Bank Recommendations

Deutsche Bank

EUR USD (1.2945) According to the ECB’s Liebscher, the market ‘well understood’ the message from last Thursday’s press conference. But what did they understand? The immediate reaction in the bond and currency markets was for a move lower in both interest rates and in the Euro. Was this the correct one? Many journalists certainly left the gathering scratching their heads because Mr Trichet used the expression ‘closely monitoring’ for the second consecutive month. As a consequence, a rate hike that was seen as being two months away in December is still being seen as two months away now. It may be two months away in February too. Was that the correct interpretation or must markets simply understand that codeword’s are no longer reliable? The ECB President also spoke about downside risks to growth. In the light of yesterday’s sickly rise in eurozone industrial production, could this have been the message that the Austrian Central Bank boss wanted to reiterate? One thing that one can be sure of is that any opinion Mr Liebscher, a well-known hawk, is desirous to share is very likely to be a hawkish one. In addition, the recent BOE rate hike, although not determinant for ECB policy, has moved the goalposts for many; traders now see everything from a more hawkish perspective. Our current objective is unchanged at 1.2650. The risk limit to this strategy remains at 1.2985.

USD JPY (120.30) Speculation about a possible Japanese rate hike is rife. Despite this however, market opinion remains firmly against the yen. Most argue that, even at 0.5 percent, the yen will remain a low-yielder. Worse, an unwarranted hike could inflict damage on a still fragile economy. Market observers have also shrugged off signs of government interference on the grounds that any threats to the Bank’s independence would be even more negative for the yen. All of this points to a market that is already short of yen or would very much like to be. More than likely, this means that traders would like to see a hike-inspired yen rebound into which they could sell. Our objective is unchanged at 123.00. The first supply point comes in at 121.10. To the downside, our downside risk limit is at 119.90. A critical downside point must also be noted at 118.80.

EUR JPY (155.80) Here too, traders would probably see a correction as a buying opportunity. Good support is noted at 154.65 and at 154.20. To the upside, supply stands at 156.35 and at 157.10.

GBP USD (1.9655) As yesterday’s UK PPI number was more or less in line with expectations, market participants focus on today’s CPI data. If, contrary to expectations, CPI does not signal any rising inflationary pressure either, the general puzzle about the reasons for the surprise BOE rate hike would go on. Either way, traders consider the BOE´s gear-change as mega-hawkish. Although, when it comes to time-scale of monetary policy, it really plays no role whether tightening takes place one month earlier or later. The Pound is still neutral between 1.9675 and 1.9475. A break of the upper
border would be positive for the Cable, but a nearby supply point at 1.9730 could cause problems for an immediate up move.

AUD USD (0.7830) The A$ remains neutral. The next resistances stand at 0.7875 and 0.7910. To the downside, we reckon with support at 0.7810 and 0.7775. The latter is critical for further weakness down to 0.7600.

CAPITAL MANAGEMENT

USD/JPY: "Minor reaction from short-term 120.70-80 resistance is consistent with uptrend. Ideally, this drop will honour the 119.90-120.00 support area. Only a direct loss of the 119.70 level would suggest upside break is premature and allow reaction to 118.40 before higher."

USD/CHF: "Erratic decline to 1.2440 may well be enough to reset the rally. A push over 1.25 will extend rally to 1.2570. A move below 1.2410 concerns."

EUR/CHF: "Consolidation persists in a 1.6055-1.6170 range and therefore maintains the threat of a much larger retracement through 1.6055 to 1.5945 minimum. A rally through 1.6170, however, would signal a spike as high as 1.6220 but would not remove the threat of a later reversal."

STEVE WESIAK, ABN AMRO

EUR/USD: "The market is trying to hammer out a base after selling pressure dried up at the $1.2867 low. That said, the waters could get a bit choppy as the base builds. Prices have room to the $1.3016 peak, which is just below the 38.2 percent Fibonacci level. At that point, a limited decline towards $1.2925 could happen before any major rebound kicks in. On the downside, slipping directly under $1.2925 calls this scenario into question and puts pressure on the $1.2867 low. If that snaps, then fall to $1.2763 would be called for."

USD/JPY: "The upside has cooled off after a head and shoulder top formed. However, the first support at 120.10/07 is holding up, so the bulls might give the 120.74 top a whack. Taking it out keeps prices on track to 121.40/88. On the downside, slipping under the defended 120.10/07 opens the way for a fall to at least 119.68, 119.35 and as far as the 119.15 lows, where trendline support is approaching. That makes it a good place for any correction lower to bottom out."

EUR/JPY: "The bulls hold the lead but took a hit at the 61.8 percent Fibonacci level. They have since regrouped and look set to give 156.35 another shot. Clearing it should lead to the elimination of the last upside Fibonacci level at 157.00 and opens the way back up to 158.04. It might prove tricky to take out as a longer term projected top cuts in at 159.00 and has potential to halt the uptrend. Support is the lows that formed at 155.09. If that fails, then the market will likely focus its gaze on the 153.67 low."

GBP/USD: "The bulls are gunning for the multi-tested $1.9750 barrier after the base formed at $1.9263. The general trend is still up, so $1.9750 looks vulnerable and its elimination should lead to a fast rise to $1.9848. Above that lies no visible resistance until the strong $2.0000-2.0115 level. Support at the moment slices in at $1.9600. If that fails, then levels to $1.9532 and as far as the second support line at $1.9380 should follow."

EUR/GBP: "The bears rammed through the old 66.10 pence low and this keeps the downtrend intact and prices on their way to a former double bottom at 65.67. A rebound could occur at that level, sending levels back up to the 66.11 handle before any selling starts again. But directly taking out 65.47 exposes a minor support at 65.15 and a stronger one at 64.65. That is where a former support and Fibonacci level meet. On the upside, only above 66.05 signal that the market is entering an upside correction phase with room to at leats 66.40."

STEFAN STEINEMANN, DOLEFIN.COM GENEVA

EUR/USD: "The $1.2960 level is losing importance and the exhaustive downside test less likely. But near-term momentum does not look convincingly positive. We might finally be confined to an undecided tight trading range where an upside attempt will be limited to about $1.3000, while the area of $1.2900 could act as lower limit of a near-term consolidation pattern."