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November/16/2011- Comments and forex-analytics from FBS

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November/16/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Wed Nov 16, 2011 3:01 pm

On RBA rates and Aussie’s prospects

News about new technocratic governments in Italy and Greece brought only short-term relief to the market. Yesterday’s surge of euro zone bond yields threw investors into the risk-averse mode that affected such risk-sensitive pair as AUD/USD.

Analysts at RBC Capital Markets believe that Australian dollar’s dynamics versus the greenback will remain extremely volatile as Aussie is closely correlated with the equity markets which are seized by uncertainty. In their view, the risks for AUD/USD are to the downside.

Dow Jones reports that the interest rate swaps market is currently pricing in a 100% chance of a rate cut by the RBA in December, though the surveyed economists expect the RBA to keep the rates unchanged.

This month RBA lowered its benchmark rate by 25 basis points to 4.5% citing the projected slowing inflation and the risks posed by the euro zone debt crisis. The central bank gave no hints on further rate cuts in its meeting minutes released yesterday. According to the document, the policymakers have also discussed the possibility of staying on hold. The RBA underlined that the mining industry could become the driver of the nation’s economic growth that would require more tight monetary policy in the medium term.

Analysts at Westpac, however, claim that the mentioning of the risks connected with Europe means that the RBA left the door open for further easing, and look forward to 75 basis points of rate cuts starting in February.

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Wells Fargo: negative forecast for EUR/USD

Analysts at Wells Fargo are bearish on the prospects of the single currency versus the greenback during the next 12 months. The specialists believe that euro will be affected by the increasing borrowing costs for the peripheral euro area nations and the risk of recession in the region.

According to the bank, EUR/USD will fall to $1.3000 in 3 months, to $1.2800 in 6 months and to $1.2600 in 9 months and hit $1.2400 in November 2012.

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Re: November/16/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Wed Nov 16, 2011 3:02 pm

Japan: monetary policy, economy, yen’s rate

The Bank of Japan left its benchmark rate unchanged at the minimal levels of 0-0.1% and the asset-buying fund at 20 trillion yen ($260 billion) after increasing it by 5 trillion yen in October.

As Japan’s economy strongly depends on the external demand for Japanese goods, deepening European debt crisis, the flood in Thailand and the risk of global economic slowdown will have a serious negative impact on the nation’s growth prospects.

Analysts at Nomura claim that the central bank may augment monetary stimulus if the national currency which is regarded as a refuge keeps strengthening and once again approaches record maximums against its US counterpart.

According to Japan Automobile Manufacturers Association, in the first half of 2011yen’s appreciation slashed Japanese carmakers’ profit by 330 billion yen. Japanese GDP rose by 6% in the third quarter on the year-to-year basis as the nation’s economy recovered from the March earthquake. However, during the first 20 days of October exports slashed by 1.6%. Credit Suisse believe Japan’s economy is losing upside momentum since August and that the readings of its indicators will soon start to deteriorate.

As for Japan’s intervention policy, analysts at UBS don’t expect any changes. In their view, the nation’s monetary authorities will keep intervening only in case yen’s sharp bounces. As the European debt crisis escalates, Japanese investors trim their overseas assets – primarily euro zone sovereign debt holdings – and repatriate their money making demand for yen increase. That means that yen’s appreciation is caused not only by the speculative inflows, but also by the Japanese real money accounts. In such circumstances Japan will be forced to act, so USD/JPY’s decline will be likely limited.

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Feldstein: Greece will have to leave the euro zone

Martin Feldstein, professor at Harvard University, who has foreseen in 1998 that the euro zone will end up with the necessity of bailing out its members, claims now that the currency union will survive, even though Greece will leave the bloc within a year.

According to Feldstein, if Greece doesn’t default and devalue its currency, it will face constant economic slump. The specialists underline that even if the nation’s debt was wiped out Greece would have an unbearable a current-account imbalance which could be eliminated only by abandoning euro and devaluation.

According to the European Commission, Greece’s debt will reach 163% of GDP this year.

Feldstein claims that Italy is in better situation than Greece due to the stronger economy and budget and smaller current-account deficit.

It’s also necessary to note that the economist advises the European Central Bank to resist pressure and avoid increasing purchases of Italian bonds as this would distort financial markets and reduce the urgency for the government to restore fiscal order.
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Re: November/16/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Wed Nov 16, 2011 3:03 pm

Societe Generale: comments on EUR/JPY

Analysts at Societe Generale warn that the single currency may keep declining versus Japanese yen and fall to October 4 minimum at 100.75 yen. The specialists underline that EUR/JPY has eroded support in the 104.90/104.75 zone.

According to the bank, bearish pressure will ease only if the pair returns above 104.75. In such case euro will get chance to rise to October 31 maximum at 111.60 yen.

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Re: November/16/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Wed Nov 16, 2011 3:04 pm

HSBC, Rabobank on the factors influencing EUR/USD

Analysts at HSBC claim that the fair value of the European currency is in the $1.20/$1.30 area. However, even despite the escalating crisis euro keeps trading above these levels. The specialists see 2 reasons for that.

Firstly, euro is supported by monetary inflows even though some of them are the result of European banks bringing capital home in an effort to defend themselves against possible losses on their holdings of euro-zone bonds. The current account of the euro area as a whole is almost balanced and there are positive portfolio and merger and acquisition inflows.

Secondly, as the consequences of the currency union’s break up are expected to be terrible, investors are betting that the policy makers will find a way to save the bloc. In addition, there is also a chance that the member nations will move to closer fiscal coordination.

Analysts at Rabobank add that much may be explained by the weakness of US dollar which showed the worst performance among the other major this year but has regained some safe haven status because of the European turmoil. At the same time, there are pairs with much stronger downtrend for the common currency: EUR/JPY fell from April maximum at 123.32 yen to the levels in the 103 yen area.

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