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"J.P.Morgan: strategy to buy loonie"(2011-03-22)

 

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Analysts at J.P.Morgan expect oil price to advance. In their view, there can be no doubts that if the crisis in Libya continues, oil prices will stay high. Moreover, the specialists think that even if the tensions in the Middle East ease it will encourage economic growth, which will eventually stimulate demand for oil.

 

As Canada is the world's sixth largest oil exporter, J.P.Morgan is bullish on the Canadian dollar.

 

The bank recommends waiting until after Tuesday, when Canada is discussing its budget to eliminate the event risk. Then the strategists advise to sell US currency and buy loonie at 0.99 expecting that the pair USD/CAD will fall to 0.95. Stop orders should be placed in the 1.0150 area.

 

It’s necessary to remember, that the Canadian currency is highly correlated with the S&P 500 index, so loonie’s purchases mean betting on higher US stock market. J.P.Morgan, however, doesn’t worry about this saying that US stocks will rise as the American economy recovers.

 

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Chart. Daily USD/CAD

 

 

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"Mizuho: EUR/JPY may break higher"(2011-03-22)

 

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Technical analysts at Mizuho Corporate Bank note that the single currency is consolidating at the upper border of the broad range in which it was trading versus Japanese yen during the past year.

 

The specialists claim that the technical picture says that the pair EUR/JPY is likely to break higher soon. In their view, this may also happen in other yen crosses.

 

According to Mizuho, it’s necessary to buy euro at 115.00 adding on dips to 114.55. The bank recommends placing stop orders well below 114.00. The targets for EUR/JPY are found at 115.50 and 116.00.

 

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Chart. H1 EUR/JPY

 

 

 

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"Investec: pound may rise to $1.66"(2011-03-22)

 

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Analysts at Investec claim that if British pound closes today above $1.64, it will get chance to rise to $1.66.

 

The specialists note that, according to the data released today, UK inflation pace has increased to the highest level in more than 2 years encouraging speculation that the Bank of England may raise interest rates.

 

In February CPI added 4.4% on the annual basis, while the economists were looking forward to only 4.2% growth.

 

The pair GBP/USD rose today to the highest level since January 19, 2010 at $1.6401.

 

The minutes of the BOE’s March decision will be published tomorrow.

 

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Chart. Daily GBP/USD

 

 

 

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"Analysts on franc’s strengthening versus euro"(2011-03-23)

 

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The single currency fell below 1.2800 versus Swiss franc ahead of the summit of EU leaders on March 24-25. Franc keeps resumed its strengthening path as investors concerned about Japan and the tensions in the Middle East buy it as a safe heaven.

 

Analysts at BayernLB claim that the pair EUR/CHF may fall down to 1.2500 in the medium term.

 

Strategists at Zuercher Kantonalbank think that euro is currently consolidating and note that it may find support at 1.2750 and then at 1.2703. The euro zone’s currency will remain under bearish pressure below 1.2850. If euro manages to overcome this level, it will get chance to rise to 1.2887.

 

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Chart. Daily EUR/CHF

 

 

 

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"Commerzbank: pound on its way up to $1.6425/65"(2011-03-23)

 

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British pound reached yesterday new 14-month maximum in the 1.6400 area versus the greenback.

 

Technical analysts at Commerzbank note that as the pair GBP/USD managed to overcome the 4-year resistance line at 1.6300, it’s now heading to the 1.6425/65 zone. This area contains a long-term double Fibonacci retracement (the 38.2% retracement of the decline from 2007 to 2008 and the 78.6% retracement of the move in 2009-2010) and the 2010 maximum.

 

If sterling rises above 1.6425/65, it will be able to climb to 1.6880 and 1.7040/50 that may hold the initial bullish attacks.

 

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Chart. H4 GBP/USD

 

 

 

 

 

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"Euro under pressure of concerns about Portugal"(2011-03-23)

 

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Investors’ attention has returned to Portugal where the parliament votes today on budget cuts, the issue that caused difference in views among the lawmakers.

 

Analysts at Deutsche Bank say that in the worst case Portuguese government will fail leaving the county without the leading power until April. This would mean, in its turn, that there will be no legitimate government to negotiate EFSF bailout terms. The specialists are sure that the country will be soon forced to ask for the external financial help. In their view, it’s necessary to take into account the high amount of funding Portugal will need in April. The bank points out that there’s the risk of the dangerous situation when the ECB has to buy very aggressively at any auction even though it's not permitted to buy the primary issuance that may fail at auction.

 

Economists at JPMorgan Chase claim that Prime Minister Jose Socrates tried to reach a compromise with the opposition, but no progress was made. According to the bank, the odds that Portuguese government will fall this week seem to be high.

 

The yield spread between 2-year Portuguese and German bonds added 20 basis points to 479 bps with Portuguese 2-year paper yielding 6.487%.

 

Analysts at Mizuho Corporate Bank note that the huge bailout funds don’t resolve the euro zone’s debt problem that has to be treated at the root. In other words, the specialists suggest that the region’s fiscal consolidation will be necessary anyway no matter how much funds the EFSF disposes.

 

 

 

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"Buffett: US economy’s improving"(2011-03-23)

 

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Warren Buffett, the head of Berkshire Hathaway, believes that American economy is improving month by month.

 

US GDP gained 2.8% showing the maximal advance since 2005. The unemployment rate fell from 9.8% in November to 8.9% in February. The Standard & Poor’s 500 Index increased by 3.2% this year after climbing by 13% in 2010 and 23% in 2009, though it’s still about 14% below its level at the end of 2007.

 

The famous billionaire investor says that although there will be some commercial disruptions due to the Japan’s earthquake, the consequences of the disaster won’t seriously affect US economy and global economy as a whole.

 

It’s also necessary to note that Buffet expects Japan’s stock market to rise and advised investors buying the nation’s stocks on the dip.

 

 

 

 

 

 

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"MIG Bank bets on EUR/USD decline"(2011-03-23)

 

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Technical analysts at MIG Bank advise investors to sell the European currency versus the greenback as it has broken below the March 21 minimum in the 1.4140 area.

 

The specialists note that if the pair EUR/USD closes the day below this level, short-term bearish bias will be confirmed and euro will be poised for a decline to 1.4085, then to 1.40 and possibly to the previous reaction minimum at 1.3867.

 

According to the bank, the single currency will be able to resume its way up only if it rises above November 2010 maximum at 1.4282.

 

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Chart. Daily EUR/USD

 

 

 

 

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"Morgan Stanley about the consequences of Japanese quake"(2011-03-24)

 

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Analysts at Morgan Stanley claim that Japan’s disaster will seriously affect the country’s economy that may contract by 3% this year, while before the temblor the bank was looking forward to 2% growth. In 2012 Japan may either add 3% or lose 1%, it’s hard to make a clear forecast now.

 

The specialists note, however, that the impact on the world’s economy isn’t going to be very significant. Morgan Stanley expects the earthquake to reduce the global economic growth in 2011 by 0.5 percentage point to 3.8%. The decline of Japan’s GDP may lead to about 0.25-0.5 percentage point, of the estimated cut to 2011 global economic growth, while the rest of the reduction reflects negative effects to other economies through goods and services trade, capital flows, financial system contagion and commodity prices.

 

According to the economists, the world’s recovery won’t be derailed as conditions were relatively favorable before the crisis and the governments and central banks are ready to increase support for growth if needed.

 

Among the other risks to the global growth there are surging oil prices stemming from unrest in the Middle East and Northern Africa, monetary tightening in emerging markets to stem rising inflation and contagion from euro zone’s sovereign debt crisis that spreads to the US and other developed nations.

 

 

 

 

 

 

 

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"Barclays Capital: GBP/USD may rise to 1.82 in a year"(2011-03-24)

 

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British pound weakened after yesterday’s release of the Bank of England’s March MPC meeting minutes and the Chancellor of Exchequer George Osborne’s presentation of UK 2011 budget. The pair GBP/USD fell from the March 22 maximum at 1.6400 to 1.6200 today.

 

Never the less, analysts at Barclays Capital regard sterling’s weakness as temporary and believe that it will eventually rise. The specialists still think that the BoE may raise interest rates already in May as the policymakers will be concerned about inflation staying above the central bank’s target and the country’s first quarter economic growth is likely to be acceptable.

 

According to Barclays, British currency will rise versus euro and euro will advance against the greenback when the EU summit-related risks are eliminated. As a result, the strategists project GBP/USD to strengthen to 1.82 in a year.

 

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Chart. Weekly GBP/USD

 

 

 

 

 

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"Euro zone: all attention to Spain and Portugal"(2011-03-24)

 

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Moody’s Investors Service cut the ratings on 30 Spanish banks by at least one step after sovereign downgrade to Aa2. Portuguese Prime Minister Jose Socrates tendered his resignation yesterday after parliament’s rejection of plans to cut the budget, pushing the country closer to an international financial bailout.

 

Analysts at Royal Bank of Scotland claimed today that euro’s decline versus the greenback won’t last long as Spanish bond yields aren’t rising against benchmark German bunds at the same rate as Portuguese debt does. According to the specialists, if Portuguese Problems don’t spread to Spain, euro’s weakness will be relatively limited.

 

Analysts at Societe Generale don’t seem so optimistic on the single currency. In their view, Moody's downgrade of Spanish banks, Portugal's failure to accept a more austere budget and the upcoming elections in Germany this weekend, which will harden the German position lead to the squeeze on EUR/USD. In their view, the pair may retest 1.40.

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Chart. Daily EUR/USD

 

 

 

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"UK budget 2011: analysis of Osborne’s presentation"(2011-03-24)

 

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Chancellor of the Exchequer George Osborne presented yesterday UK 2011 budget. It’s necessary to note that the plans to conduct the huge fiscal consolidation were left intact, while the coalition government is now emphasizing its intention to stimulate British economic recovery.

 

Let’s outline some essential points of Osborne’s speech.

 

Forecasts:

 

UK GDP is expected to add 1.7% in 2011, down from the previous forecast of 2.1%.

Cuts:

 

Fuel duty was cut: the tax on gasoline pump prices was lowered by 1 penny a liter, while the planned increase in line with inflation for a year was delayed.

The amount a person can earn without paying tax was increased by 630 pounds ($1,024) to 8,105 pounds that means that most earners will get a 120-pound tax cut.

For households:

 

10,000 people earning less than 60,000 pounds a year who are buying their first home will get 250 million pounds in interest-free loans.

For corporations:

 

Corporation tax will be decreased next month by 2 percentage points and then by 1 point cuts in each of the next 3 years. That will take it to 23%, the lowest level in the G7.

How will all these cuts fit in the austerity plan? They are going to be compensated:

 

Oil production taxes are raised: the supplementary charge on North Sea oil profits went up to from 20% to 32%.

30,000-pound annual charge on people domiciled elsewhere for tax purposes who have lived in the UK for 7 years will rise to 50,000 pounds for those in the country for more than 12 years.

Effects and summary:

 

Business groups welcomed the budget, saying the measures will help the economy overcome a slump in the fourth quarter of last year.

The household incomes will still be on average about 1.5% worse than in May when Osborne became chancellor. The top and bottom deciles will suffer even more.

So, it’s possible to see that the budget is oriented to the British population. Osborne tried to calm down voters concerned about deficit-reduction plans and a sluggish economy with money taken from oil companies, banks and the wealthy as he didn’t give up the plan to reduce the government’s expenditure. UK authorities made an attempt to find a compromise between the necessity to encourage the voters’ economic confidence and the need not to disappoint investors who want the deficit to be eliminated.

 

 

 

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"Analysts on the prospects of BoE rate hike"(2011-03-24)

 

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The pair GBP/USD keeps going down after British Chancellor of the Exchequer George Osborne presented the country’s 2011 budget. Pound went down from March 22 maximum at 1.6400 getting today below 1.6200.

 

The analysts have different opinions on the prospects of bank of England’s rate hikes.

 

Specialists at Brown Brothers Harriman underline that British authorities increased yesterday the borrowings forecast, while reducing the estimate of 2011 GDP growth from 2.1% to 1.7%. The analysts remind that the austerity plan is based on low rates. As a result, BBH believes that British central bank will have to keep the rates unchanged and that bearish pressure on sterling will strengthen. According to the bank, investors will soon realize that their expectations are exaggerated and pound will drop to $1.60.

 

BNP Paribas, on the contrary, thinks that the Bank of England will take into account mainly the inflation level that reached 4.4% in February. The MPC member Andrew Sentence notes that inflation may overcome 5% level this year. The analysts think that the UK central bank will be forced to raise its inflation forecast and note that the possibility of potential rate hike in May has augmented.

 

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Chart. Daily GBP/USD

 

 

 

 

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"Commerzbank: bullish forecast on EUR/GBP"(2011-03-24)

 

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Analysts at Commerzbank are strongly bullish on the European currency versus British pound. In their view, there is no sign of a reversal of the pair EUR/GBP that’s currently going up from the 0.8350 levels hit in the middle of February.

 

The specialists note that technical indicators show that euro has potential to break higher. According to the bank, the bulls will face resistance in the 0.8740/58 area where one can find 50% Fibonacci retracement of the decline from 2009 and the October 2010 maximum. If EUR/GBP closes the day above 0.8758, it will get a chance to advance to 0.8945.

 

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Chart. Daily EUR/GBP

 

 

 

 

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"JPMorgan: China will keep rising rates"(2011-03-24)

 

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Analysts at JPMorgan note that HSBC's preliminary China PMI released today shows that the country has stepped on the path of moderate growth at the beginning of 2011 after the sharp acceleration in the final quarter of 2010. The index rose from February's final reading of 51.7 to 52.5 in March.

 

The specialists note that China's inflation rate will advance again. According to their forecast, in March it will overcome the 5% level. The bank analysts say that the People’s Bank of China will continue normalizing monetary policy and expect at one more RRR hike and two more interest rate hikes this year.

 

 

 

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"Bank Sarasin: fair rates for EUR/CHF and USD/CHF"(2011-03-24)

 

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Analysts at Bank Sarasin claim that Swiss franc is now overvalued versus the European currency and US dollar. In their view, the fair levels based on purchasing power parity are found at 1.40 for the pair EUR/CHF and at 1.12 for the pair USD/CHF. The specialists say that the demand for franc will decline with the revival of the risk appetite.

 

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Chart. Daily EUR/USD

 

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Chart. Daily USD/JPY

 

 

 

 

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"Europe: Portugal’s debt rating reduced, EU summit"(2011-03-25)

 

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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.

 

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Chart. H4 EUR/USD

 

 

 

 

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"CharmerCharts: sell EUR/USD on advance to 1.4200/20"(2011-03-25)

 

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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.

 

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Chart. H4 EUR/USD

 

 

 

 

 

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"HSBC: ECB and BoE may repeat Japan’s mistake"(2011-03-25)

 

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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.

 

 

 

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"Wells Fargo: the outlook for major currencies"(2011-03-25)

 

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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.

 

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Chart. Daily USD/JPY

 

 

 

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"Commerzbank: EUR/GBP eroded long term resistance"(2011-03-25)

 

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Technical analysts at Commerzbank note that the single currency bounced yesterday versus British pound breaking above the key resistance in the 0.8758 area eroding the long term downtrend.

 

The specialists say that as long as the pair EUR/GBP is trading above the mentioned trend line 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.

 

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Chart. Weekly EUR/GBP

 

 

 

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"Barclays Capital: Australian dollar may rise to 1.09"(2011-03-25)

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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.

 

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Chart. Daily AUD/USD

 

 

 

 

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"SNB quarter report released"(2011-03-25)

 

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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.

 

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Chart. Daily USD/CHF

 

 

 

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"MIG Bank: comments on USD/JPY"(2011-03-25)

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Technical analysts at MIG Bank claim that the V-shaped recovery of the pair USD/JPY from the postwar minimum at 76.25 hit last week is showing signs of weakness as the greenback didn’t manage to approach resistance at 81.70.

 

The specialists say that US dollar can correct downwards to March 21 minimum at 80.69 and the psychological level of 80.00.

 

According to the bank, longer-term upside reversal will become evident only if US currency overcomes March 18 maximum at 81.99 and March 11 maximum at 83.30.

 

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Chart. H4 USD/JPY

 

 

 

 

 

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"Commerzbank: USD/CHF may go up"(2011-03-28)

 

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Analysts at Commerzbank claim that as the greenback managed to break above 0.9205 trading versus Swiss franc, the pair USD/CHF seems to be strong enough to climb to 0.9370 and then to 0.9465.

 

The specialists note that US currency has ruined the resistance line from the February maximum at 0.9774, closed above its 20-day MA and begun to destroy Fibonacci retracement at 0.9205. These 3 factors are all in favor of dollar and encourage its strengthening.

 

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Chart. H4 USD/CHF

 

 

 

Comment here http://www.fbs.com/analytics/news_markets/view/6708

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