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Reuters poll: where do analysts see EUR/USD in a year?
According to the monthly poll conducted by Reuters among about 60 banks and analysts, the median forecast of the specialists is that the single currency will depreciate versus the greenback to $1.3000 in 3 months. The survey shows that the economists expect EUR/USD to trade in that area during 3 months and then recover to reach $1.3250 in a year from now.
BOTMUFJ, RBS: all eyes on the ECB
The single currency keeps consolidating versus the greenback ahead of the ECB meeting today and EU summit tomorrow. EUR/USD is hovering this week in the narrow range between $1.3333 (December 6 minimum) and $1.3486 (December 5 maximum).
The market expects the central bank to lower its benchmark rate by at least 25 basis points to 1% and introduce 2- to 3-year long-term refinancing operations.
If the ECB hinted at more aggressive bond buying and cut rates by 50 basis points, the experts see different possibilities: either euro will weaken to support at $1.3355 (trend line from November 25 minimum), $1.3210 (November minimum) and $1.3145 (October minimum), or, as the analysts at Bank of Tokyo-Mitsubishi UFJ say, rebound to on improved risk appetite which could activate strong short-covering to $1.35 or even to $1.3729/3851 (50% and 61.8% Fibonacci retracements of euro’s decline in November). Strategists at BOTMUFJ advise to buy Australian dollar in such case as there are no doubts that it will benefit from the ECB cut.
If the European Central Bank doesn’t deliver the expected cut EUR/USD and EUR/JPY may fall by about 100 pips, according to RBS, but not more as investors they are also waiting for the outcome of the EU summit.
Morgan Stanley: 2012 forecast for GBP/USD
Analysts at Morgan Stanley expect British pound to lose about 11% versus the greenback by the third quarter of 2012 sliding from the current levels in the $1.5700 area to the minimum since March 2009 at $1.3900.
The specialists warn that with the 40% of its exports going to Europe British economy will seriously suffer from the euro zone’s crisis and the inevitable recession. In their view, the Bank of England will have to extend quantitative easing dampening the demand for British assets, especially for gilts.
According to the bank, in the second half of the next year the positive effects of QE on UK economy begin to show up and the recovery begins. As a result, sterling will get a lift and return to $1.4100.
Morgan Stanley: forecasts for EUR/USD and USD/JPY
Analysts at Morgan Stanley believe that the single currency will be steadily declining versus the greenback the next year from $1.2500 in the first quarter to $1.2300 in the second, to $1.2100 in the third and to $1.2000 in the final 3 months of 2012.
The specialists believe that in Europe the issues of the private sector will add to those of the public one. Trading is going to be volatile and the demand for safe havens will be high. In such circumstances US dollar and Japanese yen tend to benefit.
The latter will be strengthening versus the former: the pair USD/JPY is expected to decline to 74.00 in the first quarter, to 73.00 in the second, to 72.00 in the third and 71.00 in the first 3 months of the next year.
Bank of England stays on hold
The Bank of England decided to leave its benchmark rate unchanged at 0.5% and its assets purchase program at 275 billion pounds.
Many economists expect the BoE to extend the amount of asset purchases in February when the 75-billion-pound purchase announced in October is over.
UK economy is in a very poor state – according to the OECD (Organization or Economic Cooperation and Development), the nation has already entered mild recession. British central bank projects that inflation – the main obstacle for QE – will drop from the current levels close to the 3-year maximum of 5% below the 2% target level.
The pair GBP/USD is trading on the upside but very close to the opening level.
ECB acts: rates are lowered by 25 bps
As it was widely expected, the European Central Banks cut its benchmark rate by 25 basis points.
The single currency bounced from the daily minimums in the $1.3380 area to the levels above $1.3400.
According to Mario Draghi, the central bank’s president, the euro zone economy could be heading for a mild recession.
The market’s awaiting the ECB’s press conference at 1:30 p.m. (GMT+4) for the hints on the bank's willingness to buy more government bonds of the indebted nations. Such step would help to ease down the borrowing costs for the peripheral European states.
Draghi: speech essentials
The ECB president Mario Draghi announced that the central bank will conduct further (temporary) non-standard monetary policy measures in order to enhance banks access to liquidity:
- 2 3-year LTROS (long-term refinancing operations) of 36 months;
- Full allotment for banks at fixed rates (a form of QE)
- Easier collateral rules for asset-backed securities;
- National central banks are allowed to accept bank loans as collateral;
- Reserve ratio is cut from 2% to 1% (effective from January 18).
Forecasts:
- Euro zone’s economic forecast reduced from 0.4-2.2% to -0.4%-1.0%
- There are substantial downside risks to growth.
Never the less, the single currency has takes a blow as Draghi:
- Dismissed the talk that the ECB will be lending to the IMF as it’s not the member of the organization;
- Said that the ECB won’t lend to the euro zone’s government as the treaty forbids that;
- Dismissed the speculation that the ECB will buy bonds of the indebted euro zone’s nations if EU gets its fiscal house in order.
EUR/USD hit weekly lows in the $1.3333 area.
UBS: technical levels for majors
EUR/USD
Support: $1.3259 and $1.3212;
Resistance: $1.3487.
GBP/USD
Support: $1.5561 and $1.5526;
Resistance: $1.5780 and $1.5883.
USD/JPY
Support: 77.01 and 76.58;
Resistance: 77.86 and 78.11.
USD/CHF
Support: 0.9112;
Resistance: 0.9331 and 0.9401.
EU summit: first results
Only 23 out of the 27 EU nations agreed to join the new treaty which implies giving up some sovereignty of the fiscal policy and towards closer fiscal integration.
The main points of the statement produced after the night of negotiations are:
- Participants of the treaty will need to have balanced budgets with structural deficit which doesn’t exceed 0.5% of the GDP (this requirement must be included in the constitutions of the member states);
- In case the rule mentioned above is breeched, the unspecified “automatic correction mechanism” will be activated;
- Countries with deficits of more than 3% of the GDP will face sanctions;
- Member nations will have to submit their national budgets to the European Commission, which will have the authority to ask for revisions. Member states will have to report in advance how much they plan to borrow.
You can get acquainted with the whole text here.
So, the proposed changes are approved by 17-member euro zone and 6 more EU nations. Britain which stays out of the single currency headed the opposition to the tighter fiscal union within the 27-nation European Union (idea promoted by Germany and France) claiming that such move will threaten its sovereignty and highly appreciated financial services industry. Among the 3 other states who disagreed with the changes to the treaty there are Hungary, Czech Republic and Sweden – the last 2 haven’t made the final decision yet.
It’s also necessary to mention 2 more developments:
- Euro area will lend 200 billion euro ($268 billion) to the IMF which the latter, in its turn, lend the indebted European states. Non-euro countries Sweden and Denmark agreed to contribute.
- The EU's two bailout funds (the temporary EFSF and the permanent ESM would be managed by the European Central Bank).
The meeting will continue later today. The goal is to specify the regulations of the new treaty, including the sanctions for the members who violate stricter budget rules. The policymakers aim to prepare the ultimate version of the treaty by March.
The market’s sentiment is pessimistic. Asian stocks fell, the pair EUR/USD erased the advance it made on November 30 when the major central banks acted to help the euro zone get liquidity and sliding down to the levels in the $1.3280 area.
At the same time, ECB president Mario Draghi and German Chancellor Angela Merkel regard the result of the meeting as positive claiming that Europe is on the way toward regaining market’s confidence.
Ueda Harlow: forecast for EUR/JPY
Analysts at Ueda Harlow note that the single currency is trading versus Japanese yen below the Turning or Conversion line – marked red on the daily Ichimoku chart.
In addition, the specialists points out that the Lagging line, which represents the pair’s close level shifted backwards, is moving below the Cloud and price chart.
The strategists claim that these factors mean that euro is likely to decline. In their view, EUR/JPY may slide next to 102.49 yen (November 25 minimum) and 100.76 yen (October 4 minimum, the lowest level since June 2001) and probably to the psychological 100 yen level.
The strategists warn that everything will depend on the outcome of the European summit which ends today.