on the debt where the country couldn't make a payment. The specialists underline that the banking sector would have to be nationalized as the banks would go under if Greece were to leave to the euro area.

Economists at Capital Economists say that one key advantage of withdrawing from the single currency would be to allow a new currency to devalue and give the country a competitive advantage. However, it would then be essential to restructure all debts denominated in foreign currencies or those borrowers – individuals and businesses – would face a huge explosion in the scale of their debt.

The analysts claim that the economic and financial system, of course, will suffer much going through a lot of disruption. If Greece leaves the currency block, there will be a run on domestic banks. Such move may be stopped by freezing of the deposits or using capital controls to stop monetary flowing out of the country. It’s also necessary to note that there’s the risk of a black market in euro and dollars while the new currency was created.

So, it’s possible to conclude that any plan to make Greece able to quit the euro area has to include nationalization of Greek banks, establishing new restrictions to stop monetary and capital outflows and restructuring of the nation’s huge debt.

[FBS.com_official]

BofNY Mellon, Ueda Harlow: AUD/USD prospects

Currency strategists at Bank of New York Mellon are bearish on Australian dollar. The specialists think that investors’ demand for Aussie may soon start declining. In their view, AUD will be affected not only by the global growth concerns, but also by the monetary policy of China, its largest trading partner, that’s trying to ease down the surging prices. In addition, according to the bank, the factors that contributed to the Aussie's advance this year above parity versus its US counterpart may become the biggest risk factors over the rest of 2011.

Economists at ICAP Australia, however, don’t share such pessimistic view. The pair AUD/USD rose today from 1-month minimum helped by the hopes that next week Greece will pass austerity measures needed to receive financial aid. ICAP says that investors wait that some of the uncertainties will clear up. In their view, the global economy isn’t looking too bad. If the Greek vote on budget cuts looks like it’s going to be passed or has been passed, the analysts advise to buy Aussie and kiwi.

At the same time, strategists at Ueda Harlow warn that one still can’t be certain of how things will go in Greece next week. The specialists think that the Reserve bank of Australia has already raised interest rates a lot and there may not be room left for a lot more hikes. As a result, Ueda Harlow expects AUD/USD to be unstable and biased to the downside.

[FBS.com_official]

UBS, Commerzbank: outlook for EUR/USD

Analysts at UBS note that though Greece's new austerity plan encouraged risk appetite allowing euro to bounce versus the greenback on short term, the pair EUR/USD is under bearish pressure after it breached yesterday the 1.4128 level. According to the specialists, euro is poised down to 1.4070 and then to 1.3970.

Strategists at Commerzbank place downside targets for the European currency at the 200-week MA of 1.4014, the recent minimum at 1.3968 and the 200-day MA at 1.3854. In their view, there’s strong resistance at the 55-day MA and the Ichimoku Cloud top at 1.4369.

[FBS.com_official]

Barclays, Standard Bank: EUR/USD prospects

The pair EUR/USD bounced today for a short period of time as Ifo index of German business confidence unexpectedly increased in June. Then, however, the single currency went down again due to the concerns that EU pledge to stabilize the situation in the region won’t resolve a sovereign-debt crisis.

European finance ministers will decide on July 3 whether Greece has met conditions for its next aid payment.

Yesterday EU leaders urged the nation to pass next week the 78 billion-euro ($111 billion) package of budget cuts and vowed to do what’s needed to meet the country’s financing needs. Greece needs to cover 6.6 billion euro of maturing bonds in August, so if the nation doesn’t get the fifth tranche of bailout, it will default.

Analysts at Barclays Bank are optimistic believing that Greek parliament will approve the fiscal austerity measures.

Strategists at Standard Bank advise to sell euro versus Swiss franc. Analysts at Morgan Stanley recommend shorts on euro versus US dollar expecting EUR/USD to slide to $1.36. Economists at CMC Markets say that the solution of Greek problems would take months and years.

[FBS.com_official]

Commerzbank: comments on EUR/USD

Technical analysts at Commerzbank claim that the single currency is consolidating versus the greenback above support at 1.4113.

Then, in their view, the pair EUR/USD will go down towards 1.4017 (200-week MA), 1.3968 (recent minimum) and 1.3860 (200-day MA). If euro closes below this zone of support, it will drop to 1.3570/1.3620.

According to the bank, resistance levels are found at 1.4365, 1.4500/69 (6-week downtrend) and 1.4732 (78.6% Fibonacci retracement).