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Merkel and Sarkozy step in with new proposals
German Chancellor Angela Merkel and French President Nicolas Sarkozy who lead the 2 biggest economies of the euro area claimed yesterday that they will try to establish new rules to tighten euro area economic cooperation.
Merkel and Sarkozy agreed that there should be automatic penalties for those nations who violate the allowed limited of budget deficit, while the limits on debt are to be fixed in euro states’ constitutions.
Such demonstration of intention to solve the crisis came after Standard & Poor’s warned of possible downgrades of the euro zone’s economies, even the 6 AAA-rated countries.
Germany and France also aim to try to precipitate the creation of the permanent European rescue fund from 2013 to 2012 and ensure that decisions by the fund can be made by a “qualified majority” rather than a unanimous vote by the participating governments.
According to Sarkozy, the leading euro area’s nations plan to reach consensus on treaty change with other euro leaders by March.
At the same time, it’s necessary to note that Merkel and Sarkozy reiterated their rejection of the idea of the joint euro bonds. As a result, analysts at Bank of Tokyo Mitsubishi UFJ say that the main pressure in saving the currency will lie on the ECB. According to the bank, the plans announced by Merkel and Sarkozy on Monday may satisfy the European Central Bank and could prevent S&P from massive ratings cuts in the euro area.
Barclays Capital: comments on USD/JPY
Technical analysts at Barclays Capital note that the greenback is testing support at 77.65 trading versus the greenback. The specialists note that if the pair USD/JPY broke below this level, it will go down back to 77.30 yen. In their view, in December US dollar will stay between 77.10 and 78.30 yen.
Nomura: 2012 forecast for EUR/USD
Analysts at Nomura expect the single currency to fall versus its US counterpart to $1.20 by the end of the first quarter of the next year. Then the specialists see EUR/USD recover to $1.25 by the end of 2012. Such forecast is based on the assumption that the European Central Bank will have to conduct quantitative easing in order to prevent Greek default.
Commerzbank: comments on EUR/USD
The single currency rose versus the greenback from yesterday’s minimum at $1.3333 to the levels in $1.3440 area.
Technical analysts at Commerzbank believe that euro’s advance is only a correction. In their view, EUR/USD won’t be able to rise above $1.3608/15 (38.2% Fibonacci retracement of last decline and November 18 maximum). The specialists underlined, however, that it’s not possible to rule out the possibility of the pair’s rebound to $1.3835/60 (July minimum, November maximum and the 61.8% Fibonacci retracement of the recent move down).
According to the bank, EUR/USD is poised down to test the 2011 uptrend support at $1.3210 where it will manage to find some support.
EUR/USD: comments on sentiment, ECB and EU summit
Currency strategists at Morgan Stanley believe that the European currency may gain more versus its American counterpart as the market has become more optimistic ahead of the EU summit on Friday. In their view, if EUR/USD managed to rise above $1.3490, it will be able to strengthen more in the near term.
Specialists at Citigroup, however, advise traders to be careful. The bank underlines that it would be very difficult for the pair to hold its advance after the EU summit is over. The analysts warn that one cannot rule out the risk that the market will get disappointed by the European authorities and euro will get under pressure.
Analysts at Barclays Capital think that the single currency may rise to $1.3550, but not higher. According to the bank, there’s still risk of euro’s slide to $1.3210/1.3145 (November and October minimums).
By the way, BNP Paribas points out that the market has priced in only 80% of the 25-basis-point rate cut on Thursday, so it the ECB actually lowers borrowing costs euro will take a blow. The median forecast of economists surveyed by Bloomberg News is that the central bank will reduce rates from 1.25% to 1% on December 8. Excluding that scenario and the risk of the EU summit failure additional short-covering may give EUR/USD some lift ahead of the weekend, says BNP Paribas.
Commerzbank: comments on USD/CAD
Analysts at Commerzbank underline that so far the greenback hasn’t managed to overcome 50% Fibonacci retracement of its advance versus Canadian dollar from October to November in the 1.0200 area.
The specialists point out that if USD/CAD slides below the 5-month uptrend support line at 1.0100, it will dive to 1.0027 (78.6% Fibonacci retracement) and 1.0000 (psychological level) before bouncing up.
According to the bank, resistance for the pair is situated at 1.0495 (resistance line) and 1.0523 (November maximum). In the first quarter of 2012 US dollar may reach 1.0590 (200-week MA) and 1.0656 (October maximum).
Societe Generale: technical levels for USD/JPY
Technical analysts at Societe Generale claim that support for USD/JPY is found at 77.60/55 and 77.30, while resistance for the greenback lies at 78.30/40 and 78.70.
BNY Mellon: sentiment about euro again changed
The single currency weakened versus the greenback after starting the day on the upside. Analysts at Bank of New York Mellon note that the positive sentiment which has so far began to build switched to the gloomy stance on the euro area's future.
Euro declined after German government official told reporters on condition of anonymity that the nation rejects proposals to combine current and permanent euro-zone bailout funds – yesterday the Financial Times reported that the European leaders may agree to do this.
In addition, Berlin is pessimistic about the chances to reach a deal on solving the crisis on the December 9 summit. If the summit disappoints the market, EUR/USD may slide to $1.3210 and $1.3145.
The majority of the economists surveyed by Bloomberg News expect the European Central Bank to cut its benchmark rate tomorrow from by 25 basis points to 1%. If it happens, euro will get under pressure.
BOTMUFJ on the approaching SNB meeting
Analysts at Bank of Tokyo-Mitsubishi UFJ note that investors seem nervous ahead of the Swiss National Bank meeting on December 15.
EUR/CHF rose today to 1-month maximum at 1.2440 on the talk that the central bank may lift up the minimal level for the pair from the current 1.20 level. Such speculation was caused by the fact that the nation’s CPI contracted by 0.2% in November, while the economic growth in the third quarter hit the minimal level in more than 2 years.
Switzerland’s Finance Minister Eveline Widmer-Schlumpf claimed today that the committee charged with searching for the ways to stem franc’s appreciation examined such issues as negative interest rates and capital controls.
At the same time, the majority of the analysts don’t think that the SNB will move the floor for euro. Strategists at Bank Sarasin claim that the policymakers will base their judgments not on the figures for 12 month, but on the medium-term outlook for Swiss inflation. Economists at Zuercher Kantonalbank say that Swiss services prices are rising and there will be higher medical aid contributions next year, so this will support the prices.
BMO on British economy and trading GBP/USD
Analysts at BMO Capital expect the Bank of England to ease its monetary policy at today’s meeting.
Such assumption is based on UK economic weakness. In particular, the specialists name the lowered growth forecast from the Office for Budget Responsibility and the nation’s latest manufacturing data that turned out to be worse than expected. The bank underlines that Britain is very vulnerable to the euro zone’s crisis as the monetary union is its biggest trading partner.
BMO says that GBP/USD is trading within a downtrend channel and advises to sell the pair in the $1.5850 area stopping above $1.6000 and expecting sterling to slide down towards $1.5050.
OBR reduced UK economic growth forecast from 1.7% to 0.9% in 2011 and from 2.5% to 0.7% in 2012. British Manufacturing PMI dropped in November by 0.2 to 47.6, the lowest level since June 2009.