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September/22/2011- Comments and forex-analytics from FBS

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September/22/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Sep 22, 2011 3:14 pm

The Fed conducts Operation Twist

The Federal Reserve announced yesterday that it will conduct an Operation Twist or, in other words, lengthen the average maturities of the Treasuries in its portfolio from 75 to 100 months (8 1/3 years) by the end of 2012 by buying $400 billion of long-term debt (with maturities of 6-30 years) through June, while selling an equal amount of shorter-term securities maturing in 3 years or less.

In addition, the central bank will reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries in order to improve the situation in the mortgage market.

The Fed’s goal is to lower longer-term borrowing costs making financial conditions more accommodative. The Federal Open Market Committee (FOMC) reiterated its pledge to keep the benchmark interest rate near zero until the middle of 2013 as the US suffers from high unemployment and the inflation outlook is subdued. At the same time, it’s necessary to note that the rates are already pretty low – the yields on 10-year Treasuries fell from 2011 maximum of 3.74% reached in February to 1.86%.

Analysts at Barclays Capital regard Fed’s actions as a modest step. In their view, this may be only the beginning of easing and the central bank may become more aggressive if they don’t see the economic growth improving. However, Richard Fisher, Narayana Kocherlakota and Charles Plosser – the heads of the federal banks of Dallas, Minneapolis and Philadelphia – voted against the FOMC decision for the second time in a row as they are against of additional monetary stimulus.

Barclays, Citi: comments on USD/JPY

Yesterday the greenback tested the levels in the 76 yen area – the lowest since it hit the record minimum of 75.95 yen on August 19.

Early today USD/JPY rose almost to 77 yen as the Federal Reserve announced the Operation Twist and not the quantitative easing. In addition, the market’s wary that the Bank of Japan’s may once again step in to weaken the national currency.

Then the pair erased its advance returning down to 76.15/30. Resistance levels are situated at 77.00 (September 19 maximum/today’s maximum), 77.35 (September 15 spike high) and 77.85 (September 9 maximum).

Analysts at Barclays note that investors become more risk-averse after the Fed’s statement as the central bank sounded pessimistic. According to FOMC, there are serious risks to the US economic prospects partly caused by the turmoil associated with the euro zone’s debt crisis. The specialists note that the talk about the possible BOJ intervention has set floor for USD/JPY.

Japanese Finance Minister Jun Azumi reiterated yesterday that the nation’s closely watching markets and will act decisively if needed. At the same time, analysts at Citi don’t worry much about the potential Japan’s action noting that Japanese officials got used to treat the effects of strong yen through exports subsidies. In addition, the nation is unlikely to make too sharp moves ahead of G20 meetings on Thursday and Friday.

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Re: September/22/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Sep 22, 2011 3:33 pm

Greece keeps tightening belts

Greece announced that it plans to accelerate budget cuts in order to obtain the next tranche of bailout.

Additional austerity measures announced yesterday include a 20% cut in pensions of more than 1,200 euro ($1,627) a month and lower wages for 30,000 state employees.

Greek government pledged yesterday to complete the 28-billion-euro cuts in June by 2014 instead of 2015.

Talks on the Greek aid payments resumed after IMF and EU monitors suspended the negotiations earlier in September after the data showed that Greece’s budget deficit this year through August widened to 18.9 billion euro exceeding the 18.1-billion-euro target. Greece aims to cut its budget shortfall from 10.5% in 2010 to 7.5% in 2011.

According to IMF forecast, Greek economy will contract by 5.5% this year and by 2.5% in 2012.

AUD/USD fell below the parity level

Australian dollar has slumped today below the parity versus the greenback for the first time in more than 6 weeks.

Aussie was affected by HSBC Manufacturing PMI preliminary data that declined from 49.9 in August to 49.4 in September – a reading below 50 signals a contraction in the nation’s manufacturing.

Australia & New Zealand Banking note that concerns about the global economic growth make serious negative pressure on AUD. The currency is especially vulnerable to lower Chinese figures as China is Australia’s largest trading partner, the main buyers of Australian commodities. The International Monetary Fund revised downwards its economic growth forecasts this week. In addition, analysts at Westpac claim that the Federal Reserve’s yesterday statement sounded pessimistic and the central bank didn’t surprise the market.

The pair AUD/USD went down from Friday minimum at $1.0398 to the levels in the $0.9825 area.

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Re: September/22/2011- Comments and forex-analytics from FBS

Postby vanvirtue » Thu Sep 22, 2011 3:37 pm

Mizuho: pound renewed minimum versus yen

British pound dropped versus Japanese yen and renewed the record minimum hitting 117.00. The previous all-time low of 118.78 was set in January 2009.

Technical analyst at Mizuho Corporate Bank note that GBP/JPY is currently trading at two standard deviations below the average level of the past 10 years at 182.00, but above the 40-year mean regression at 107.00.

According to the bank, sterling may lose more sliding to 115.00 and 110.00.

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