[COLOR="Green"]20/10/10
JPMorgan: euro will stop rising in 2010-early 2011[/COLOR]
Analysts at JPMorgan Asset Management in London think that the single currency won’t advance much more. In their view, European currency is already over-valued and strong euro would emphasize again severe differences between the euro region’s nations, particularly the gap in competitiveness between such countries as Germany and Portugal. That might, in its turn, put political pressure on the European Central Bank.
At the same time the specialists believe that if the Federal Reserve will decide to conduct quantitative easing and increase the amount of dollar liquidity as the market’s anticipating, the greenback will remain weak.
The pair EUR/USD added 12% from 5-week minimum hit on August 24 rising to the maximal level since January 26 at $1.4159 on October 15. The Dollar Index reflecting the dynamics of US currency versus a basket of currencies that consists of euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc lost almost 9% during the same period.
Societe Generale: emerging countries have lost currency was
Yesterday Brazil increased IOF inflow tax from 4% to 6% to protect exporters from what Finance Minister Guido Mantega called on September 27 a global “currency war”.
Analysts at Societe Generale SA in London claim that emerging-market countries have already lost the global currency face-off. As a result, they believe that all the efforts made by Brazil and other countries to stop the appreciation of the national currencies won’t bring much success.
The specialists underline that money trace the yield, so it’s impossible to stop the inflow of funds to the developing economies without stopping the global depreciation of US currency. Interest rates in the industrialized nations are close to zero that induces investors to borrow cheaply there and invest in higher-yielding emerging markets.
The rate of the Central Bank of Brazil is equal to 10.75% that is the biggest one among G20 ventral banks. In South Africa central bank’s rate is 6%. Brazilian real and South African rand added respectively 37% and 36% versus the greenback since the beginning of last year being two best-performing emerging-market currencies during that period.
[COLOR="green"]BOE minutes: opinions split[/COLOR]
The minutes of the Bank of England’s policy meeting that took place on October 7 showed that the Monetary Policy Committee split into three camps for the first time since August 2008. It happened as its member Adam Posen voted to increase bond-buying monetary stimulus program by 50 billion pounds.
Even though Posen was the sole who gave his vote for expanding stimulus, some of the members who voted to keep policy unchanged believed that further monetary stimulus would become necessary in order to meet the inflation target in the medium term that had increased in recent months.
As a result, it’s possible to assume that Posen is more likely to gain support for his view than is Andrew Sentance who voted for a fifth month in a row to lift up interest rates to 0.75%.
The next BOE meeting will take place on November 3-4. It’s likely that British policymakers will be influenced by the Fed’s decision about the quantitative easing that will be known after its November 2-3 meeting.
[COLOR="green"]The SNB managed to reduce pressure on franc[/COLOR]
The Swiss National Bank (SNB) reduced on September 16 its 3-year inflation outlook. This news eased the pressure on the Switzerland’s currency and helped franc lose 2.3% versus euro. Inflation rate expected in 2011 was diminished from 1% according to June estimate to 0.3% and in 2012 – from 2.2% to 1.2%. The pace of inflation won’t exceed the limit set by the central bank at 2% at least until the second half of 2013 года that’s a year later than anticipated before.
Strategists at Citigroup Inc. note that the revision played the role of the verbal intervention. As a result, it’s possible to assume that inflation forecasts of the country central bank may be a much more effective way to control franc’s rate than the currency interventions that were previously used by Swiss monetary authorities. SNB’s foreign-currency reserves quadrupled in the 15 months to June, causing $15 billion loss in the first half of 2010.
Even though franc didn’t stop climbing versus the greenback, the decline of its exchange rate against the single currency is more important as 55% of Swiss exports go to the euro zone and only 10% to the United States.
In addition, it’s necessary to note that after the release of the new forecast many major banks changed their forecasts for SNB’s interest rates hike. Goldman Sachs postponed potential rate increase to from March 2011 to June, Credit Suisse Group AG – from December to June, while UBS from December to March.
[COLOR="green"]21/10/10
BNP Paribas: weak dollar will hot euro and yen[/COLOR]
Analysts at BNP Paribas SA note that US economic performance seems discouraging and the Fed is going to quantitatively ease, so there’s no doubt that the greenback will be weak. The question, according to the specialists, is against which currencies it will be weak.
Bank strategists note that emerging market currencies will be surely poised to appreciate versus US dollar due to the higher pace of these countries’ economic growth, as well as the attractive interest rates. However, PNP points out that strengthening of developing nations’ currencies is stopped by the national monetary authorities conducting interventions. According to the analysts, the pressure from loose US monetary policy has to go somewhere else, and it’s likely to go entirely on the euro and the yen causing discomfort in Europe and in Japan.
In addition, it’s necessary to emphasize that PNP Paribas doesn’t think that the United States is weakening its currency. In their view, dollar’s weakness is a side effect of the country’s current monetary policy that’s necessary to avoid deflation.
If the US and the Great Britain do more monetary stimulus, then more liquidity will pour into market making dollar and pound depreciate. The specialists believe that such situation is quite natural and if the eurozone isn’t satisfied it has to adjust its monetary policy in the appropriate way. In fact, however, the ECB is thinking about exiting its stimulus program, while other countries at the same time regard the possibility of the entry.
BNP economists say that weaker dollar is affecting the monetary policy of other nations citing that the Reserve Bank of Australia didn’t hike although all the analysts except the ones at BNP Paribas had expected it to. The strategists note that there are too many imbalances in the global economy and more domestic demand stimulus on the emerging markets is needed to drive the global economic growth.
[COLOR="green"]Barclays: EUR/CHF may fall to 1.3070[/COLOR]
Technical analysts at Barclays Plc claim that the single currency may bring to nothing its one-month advance versus Swiss franc in case it drops below support level forming a head-and-shoulders pattern that consists of 3 maximums in a row and means downward reversal.
Barclays specialists underline that during the past month the pair EUR/CHF twice bounced off 1.3260. According to them, if this level is broken this time, euro will drop to 1.3165 and 1.3070. According to Bloomberg, the possibility of such outcome is estimated by 37%.
The franc lost 2.7% against the euro since September 15 as the Swiss National Bank reduced its inflation outlook. The euro has gained more than 5% versus its Swiss counterpart since September 8 when it hit record minimum at 1.2766.
[COLOR="green"]RBC: China's growth pace slowed down only slightly[/COLOR]
Analysts at RBC Capital Markets claim that Chinese third quarter economic data released today shows that the country’s economic growth declined only slightly. In their view, conditions are stabilizing that means that Chinese economy is strong enough for further gradual monetary policy normalization.
RBC strategists expect that Chinese rates will be raised by another 50 basis points during 2011, while the pair USD/CNY will be at 6.20 by end of next year. It’s possible that the moves of the rate will be more substantial, note the analysts.
Annual GDP growth dropped from 11.9% in Q1 and 10.3% in Q2 to 9.6% in Q3. Inflation reached new maximum with consumer prices 3.6% up in September compared with 3% increase in August. RBC underlines that China still has much to do in order to keep its economy on even keel.
[COLOR="green"]Mizuho: bullish trend for EUR/USD[/COLOR]
Technical analysts at Mizuho Corporate Bank note that large “bullish engulfing” candle formed yesterday shows that the main trend for the pair EUR/USD is bullish, while the single currency’s down moves are considered to be corrective.
The fact that euro managed to close above the 9-day MA increased the upward momentum. The specialists claim that the pair’s dynamic during the last 2 week should be regarded as an irregular “flag”.
As a result, Mizuho strategists are looking forward to the European currency’s growth to new maximums later this year. According to them, it’s necessary to open small longs at 1.3900 stopping below 1.3670. The first targets of the pair are situated at 1.4000 and 1.4150.
[COLOR="green"]On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets[/COLOR]
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