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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.
Scotia Capital, BBH and Merrill Lynch favor loonie
Analysts at Scotia Capital recommend selling EUR/CAD. The specialists note that the single currency will stay under pressure due to the euro zone’s debt crisis, while Canadian dollar will be able to appreciate due to Canada’s top credit rating, stable government, rather strong economy and commodity base.
Strategists at Brown Brothers Harriman share this opinion. In their view, the pair will fall from the current levels in the 1.4000 area to the levels below 1.3800.
Economists at Bank of America Merrill Lynch advise investors to open shorts on AUD/CAD. According to the bank, Australian dollar will suffer more in case of the global growth slowdown. In addition, the Reserve Bank of Australia began easing its policy, while the Bank of Canada remains on hold.
BoA: Aussie will fall against the greenback
Technical analysts at Bank of America believe that Australian dollar may fall to more than 1-year minimum versus the greenback.
The specialists note that bears got more powerful after AUD/USD breached support of 2008 maximums in the $0.9927/0.9850 area. In addition, Aussie will likely be affected by the market’s risk aversion.
According to the bank, the pair is now on its way down to $0.9330. If it fails to hold at this point, it will be poised for a decline to $0.9000.
Australian currency lost 7.7% versus its US counterpart in November showing the second worst results among the major currencies after New Zealand’s dollar.
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.
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.
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.
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.
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.
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%.
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.