[FBS_Official]

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Europe: Portugal’s debt rating reduced, EU summit

Standard & Poor’s lowered Portugal’s credit rating by two notches from A- to BBB with the negative forecast 2 days after Fitch Ratings cut Portuguese long-term debt rating from А+ to А-.

Analysts at Credit Suisse claim that the country’s downgrade affected the market. In their view, investors don’t want to buy euro while they’re closely watching if there’s any progress at the EU summit. The specialists note that there are still many negative factors for the single currency.

According to Bloomberg, two European officials with direct knowledge of the matter claimed that the bailout for Portugal may total 70 billion euro ($99 billion). The country hasn’t asked for financial help yet.

On the first day of the summit yesterday the European leaders agreed on Germany’s proposal to spread contributions to the future permanent rescue fund – European Stability Mechanism – over 5 years. The initial amount of the fund will be equal to less than the expected earlier 40 billion euro of paid-in capital.

The pair EUR/USD is trading in the 1.4160/70 area.

[FBS_Official]

CharmerCharts: sell EUR/USD on advance to 1.4200/20

Specialists at CharmerCharts, analytical firm providing technical analysis, note that the single currency jumped yesterday to the 1.4200 area versus US dollar.

In the medium term, however, the analysts regard the outlook for euro as negative and advise investors to sell on the pair’s advance to 1.4200/20. According to the analysts, such trade should be stopped if EUR/USD manages to break above 1.4300.

CharmerCharts says that support for the pair is found in the 1.4030/50 zone. Below these levels euro will be poised for a decline to 1.3860.

[FBS_Official]

HSBC: ECB and BoE may repeat Japan’s mistake

European inflation broke above the ECB’s 2% threshold in December rising to 2.4% in February, while the British CPI growth accelerated last month to 4.4%, twice higher the 2% BoE target level. As a result, the European Central Bank announced about its readiness to raise interest rates and more and more members of the Bank of England’s MPC call for monetary tightening. Analysts at HSBC, however, claim that the central banks should take into account Japan’s unsuccessful experience in this field.

In their view, the inflation threat may misguide the European monetary authorities and, as a result, the region’s economy may suffer like Japan did in the past quarter century. At the beginning of 1990s, the Bank of Japan increased its key rate in more than 2 times to 6% as the Gulf War pushed oil prices and inflation to 4.%. However, when inflation was soon eliminated the central bank has to cut back the rate to less than 2% by the end of 1993.

According to HSBC, oil-price surge can create sometimes more deflationary than inflationary risks as it is squeezing spending power. The specialists warn that that’s what may be currently happening in Europe as crude oil approached maximum in more than 2 years above $100 a barrel.

HSBC notes that among the longer term costs of the monetary policy mistake there are stagnation, deflation and economic underperformance. To receive evidence one must just look at Japan: the country has to keep rates at the record low, while its debt is twice the size of the nation’s economy.

[FBS_Official]

Wells Fargo: the outlook for major currencies

Analysts at Wells Fargo claim that there are 2 opposing forces influencing the pair USD/JPY. On the one hand, there is the speculative upward pressure on yen due to the anticipation of the repatriation flows. On the other hand, Japanese officials have drawn the line in the sand to prevent further appreciation of the national currency. The specialists believe that this kind of mixed environment for yen is going to prevail for at least several months. The specialists, however, don’t think that Japanese currency will once more test the postwar maximums as it did on March 16 when it reached 76.31 yen.

Wells Fargo says that 80 yen mark is certainly a psychological level below which the intervention risk is high. The economists are speaking not so much about the actions of other central banks, but about the efforts of both the Bank of Japan and the country’s Ministry of Finance. Judging from the degree of momentum at the market the pairs USD/JPY and EUR/JPY will be the primary crosses affected by potential intervention, though the Bank of England and the Bank of Canada have also sold yen.

The strategists note that though the amount of the international participation probably isn’t very strong, it will send a strong message to investors indicating the high degree of the authorities’ commitment.

The market has priced in about a 100 basis points interest rates hike over 12 month – quite significant pricing in – so it can be argued that there’s still some place for Euro to reflect the expectations. The problem is still in the European debt concerns. Wells Fargo believes that some of the euro zone’s indebted nations, especially Portugal, may soon need a bailout.

As for Portugal, April is a very important month in terms of the debt’s refinancing. This could be the point where the forex market will come more in line with the fixed income market. It’s necessary to note that Portuguese bond market is still showing a significant amount of investors’ stress. It’s just the forex market that hasn’t paid much attention to the euro area’s debt problems so far.

The specialists say that the greenback will be on the defensive due to the hawkish signals from the ECB and the Bank of England until the second round of the QE ends in June. Wells Fargo expects June to be an important threshold for the currency market. The transition from easing to neutral policy is going to be significant itself, even if the Fed doesn’t start hiking rates quickly.

[FBS_Official]

Commerzbank: EUR/GBP eroded long term resistance

The single currency bounced yesterday versus British pound breaking above the key resistance in the 0.8758 area. Technical analysts at Commerzbank note that euro has severed the long-term downtrend, introducing scope to 0.8935/45.

The specialists say that as long as the pair EUR/GBP is trading above the mentioned trend it has potential to advance to the 0.8935/45 area representing the 50% retracement of the decline from 2009 and the October 2010 maximum.

According to the bank, bullish pressure on euro will ease only below the short term uptrend at 0.8672 and the pair will be poised lower to 0.8605 then 0.8560.

[FBS_Official]

Barclays Capital: Australian dollar may rise to 1.09

Analysts at Barclays Capital note that Australian dollar is under bullish pressure versus its US counterpart as long as it holds above 1.01. In the near term the pair AUD/USD is likely to fluctuate near the post-float maximums in the 1.0260 area. If Aussie decisively breaks up through these levels, it will get chance to climb to 1.0650 and 1.09 in the medium term.

[FBS_Official]

SNB quarter report released

The Swiss National Bank has released today its quarterly report. The central bank announced that the tensions in the Middle East led to the new strengthening of Swiss franc versus the European currency and US dollar.

According to the central bank, franc’s appreciation has so far had only a moderate effect on the import price index. The Swiss franc prices of some import goods react with a time lag to the exchange rate’s moves, as the companies adjust them at irregular intervals.

Switzerland’s monetary authorities also said strong national currency made the country’s exports lose considerable momentum. The SNB expects that Swiss GDP will gain about 2% in 2011.

[Mysticforex]

Thank You for that comprehensive report.
How often can we expect them?