Bank Recommendations

Deutsche Bank

EUR USD (1.3020) For most of Thursday the euro just hovered above what appears to be the magnetic $1.30 level. A dip in eurozone manufacturing early in the European session gave those who wanted to sell the euro a reason to do so, but they proceeded cautiously. This was also clearly not enough to change the views of the eurozone inflation watchers who are still looking for an ECB rate hike in March. In addition, the euro bulls appear to be rather comfortable with the euro above the Thanksgiving breakout point. But thus far, it could not stage a significant rally beyond this point, but neither did it weaken substantially below. Nevertheless, in the NY session, the benign PCE deflator and the weaker than expected ISM data could also not bring much more than just a brief change in irection for the euro. Curiously, on a day packed with news and even surprises, volatility remained low and the EUR/USD had to again take a back seat while the JPY is causing the buzz. Apart from traders still being in wait-and-see mode ahead of today’s non-farm payrolls number, our Market Bias Index also confirms that the market actually finds the price level appropriate. For the time being, we prefer to keep the euro in neutral territory while it is drifting between 1.2860 and 1.3100. However, the former still marks the bearish trigger while the latter serves as the bullish prompt.

USD JPY (120.70) The G7 discussion is still topping the agenda (see EUR/JPY), but it looks like the idea of a G7 rescue mission is just becoming more fallacious for some market participants. Nevertheless, the dollar’s pullback through the 120.45 mark yesterday kicked us into a bearish strategy. As long as 121.20 is not overtaken, we are looking for weakness down to our ambitious 115.60 target. Ahead of the latter, we reckon with support at 119.70.

EUR JPY (157.15) Talk about the G7 meeting and the yen are now reaching fever pitch. Even Canada has now jumped on the G7 bandwagon. Of note is that despite the US, Europe and Japan having already been in on the debate on a daily basis, it looks like they are achieving nothing more than to run around in circles. Somehow one even gets the impression that this is exactly what market participants want. If they are positioning themselves massively for or against yen weakness (which we doubt) after the G7 meeting, it means some big fluctuations are underway. This is clearly not what the already nervous carry traders have in mind. Our position remains neutral for the time being. Expect to come across demand at 156.10. Below, we eye the critical 154.30 mark. Supply is visible at 157.75 and at 158.60/70.

GBP USD (1.9670) Stronger than expected PMI data could only entice some traders into buying Sterling yesterday. Our trigger for a bullish strategy remains at 1.9755. The risk-limit would then be 1.9625. We expect to see support at 1.9485.

AUD USD (0.7720) After having tested our 0.7770 risk-limit yesterday, the AUD slipped back again. We therefore keep our target unchanged at 0.7615. Weaker support can be expected at 0.7685. Look out for good resistance at 0.7815.

LLOYDS TSB FINANCIAL MARKETS

GBP/USD: "The 50-day moving average is still in play as key support and is located at $1.9596."

EUR/USD: "Support runs at $1.2973, the 10-day moving average."

UBS

EUR/USD: "Gains from $1.2865 are approaching resistance from last week's $1.3045 high to $1.3057, the 38.2 percent retracement of the $1.3368-$1.2865 decline. A move above there would begin to relieve downward pressure from the early December $1.3368 high, shifting focus away from the 61.8 percent retracement of the large $1.2481- 1.3368 rally at $1.2821."

USD/JPY: "Approaching a good support cluster from 120.19 to 120.06, reaction lows from Jan. 25 and 14, respectively. Only a break of this area would reasonably confirm a shift away from the bull channel that has carried this pair higher since the early- December 114.43 low."

USD/CHF: "The sharp sell-off in dollar/Swiss franc has defined resistance at 1.2575 francs on Wednesday, exposing support at last week's 1.2376 low. Penetration of this level would clearly mark a departure from the bull channel underway since the early-December 1.1879 low."

EUR/GBP: "Recent setback from Wednesday's 66.46 pence high is most likely a correction. It should above support from Tuesday's 65.82 reaction low. An eventual push above 66.46 will expose the next resistance at 66.69, a former support from Oct. 31, 2005."

GBP/USD: "Has recovered notably from Wednesday's $1.9482 lows, pushing through congestive resistance from $1.9697 to $1.9735. A secondary barrier is not far off at $1.9751, the 61.8 percent retracement of the $1.9917-1.9482 decline. Only a move above there would reasonably confirm a return of the underlying bull trend, opening the door for a run above the $1.9917 trend high."

EUR/JPY: "Needs to break either last week's 155.76 low or last week's 158.64 high to signal the next meaningful directional move."