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Commerzbank still expects EUR/USD to decline
Despite euro’s recovery from 1-month minimum at $1.3483 hit yesterday technical analysts at Commerzbank expect the single currency to fall versus the greenback to $1.3380/60 (78.6% Fibonacci retracement from its October advance and September minimum). The specialists see resistance at $1.3685 and $1.3870.
BBH advises traders to sell EUR/USD
Analysts at Brown Brothers Harriman note that although the European currency is trading with high volatility versus the greenback, it’s closely correlated with the dynamics of S&P500 index – the specialists estimated the correlation by 80%.
The bank claims that in the stock markets are likely to decline in the current state of uncertainty and recommends selling EUR/USD in the $1.3650 area stopping above $1.38, expecting the pair to fall to $1.30 by the end of the year.
The odds for euro area’s breakup increased
Last week European leaders for the first time raised the possibility of Greece leaving the currency union if it keeps violating its commitments. That triggered the speculation that German policymakers are already preparing to exclude the peripheral nations out of the euro area.
Even though Germany and France denied the reports that they had discussed a possible breakup of the euro zone, the option has become real. As a result, it will likely become much harder for indebted members to convince investors in their ability to get their finances in order and for Merkel, Sarkozy and ECB President Mario Draghi to defend the single currency.
The questions concerning currency bloc’s future will be discussed at the EU summit on December 9. Some experts say that the European leaders will probably talk about introducing an exit clause.
Analysts at Brown Brothers Harriman still think that European authorities will do anything to save the monetary union. In particular the specialists see the way out in increasing integration.
Strategists at HSBC warn that the euro zone’s breakup would cause something similar to the Great Depression. The quitting country will face collapse of the banking system, capital outflow and the surge of inflation. Deutsche Bank says that if one nation exits, investors will expect other problem states to do the same.
BNP Paribas, ING: leave euro for pound
British pound has strengthened this month versus the single currency by 3% since the end of October.
Sterling gained despite the release of weak economic data in the UK: the nation’s trade deficit widened from 8.6 billion pounds in August to 9.8 billion pounds in September. It’s also possible to say that the effect of additional quantitative easing wasn’t as great as it could be.
Strategists at ING believe that British currency is slowly moving to safe haven status as it is perceived as an alternative to more troublesome euro.
Analysts at BNP Paribas justify such assumption by the high demand for British debt. According to the Bank of England, net inflows into UK government bonds held by non-residents bounced in September when the fears about the euro zone’s future escalated to 12 billion pounds, the maximal level since June 2010.
Unlike Australian dollar which is declining against euro pound isn’t that affected by the commodities prices and investors’ risk sentiment. As a result, sterling may count as a refuge in times of high risk aversion, though it can’t compete with the greenback – at least now when the Federal Reserve remains on hold and doesn't do more easing.
BNY Mellon: US dollar is under pressure
Analysts at Bank of New York Mellon point out that despite the ECB rate cut, the euro zone’s debt turmoil and unfavorable economic prospects, the single currency is still above October minimum at $1.3145 and 14% higher than June 2010 low at $1.1875.
The specialists explain relative strength of euro by the weakness of US dollar. In their view, American currency is losing the market’s confidence as a store of value.
According to the bank, as the political uncertainty in Greece and Italy fades, negative pressure on the greenback will build up. Never the less, the strategists don’t urge investors to buy EUR/USD as the euro zone’s politicians could bring negative surprises.
Morgan Stanley, UBS: sell EUR/USD
The political situation in the euro area has stabilized a bit: Greece and Italy got new governments. Never the less, there are still severe doubts that these nations will be able to resolve the debt issues.
Analysts at Morgan Stanley are bearish on the single currency versus the greenback. In their view, the pair EUR/USD will drop to $1.30 by the end of the year.
Currency strategists at ING and UBS advise to sell euro on its attempts to rise to $1.40.
UBS expects US economy add 2.3% in 2012, while the euro zone’s one is seen growing only by 0.2%. As a result, the bank thinks that the Federal Reserve is unlikely to engage in QE3, while the ECB will keep cutting interest rates.
UBS lowered forecast for EUR/USD
Analysts at UBS reduced forecasts for the single currency versus the greenback due to the escalating crisis in the euro area.
Apart from deepening concerns that the European policymakers won’t be able to find the way out of the debt turmoil, euro will be affected by the region’s economic slowdown and ECB rate cuts. The strategists underline that even though the United States and Japan also have severe debt issues, the situation in the euro zone seems to be much worse, so the demand for dollar and yen will be higher.
The specialists expect EUR/USD to drop to $1.35 in a month, $1.30 in 3 months, $1.25 in a year. At the beginning of November the analysts thought that the pair will end the year at $1.40.
It’s also necessary to note that, according to the bank, the Swiss National Bank will lift the floor for EUR/CHF from 1.20 to 1.25 as it regards franc as still extremely overvalued.
ANZ: negative outlook for NZD/USD
Technical analysts at ANZ Bank claim that there us a “dead cross” on the NZD/USD chart formed in October by 50-day and the 100-day MAs – the former went below the latter – and that the figure is still in place.
The specialists underline that this is a bearish signal that means that kiwi may weaken to $0.7335, the level representing 38.2% Fibonacci retracement from the pair’s advance from March 2009 minimum to August 2011 maximum.
According to the bank, support levels for New Zealand’s currency are situated at $0.7550 and $0.7470 (October 4 minimum).
BarCap: trading in the situation of uncertainty
Risk aversion is expected to dominate the markets concerned about European debt crisis and weak economic data.
Currency strategists at Barclays Capital see several ways to secure oneself against the elevated uncertainty. One of the strategies preferred by the bank is buying the greenback versus Swiss franc.
According to BarCap, if the situation in the euro area deteriorates, the SNB will be forced to defend EUR/CHF floor selling franc. Such actions of the central bank will lift USD/CHF. In case of some positive surprises in Europe, demand for franc as a refuge will ease and USD/CHF will also rise.
So, the specialists advise traders to open longs at USD/CHF stopping below 0.8920 and targeting 0.9300.
Commerzbank: comments on EUR/USD
Technical analysts at Commerzbank keep regarding the outlook for the single currency versus the greenback as negative.
In their view, EUR/USD is likely to decline to $1.3380/60 (78.6% Fibonacci retracement of the October advance and September minimums) and then to $1.3145 (October 4 minimum). According to the bank, in the longer term the pair is poised down to $1.2000.
The specialists say that bearish pressure on euro will ease if it manages to rise above $1.3870/80. If euro succeeds, it will be able to return up to the 55- and 200-day MA at $1.4013/1.4104. The major resistance is set at $1.4250/55.