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Comments on EUR/USD
Today is the first day of EU economic summit. The meeting of the European leaders will be focused on the ways of reviving the region’s economy postponing the discussion of Europe’s financial-crisis firewall.
Analysts at Mizuho Securities claim that the markets are still concerned about the future of the euro area. The specialists are bearish on EUR/USD expecting the pair to slide to $1.25 by June 30.
The single currency dropped versus the greenback yesterday from nearly 3-month maximums in the $1.3480 area to the levels around $1.3315 after the ECB allotted 530 billion euro of cheap three-year credits to the European banks as investors were “buying on rumors, selling on facts”. Then euro was hit after the Fed’s Chairman Ben Bernanke didn’t signal another round of quantitative easing.
Support for EUR/USD is currently situated at $1.3293 (100-day MA).
Commerzbank is bearish on EUR/USD
Technical analysts at Commerzbank think that the pair EUR/USD may have reversed downwards.
The specialists claim that support for EUR/USD is situated at $1.3318 (February 1 maximum), $1.3293 (February 21 maximum), $1.3199 (late December maximum), $1.3126 (the uptrend channel support) and $1.3066 (55-day MA).
According to the bank, resistance lies at $1.3389 (yesterday’s minimum), $1.3436 (50% Fibonacci retracement) and $1.3487 (February maximum).
Commerzbank says that the outlook for euro will remain bearish as long as it’s trading below $1.3487. If the European currency overcomes this level, it will get chance to climb to $1.3550 (December maximum) and $1.3628 (61.8% Fibonacci retracement of the decline from October to January).
SocGen: China may lower GDP target
The National People's Congress will convene in China on March 5 and last for a week discussing the Government Work Report which will reveal the nation’s targets for growth and inflation, detail the fiscal budget and the priorities for reforms in 2012.
Analysts at Societe Generale believe that the general direction of Chinese policymakers will remain the same: the nation will continue being focused on “making progress while maintaining stability”. In their view, China will reiterate “prudent monetary policy” and “proactive fiscal policy”.
According to the bank, China will likely diminish GDP target to 7.5% indicating increasing commitment to structural reforms and less appetite for aggressive investment stimulus.
Rabobank: comments on EUR, AUD, CAD
Analysts at Rabobank believe that the single currency will fall to $1.25 versus the greenback by the middle of May and then return to growth targeting $1.40 in the longer-term as the specialists believe that US dollar will be weakened by the Fed’s policies and economic growth slowdown.
The bank is bullish on the Australian dollar and the Canadian dollar. In their view, these commodity and growth-linked currencies are helped by the success of the LTRO which improved investors’ sentiment. The analysts aren’t sure that Aussie and loonie will be able to maintain the gains for the duration of the year, but for now they seem to be supported well enough.
BofA revised forecasts for euro, pound
Analysts at Bank of America claim that although the single currency declined yesterday versus the greenback after the LTRO results and Bernanke’s testimony, EUR/USD prospects have so far improved.
The specialists expect the market’s risk sentiment to stay elevated as the situation at the European peripheral debt markets as well as the general state of global economy improved.
The bank increased EUR/USD forecast from $1.25 to $1.30 by the end of the second quarter and from $1.30 to $1.33 by the year-end. In addition, the projections for EUR/JPY were revised up from 91 to 105 yen by June 30 and from 99 to 109 yen by the end of December.
Bank of America thinks that Canadian, Australian and New Zealand’s dollars have good chances for appreciation. As for British pound, the analysts are pessimistic and lowered forecast for GBP/USD for the end of 2012 from $1.53 to $1.51.
Ireland will hold referendum on the Fiscal Compact
Ireland's Prime Minister Enda Kenny announced on Tuesday that he would sign the EU’s new fiscal treaty on Friday, but then the issue will be put on a public referendum. The date for that isn’t defined yet, but it may be scheduled for May or June.
The outcome is uncertain as the Irish rejected the two most recent European Union treaties before passing them in repeat referendums only after concessions were offered.
The fiscal treaty agreed in January by 25 of the 27 EU countries (except the UK and Czech Republic) proposes tough new deficit and debt limits for euro zone members in order to prevent future financial crises. The so-called Fiscal Compact will become binding once 12 of the euro zone's 17 members ratify it, so the Ireland’s decision isn’t critical for the treaty’s fate.
However, as for Ireland itself it seems to be a matter of great importance as the fiscal treaty emphasizes that any members who fail to ratify the pact by March 2013 will be blocked from receiving funds from the future European Stability Mechanism. In 2010 Ireland got bailout from the EU and the IMF and will be funded until late 2013. Never the less, many experts think that the nation will need new loan package next year.
Analysts at Danske Bank believe that the “yes”-vote is the most likely outcome of the referendum. In their view, the Treaty may be possibly ratified in a second vote like it was with the Lisbon treaty.
Yen will keep declining due to BOJ’s loose policy
The greenback rose versus Japanese yen approaching February 27 maximum at 81.67 yen.
Yen weakened versus the majority of its counterparts as, according to the data released today, the nation’s CPI fell by 0.1% in January (y/y) declining for the fourth month in a row. According to Bloomberg Correlation-Weighted Indexes, yen lost 6.9% during the past 3 months versus other developed-market currencies.
Last month the Bank of Japan set inflation target at 1%, so the market expects that it will keep easing monetary policy in order to meet this goal. The central bank will meet on March 12.
Analysts at Morgan Stanley increased forecast for USD/JPY for the first quarter from 75 to 80 yen citing “more aggressive dovish” approach of the BOJ.
Strategists at UBS don’t agree with the widespread idea that yen may strengthen towards the Japanese fiscal year-end at March 31. The specialists think that Japanese investors won’t need to repatriate their profits as domestic financial sector looks quite healthy. In addition, Japanese investment flows were net buyers of foreign assets in the first quarter since 2007, and that trend seems unchanged. According to UBS, USD/JPY will rise to 85 7yen in 3 months. Among the reasons why to be negative on yen the bank names high likelihood of further monetary easing in Japan, the widening of the gap between the US and Japanese benchmark bonds and the increasing oil prices.
Citi: comments on EUR/USD
Analysts at Citi believe that traders will sell the single currency on any rallies versus the greenback unless we see a sustained improvement in euro zone’s fundamentals. The specialists say that EUR/USD may face resistance at $1.3500 marking the level where selloffs are likely to start.
In their view, the ECB’s LTRO made euro often used as a funding currency. At the same time, Citi points out that on the downside, EUR’s decline will be contained as oil exporters convert their dollar revenues into euro and the fact that investors are extremely short on euro. As a result, some short-term short-covering advances may happen. So, Citi expects the pair to trade sideways for some time.
RBC: technical levels for USD/JPY
Analysts at RBC Capital Markets claim that if the greenback manages to close today above 81.47 yen, its chances for sustained growth will significantly increase.
The specialists think that resistance for USD/JPY lies at 82.21 and 83.09 yen.
On the downside, if US currency closes the day below 80.02, its rate will decline to support at 79.31 and 78.23 yen.
Morgan Stanley increased EUR/USD forecast
Analysts at Morgan Stanley raised forecast for the pair EUR/USD buy the end of March from $1.27 to $1.34.
In their view, the short-term outlook for the single currency has improved as the ECB’s LTROs help to ease the tensions about the European sovereign debt and banking sector.
At the same time, the specialists are still bearish on euro in the longer-term perspective. The bank reiterated that the pair will likely slide by the end of the year, though the projection was lifted a bit higher, from $1.15 to $1.19.