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"Credit Suisse: BOJ should lower rates"(2011-03-17)

 

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Analysts at Credit Suisse claim that the Bank of Japan has to cut short-term interest rates in order to stop yen’s appreciation to the record maximums. In their view, this would be better than the government intervention in the currency market.

 

Japanese currency climbed yesterday to 76.31 yen versus US dollar rising above the previous post-World War II maximum at 79.75 yen per dollar reached in April 1995.

 

The specialists believe that the pair USD/JPY will stay in range between 78 and 79 yen unless the spread in short-term interest rates between Japan and the United States widens.

 

The central bank should lower the interest rate on a 30 trillion yen ($378 billion) credit program, as well as the interest on excess reserves held by financial intuitions at the BOJ.

 

On March 14 Japanese monetary authorities doubled the size of its asset-purchase plan to 10 trillion yen and kept the benchmark i

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"Scotia Capital: loonie and Aussie under pressure for now"(2011-03-17)

 

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Canadian and Australian dollars have suffered from rising demand for safe-haven currencies, such as Japanese yen, Swiss franc and US dollar after Japan’s earthquake that broke out on March 11.

 

Currency strategists at Scotia Capital note that there are several factors influencing the loonie’s rate. The specialists underline that Canada’s dollar is a currency that performs well during periods of global growth and underperforming when global growth fades. As a result, the recent rise in risk aversion, a dampened outlook for global growth, a drop in commodity prices and a firming in the US dollar have pushed the pair USD/CAD above the 50‐day MA. The impact on Australian dollar will be stronger as Japan is Australia’s second largest trading partner.

 

However, in the longer Scotia Capital still expects that Canadian currency will reach 0.95 by the end of the year. Nomura Securities announced earlier that it was closing out its short Australian dollar positions.

 

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Chart. Daily USD/CAD

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Chart. Daily USD/CAD

 

 

 

 

 

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"Mizuho: Japan, US and Europe may conduct joint intervention"(2011-03-17)

 

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Analysts at Mizuho Securities think that Japan, United States and Europe may conduct joint currency intervention.

 

The specialists say that if G7 nations agree that yen is showing excessive volatility and disorderly movements, then Japan, the US and Europe may join their efforts to sell yen for dollars and euro.

 

Japanese currency climbed yesterday to 76.31 yen versus US dollar rising above the previous post-World War II maximum at 79.75 yen per dollar reached in April 1995. After that the pair USD/JPY managed to recover to the 79 yen area on the expectations that Japanese monetary authorities will intervene to weaken the national currency.

 

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Chart. Daily USD/JPY

 

 

 

 

 

 

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"BNY Mellon: investors will sell emerging market currencies"(2011-03-17)

 

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Currency strategists at BNY Mellon claim that it’s possible to observe the net outflow from higher yielding currencies such as the South African rand, Russian ruble, Hungarian forint, Brazilian real, Argentine peso and Turkish lira. Investors’ risk sentiment has deteriorated after the Japanese disaster. The market’s participants poured their money into Swiss francs, US dollars and even yen.

 

J.P. Morgan also turned bearish on emerging-market currencies cutting the currency exposure in its Global Bond Index-Emerging Markets portfolio by 10%, with especially large reductions in the Brazilian real, the Chilean peso, and the Russian ruble. According to the bank, there’s the risk that Japanese investors will sell emerging-market currency-related debt to buy yen.

 

 

 

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"BNP Paribas cut Japan's growth forecast"(2011-03-17)

 

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Analysts at BNP Paribas reduced their Japanese economic growth forecast for 2011 due to the 9.0 magnitude earthquake in northern Japan and the nuclear crisis at the Fukushima power plant.

 

The projections for the fiscal year growth were lowered from 1.6% to 0.9%, while the estimates for the calendar year were cut 1.6% to 1.2%.

 

The specialists expect the country’s economy to contract severely in the first two quarters of the year. In the third quarter Japan will likely return to the positive growth. In 2012 Japanese GDP may add 2.9% helped by the reconstruction.

 

These forecasts are based on assumption that the Fukushima crisis will be contained and the rolling blackouts by Tepco will finish as planned at the end of April.

 

 

 

 

 

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"Commerzbank: comments on USD/JPY"(2011-03-17)

 

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US dollar has compensated yesterday’s decline rising from the new record minimum at 76.60 above 79.00. Then, however, the pair USD/JPY once again headed down, this time at lower pace.

 

Technical analysts at Commerzbank note that resistance for US dollar is found at 79.78 and 80.60 levels representing 50% and 61.8% Fibonacci retracements of the rate’s decline during the past week.

 

According to the bank, bearish pressure on the greenback will ease only if it overcomes January minimums at 80.93.

 

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Chart. H4 USD/JPY

 

 

 

 

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"Analysts on SNB rates"(2011-03-17)

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Analysts at BNP Paribas note that the markets wasn’t surprised by today’s decision of the Swiss National Bank to keep the benchmark interest rate at the current 0.25% level and increase growth and inflation forecasts as investors were looking forward to exactly the same outcome.

 

The specialists note that the SNB was very careful not sound too hawkish as Swiss franc is strengthening and there's high uncertainty about the scale and implications of the Japanese crisis.

 

Economists at UniCredit claim that the possibility of the rate hike has declined. In their view, Japanese earthquake and its impact on the Fukushima power plant introduced a “new element of risk”. UniCredit supposes that the SNB won’t start lifting up rates until September.

 

Specialists at Moody's also believe that SNB is likely to keep its key interest rate on hold for the next several months as the strong Swiss franc and the euro zone economic weakness will affect Swiss exports.

 

Strategists at Citigroup expect Switzerland’s monetary authorities to begin raising rates in the third quarter. The exact term depends on how the near-term uncertainties are resolved. The interest-rate bias seems upside as the SNB dropped previous references to the danger of deflation. On the contrary, its statement indicates concern that low interest rates are encouraging undesirably strong growth of credit and broad money.

 

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Chart. Daily USD/CHF

 

 

 

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"Deutsche Bank: QE2 turned out to be efficient enough"(2011-03-17)

 

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Monetary stimulus measures conducted by the Federal Reserve have shown rather impressive results.

 

Since the Fed’s Chairman Ben S. Bernanke claimed on August 27 that it’s necessary to launch additional asset purchase program, the Standard & Poor’s 500 Index of stocks gained 18%. According to Bank of America Merrill Lynch index, the risk premium on high-yield, high-risk bonds decreased from 6.81% to 5.16%. Inflation expectations rose by 44.4%, while the unemployment rate has fallen to 8.9% in February, the lowest since April 2009.

 

Analysts at Deutsche Bank Securities approve the approach of US monetary authorities noting that the deflation risk has been successfully eliminated that helped the stock market rise.

 

The QE2 began on November 3 and is scheduled to last until the end of June. The Fed pledged to but $600 billion of Treasuries. The QE1 accounted for $1.7 trillion of asset purchases and finished in March 2010. The QE was criticized by the Republicans who feared the surge in prices. However, core inflation rose in January only by 0.2% in comparison with 2010 level.

 

 

 

 

 

 

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"G7 conducts joint intervention to help Japan"(2011-03-18)

 

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G7 nations agreed to combine their efforts and intervene together in the currency market to stop yen’s appreciation that threatened Japan’s recovery from the March 11 earthquake.

 

Japan sold yen during the Asian session making the pair USD/JPY gain 3.4% approaching the 82 yen level. Japan’s Finance Minister Yoshihiko Noda announced that each of the G7 members will sell Japanese currency as their markets open.

 

The Bank of Japan has reiterated its promise to conduct powerful monetary easing to prevent the national economy from sinking into recession.

 

Analysts at HSBC sound optimistic enough noting that though the effect from unilateral intervention doesn’t usually last very long, the coordinated action will be certainly efficient and able to weaken yen’s rate.

 

The G-7 consists of the United States, Germany, France, Canada, Italy, the UK and Japan. The last time these countries performed joint intervention was in September 2000, when it was necessary to support euro on the single currency’s second year of existence.

 

The Nikkei 225 Stock Average rose after the announcements paring losses to 12% since the quake.

 

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Chart. Daily USD/JPY

 

 

 

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"Barclays Capital: G7 may delay action after BOJ intervention’s results"(2011-03-18)

 

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Analysts at Barclays Capital say that the G7 countries won’t be eager to keep their promised and immediately sell Japanese currency as the intervention performed by the Bank of Japan was already rather successful. The developed nations’ central banks may not feel strong necessity to push down the JPY's value against their currencies further from here.

 

The ECB and the BoE pledged to intervene in European time, while the NY Fed and the Bank of Canada in North American time, according to Japan’s Finance Minister Yoshihiko Noda.

 

The specialists draw investors’ attention to the fact that the pair EUR/JPY reached 115.28 recovering above the pre-earthquake level in the 114.50 area. As a result, there a risk that the ECB intervention won’t have much impact on EUR/JPY.

 

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Сhart. H4 USD/JPY

 

 

 

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"Analysts on yen’s target levels"(2011-03-18)

 

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Analysts at Credit Agricole claim that although Japan's Finance Minister Noda claimed that interventions are not targeting any specific levels, the key point will be at the psychologically important level of 80.00 yen. The specialists believe that there are rather hard times ahead of the policymakers as prospects of huge repatriation flows may continue pressuring the pair USD/JPY.

 

According to UBS economists, it would be useless for Japan’s authorities to target some specific levels as some countries such as China may express displeasure if Japan was allowed to depreciate yen towards a more competitive level, especially with the external help.

 

Strategists at RBC Capital Markets say that one shouldn’t overestimate the goals of the joint intervention. The main objectives of G7 are, firstly, to reverse yen’s strength specifically caused by the earthquake and then stabilize its rate, but not to weaken Japanese currency as much as possible. Taking into account the fact that before the quake the pair USD/JPY was trading in range between 82.00 and 83.00 yen and the pair EUR/JPY – between 112.00 and 115.00 yen, the first objective may be regarded as achieved.

 

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Chart. H4 USD/JPY

 

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Chart. Daily EUR/USD

 

 

 

 

 

 

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"Commerzbank: comments on USD/JPY"(2011-03-18)

 

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Technical analysts at Commerzbank note that the greenback returned above January minimum in the 80.60/93 zone trading versus Japanese yen and is likely to consolidate in the near term. In their view, the pair USD/JPY will manage to stay above support in the 79.75/78.25 area.

 

In the longer term, the spike down to 76.25 will remain an interim minimum and the US currency will be able to climb to the 55-day MA at 82.36 yen and the 4-month resistance line at 83.72 yen.

 

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Chart. Daily USD/JPY

 

 

 

 

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"Barclays Capital: comments on USD/JPY"(2011-03-18)

 

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Analysts at Barclays Capital note that after the intervention the pair USD/JPY returned to the levels on which it has started this week. In their view, if the greenback manages to close today above Monday’s breakdown level on the 81.50/81.60 area, bearish pressure on US currency will ease and dollar will get chance to return to the 80.00/84.50 range in which it was trading from November to February.

 

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Chart. H4 USD/JPY

 

 

 

 

 

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"Commerzbank: EUR/USD is moving up to1.4305"(2011-03-18)

 

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The single currency is rising versus the greenback for the second day in a row. Euro renewed today the 4-month maximum at 1.4138.

 

Technical analysts at Commerzbank claim that the pair EUR/USD has overcome resistance line at 1.4105 and is now going up to November maximum at 1.4283 and the 2008-2011 resistance line at 1.4305.

 

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Chart. Daily EUR/USD

 

 

 

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"Canadian inflation slowed down"(2011-03-18)

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Canadian inflation declined in February moving counter the general upward direction of prices elsewhere in the world: US consumer prices rose at their fastest pace in more than 1-1/2 years in February, while the euro area inflation overcame 2% ECB target. As a result, the pressure on the Bank of Canada to increase interest rates has slightly eased.

 

According to Statistics Canada, Canada’s core inflation that doesn’t take into account fuel and food prices fell to 0.9% from the previous year, the minimal level since January 1984. The overall CPI added 2.2% on the annual basis and 0.3% from January.

 

Analysts at BMO Capital Markets note that although gasoline and restaurant food augmented, there was really very little inflation pressure in other components, while the hotel and the passenger vehicle prices actually declined contributing to low core inflation. The specialists believe that the country’s central bank will stay on hold until July even despite the stronger than expected Canadian economic growth.

 

Economists and strategists in a poll on February 24 believe the Bank of Canada will resume hiking interest rates on May 31.

 

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Chart. Daily USD/CAD

 

 

 

 

 

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"Barclays Capital: comments on USD/JPY"(2011-03-21)

 

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Technical analysts at Barclays Capital claim that the spike low to the record minimum at 76.26 seen on the weekly USD/JPY chart indicates the potential stability of the rate in the near term.

 

The specialists say that the greenback’s likely to move up, although it will be very hard for US currency to overcome the resistance of the 2-year downtrend line in the 83.00/30 zone. In order to ease the bearish pressure in the medium term, the pair has to close the day above 84.50. According to Barclays Capital, support level is situated at 79.40.

 

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Chart. Weekly USD/JPY

 

 

 

 

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"Commerzbank, Lloyds Bank expect pound to decline"(2011-03-21)

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The pair GBP/USD has renewed 2-week maximum at 1.6293. Technical analysts at Commerzbank say that sterling may fail to rise higher as it faces the 4-year downtrend at 1.63 and the range top at 1.6340. The specialists expect the British currency to drop to February minimums at 1.60/1.5962.

 

According to the bank, it’s necessary to sell pounds at 1.63 stopping above 1.6430 and taking profit at 1.60.

 

Analysts at Lloyds Bank Corporate Markets claim that the pound’s rate will keep being determined by the interest rate differentials. In their view, sterling may found itself under bearish pressure until investors’ risk sentiment improves.

 

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Chart. H4 GBP/USD

 

 

 

 

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"BNP Paribas: Aussie may strengthen to $1.04"(2011-03-21)

 

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Analysts at BNP Paribas expect Australian dollar to climb versus the greenback to the maximum since 1983 helped by the growth of the commodity prices.

 

Benchmark European coal derivatives for next-year delivery gained 8.6% since the beginning of the year to $134.40 a ton on March 16.

 

The specialists remind that Australia is the world’s biggest coal producer and rising coal prices will increase the country’s income and asset prices.

 

According to the bank, Aussie may strengthen to $1.04. So far the highest level of the pair AUD/USD was reached on December 31 when it rose to $1.0256.

 

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Chart. Daily AUD/USD

 

 

 

 

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"Commerzbank: ECB may postpone rate hike"(2011-03-21)

 

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Economists at Commerzbank claim that the recent events in Japan can make the European Central Bank revise it’s almost made decision of raising the interest rates. The matter is that the Bank of Japan is adding huge amounts of liquidity to the country’s financial market in order to weaken the national currency. The specialists believe that the concerns about rising inflation in the euro area may seem exaggerated in comparison with the inflationary pressure Japan may face in future.

 

As a result, European monetary authorities may postpone the rate hike. In this case euro will survive a sharp decline. According to Commerzbank, the current levels of the pair EUR/USD in the 1.4200 area seem to be overvalued.

 

In addition, it’s also necessary to take into account that investors’ sentiment towards the greenback may improve. The bank thinks that US dollar will be weak only in the short term. The analysts think that when yen’s repatriation is over, the market’s attention will once again switch to the Europe’s debt problems, so they recommend buying American currency in the medium term. RBC strategists agree with such opinion. In their view, one more factor in favor of US currency is the tensions at the Middle East that will make investors seek refuge in dollars.

 

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Chart. Daily EUR/USD

 

 

 

 

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"CMC Markets: AUD/USD may rise to 1.0185/1.0200"(2011-03-22)

 

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Analysts at CMC Markets believe that Australian dollar may climb versus the greenback in the coming days.

 

In their view, Aussie will be able to rise mainly due to the weakness of US currency. The specialists note that investors are getting less concerned about the situation in Japan and potential spreading of the Middle East tensions, so the risk aversion seems to be easing down.

 

According to the forecasters, the pair AUD/USD may rise to the 1.0185/1.0200 zone.

 

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Chart. H4 AUD/USD

 

 

 

 

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"UBS: G7 intervention will be a success"(2011-03-22)

 

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Analysts at UBS expect that the coordinated intervention of G7 nations to weaken Japanese yen’s rate will turn out to be efficient enough and manage to attain its goal.

 

After having analyzed the data for the last 30 years the specialists note that in 4 out of 5 cases the joint action helped to reverse the currency’s rate in the desirable direction. The bank says that the interventions were successful as G7 central banks were intervening in correspondence with the changes in the interest rates differentials.

 

So, during the mentioned period there were several interventions conducted:

 

1) 1985: Plaza agreement to devaluate US dollar. The result – the pair USD/JPY lost 50% in 2 years;

 

2) 1995: Washington agreement to strengthen the greenback;

 

3) 1998: Japanese Ministry of Finance and US Department of the Treasury asked the Federal Reserve and the Bank of Japan to intervene buying yen that brought US dollar below the 150 yen level;

 

4) September 2000: ECB, the Fed and the central banks of Japan, England and Canada performed joint intervention to stop euro’s slump;

 

5) 1987: Louvre agreement. The nations failed to support the greenback as German Bundesbank raised rates in summer of the same year.

 

UBS forecasts that the pair USD/JPY will rise to 83.00 yen in 3 months. In June the Fed will end the second round of its quantitative easing program. The European Central Bank is likely to lift up the benchmark rate already in April. The BOJ, on the contrary, is expected to keep its rate close to zero.

 

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Chart. Daily USD/JPY

 

 

 

 

 

 

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"US dollar is expected to decline in the long term"(2011-03-22)

 

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US dollar has been weak for many weeks. Even as the G7 nations conducted a joint intervention to weaken Japanese yen didn’t help US currency to gain versus its other counterparts.

 

Barry Eichengreen, professor of economics and political science at the University of California Berkeley, thinks that there is no longer a logical reason for the dollar to be the world's only reserve currency as the US accounts for only 20% of the world’s economy. The specialist expects that the European currency will become a global currency in 5 years. Eichengreen also believes in the Chinese government's plan to internationalize yuan by 2020.

 

Analysts at J.P.Morgan note that US dollar is close to the record minimums on the trade-weighted basis. In their view, there’s a structural shift in the currency markets. The strategists recommend diversifying 15-20% of the investment portfolio to non-dollar assets.

 

The specialists at BMO Capital Markets are bullish on American currency in the short term. During the next 1-2 years, however, emerging market countries will start regarding inflation levels as too high and will stop trying to depreciate their national currencies against dollar. As a result, the specialists see strong potential decline ahead of the greenback.

 

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Chart. Daily EUR/USD

 

 

 

 

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"Commerzbank: 1.4283/93 – resistance for EUR/USD"(2011-03-22)

 

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The single currency has at last overcome the 1.4200 level and is now consolidating below the 4-month maximum at 1.4281.

 

Technical analysts at Commerzbank note that the pair EUR/USD is facing strong resistance in the 1.4283/93 zone of November 2010 maximum and the 3-year resistance line. The specialists expect euro to fail at these levels.

 

If the European currency will somehow manage to rise above 1.4380, it will get strength to advance to the long-term double Fibonacci retracement at 1.4425 and 1995 maximum at 1.4535. The odds that euro’s rates will be rejected there are very high.

 

Strategists at Barclays Capital say that the bias for EUR/USD is bullish and upside pressure will ease only below 1.4040.

 

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Chart. Daily EUR/USD

 

 

 

 

 

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"Forecasts for Japanese economy in 2011"(2011-03-22)

 

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Economists expect that Japanese economy will rebound in the second half of the year. However, their views vary on the point whether Japan will slip into a recession or not.

 

Analysts at Mizuho Securities are sure that the country’s economy will contract, while the specialists at Barclays Capital don’t think Japanese GDP will drop in any quarter of 2011. The median estimate of Bloomberg survey is that Japan will add 0.4% in the second quarter on the annual basis.

 

The size of its decline in the first half will depend on the magnitude of electricity disruptions caused by the earthquake and tsunami, notes Goldman Sachs. The analysts underline that it’s very difficult to measure the negative effect on Japanese production, but it’s clear that various elements of the supply chain will be affected.

 

Economists at Deutsche Bank say that even if panic buying of daily necessities may temporarily boost the demand, the level of economic activity will be lower” because of fears of radiation from the power plant and electricity shortages. It’s necessary to remember that in the fourth quarter of 2010 Japanese economy will lose 0.3%. Deutsche Bank analysts now see a second straight drop in GDP, with a return to growth in April to June.

 

Analysts at Credit Agricole underline that a lot of wealth was lost as a result of the disaster and the country’s economy will find itself under negative pressure in the medium and long term.

 

Specialists at Morgan Stanley Mitsubishi UFG Securities expect that Japan’s GDP will decrease by 6-12% in the second quarter on the annual basis. All in all, the economists think that Japanese economy will lose 1-3% in 2011. The forecasts for 2012 differ from contraction by 1% to 3% recovery.

 

 

 

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"BNP Paribas: negative factors for EUR/USD"(2011-03-22)

 

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Analysts at BNP Paribas believe that the European currency is beginning to lose upside momentum trading versus the greenback.

 

The specialists note that there are no factors that could push the pair EUR/USD above resistance at 1.4280. The Bank of Japan made no new actions, while the positive outcome of the upcoming EU summit has been already priced in euro’s rate as well as the April rate hike. According to the bank, the bank may ignore more hawkish comments from ECB.

 

Moreover, BNP Paribas expects that Portugal's debt problems will force the country to apply in April to the EFSF for bailout.

 

In addition, the analysts say that German IFO economic sentiment index that is due on Friday may show a sharp fall in the market’s expectations.

 

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Chart. H4 EUR/USD

 

 

 

 

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