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Rabobank: comments on EUR/GBP
Analysts at Rabobank believe that the single currency will decline to 0.82 versus British pound in 3 months.
The specialists say that though UK monetary authorities will likely do more quantitative easing in February, in the coming months the pair EUR/GBP will be driven by the euro zone’s fundamentals which seem to be in poor condition.
France will offer bills amid the downgrade
The weekend was marked by the dim news for the euro area: Standard & Poor’s downgraded France and Austria by one level from top AAA rating to AA+ with “negative” outlooks. The agency also reduced credit ratings of Italy, Portugal, Spain and Cyprus by 2 steps and cut Malta, Slovakia and Slovenia by one notch. The ratings of Germany, Belgium and the Netherlands were affirmed.
In this light one has to watch French debt auction the result of which will be due around 13:55 GMT. The nation plans to sell 8.7 billion euro ($11 billion) in bills.
The yield on France’s 10-year bonds rose by 3 basis points to 3.055%. The yield spread between French and German 10-year bonds increased from less than 50 points a year ago to about 130 basis points.
France’s finance minister Francois Baroin claimed that “it’s not a catastrophe” and “it’s still an excellent grade.” Never the less, the downgrade will likely have a dreadful impact on the image of French president Nicolas Sarkozy. According to the polls conducted last week, Sarkozy, the leader of the ruling UMP party, has the backing of 23.5% of voters versus 21.5% who support anti-euro candidate Marine Le Pen, the leader of the nationalist National Front, while Socialist Party candidate François Hollande leads with 27%.
Coming auctions
Tuesday, January 17: EFSF, Greece, Spain
Wednesday, January 18: Portugal
Thursday, January 19: Spain
Debt payments in 2012
Debt to refinance, billion euro Interest payments, billion euro
Italy 341 54
France 266 39
Germany 193 22
J.P.Morgan: sell GBP/USD
Analysts at J.P. Morgan recommend selling British pound versus the greenback at $1.5295 stopping at $1.5530 and targeting $1.4800.
The specialists remind that the European crisis has strong negative impact on British economy as about 40% of UK exports go to the euro area and a large percentage of the nation’s banks have claims on the euro zone.
Barclays Capital: comments on British pound
Analysts at Barclays Capital claim that as British pound may be able to hold at current levels for a while as so far it has managed to close above $1.5270 – the neckline of a multi-week pattern.
If GBP/USD closes below this level, it will fall to $1.5150 and $1.4950 later in January. The fact that sterling spiked below this mark on Friday means that the bears will ultimately pull the rate lower.
According to the bank, the outlook for pound will remain negative as long as it’s trading below $1.5410.Barclays Capital: comments on British pound.
Westpac: recommendations for EUR/USD
Analysts at Westpac recommend selling EUR/USD at $1.2650 stopping at $1.2800 and expecting the pair to fall to $1.2350.
The specialists don’t expect much of an upward correction amid sovereign downgrades and a breakdown in talks over the Greek debt restructuring. In their view, it seems that the single currency has shifted into a clear downtrend regardless of more supportive signals from stocks and euro basis swap.
In addition, the specialists underline that euro’s current decline doesn’t seem excessive as during the past 20 years EUR/USD survived at least 8 sustained, multi-week large slumps when it fell by about 20% peak to trough, while euro has lost only 11% dropping from October 2011 maximum at $1.4250.
According to Westpac, from the fundamental point of view, there are only 2 main factors which may reverse euro’s downtrend: another round of QE by the Fed and/or aggressive steps by EU policymakers to bring more definitive coherence to EU finances. Never the less, neither of these outcomes is likely to realize in the short term.
UBS: recommendations for EUR/USD
Analysts at UBS recommend selling euro at $1.2755 stopping at $1.3050 and targeting $1.2250. The specialists remind that the European Central Bank is expected to cut 2 more times rates in the next few months from1.00% to 0.50%. In their view, Greece may suffer a disorderly default in March.
According to the bank, downgrades of European economies by S&P will have a greater impact on the euro than just one day's price action would suggest – the strategists think that the downgrades still aren’t fully priced in yet. UBS claims that euro’s fair value is in the $1.15/$1.20.
HSBC: Germany is vulnerable to crisis
Analysts at HSBC note that that fact that S&P downgraded European economies on Friday wasn’t unexpected as in December the ratings agency warned the region’s policymakers.
The specialists claim that the euro zone’s officials are guilty of 3 sins: optimism, inaction and omission.
Firstly, too many countries are too optimistic about recovery when all the evidence is now pointing towards recession in both the periphery and the core. Secondly, inaction is inevitable for politicians faced with a difficult trade-off between political expediency and fiscal reality. Thirdly, the idea of a fiscal pact doesn’t deal with the shortfall of income which led to today’s crisis.
According to HSBC, euro zone’s difficulties in the coming months will likely strengthen. The economists think that Germany will get under pressure as its exports to other nations of the currency union will shrink, while its financial institutions are exposed to the region’s debt.
As a result, the leading European economy will be forced into recession. HSBC expects that the ECB will have to step in and start quantitative easing. That would make the crisis easier to solve, though the ultimate way out may be provided only by the political action.
January 17: data and comments
Yesterday Standard & Poor’s reduced the rating of the EFSF, the euro area’s 440-billion-euro bailout fund, from AAA to AA+ after earlier downgrades of France and Austria as the fund’s obligations are no longer fully supported either by guarantees from EFSF members rated AAA by S&P, or by AAA rated securities.
The downgrade of the EFSF was no big surprise after Friday's mass downgrade of nine euro-zone countries.
Klaus Regling, chief executive officer of the facility, claimed that “EFSF has sufficient means to fulfill its commitments” until the launch of permanent ESM (European Stability Mechanism) in 2012.
According to the data released today, China’s GDP added 8.9% y/y in the fourth quarter versus 8.7% expected. As a result, EUR/USD managed to rise to $1.2750 on the short squeeze. Even EUR/CHF backed away from the 1.20 danger zone. Asian equity markets added 1.5% on average; gold and oil also rise 1.5% to $1663/oz and $100.30/bbl respectively.
Later today:
• British CPI (9:30 a.m. GMT);
• BOE Gov King Speaks (9:45 a.m. GMT);
• German ZEW Economic Sentiment (10:00 a.m. GMT);
• Bank of Canada’s meeting: overnight rate release (2:00 p.m. GMT);
• EFSF, Greece, Spain: debt auctions.
Merrill Lynch: forecasts for euro and pound
Analysts at Bank of America Merrill Lynch think that the single currency may drop to $1.2510 versus the greenback in the near term. In the medium term the specialists see EUR/USD falling to $1.12 and even $1.08 due to both fundamental issues and technical patterns.
UBS: how SBN will possibly act
The single currency declined versus Swiss franc from December 7 maximum in the 1.2445 area. At the beginning of this year euro’s decline accelerated after the resignation of the SNB’s president Philipp Hildebrand, who promoted EUR/CHF peg. On Friday the pair EUR/CHF hit 1.2061.
Analysts at UBS claim that if the Swiss National Bank holds EUR/CHF at 1.20, deflation pressure in 2012 will strengthen due to strong franc and recession in the euro area. As a result, Switzerland’s monetary authorities will eventually have to raise EUR/CHF minimal level to 1.30 during 2012 in order to offset falling consumer prices.
At the same time, the specialists really think that Hildebrand’s departure will make the central bank less willing to increase EUR/CHF floor. So, the bank expects SNB to keep the floor at 1.20 during the next few months before lifting it higher as the nation’s economy won’t be able to deal with franc’s strength on its own.