Bank Recommendations

Deutsche Bank

EUR USD (1.2960) In recent months the period between the release of the PPI and CPI data in the US has been something of a ‘no man’s land’. This reflects the growing importance of interest rates and Fed policy on people’s evaluation of the exchange rate outlook. Thus, although the dollar did gain some ground against the single currency when the first of these was released yesterday, the weakness was not able to extend much below the previous day’s low – stopping at our first intermediate support. The strong polarization of opinion about the next likely step of the Federal Reserve Bank is impressive. Although US yields have drifted higher since the start of the year and most market participants have become noticeably more relaxed about the weakness in the housing sector, countless analysts still expect a cut in US rates as early as Q2. At the same time, almost as many others see rates on hold for the first half before hikes in the second. The middle ground – no change for the foreseeable future – is probably the least popular opinion. It is precisely this lack of consensus that defends the market against shocks, as there will be an interest to trade on both sides regardless of the direction of rates. Our current objective is unchanged at 1.2650. The risk limit to this strategy remains at 1.2985. Sadly, this point is no longer the best supply level; for today, 1.3040 marks the toughest upside hurdle.

USD JPY (121.00) Will she? Or won’t she …hike rates? She won’t. As was already rumored yesterday, the Bank of Japan kept its policy unchanged overnight, supposedly caving in to political pressure. However, since the voting was tight, many observers also seem to believe that a hike will follow in February (will political pressure cease to work in a month’s time?) But traders were in any event warned by the press reports from the day before. This, in turn, means that few will have lost money yesterday. What we saw, was a rush back into carry trades. The current objective remains 123.00. We can now tighten the risk-limit to our bullish scenario to 120.35. A drop back into the old consolidation, below 119.90, must be treated as a first sign of weakness.

EUR JPY (156.80) The Euro presents itself in brilliant shape this morning. Beyond 157.20, we would open a bullish target and look up to gains to 161.00. In this case, the risk-limit has to be set at 156.30. Additional support stands at 155.50.

GBP USD (1.9730) Market expectations for UK rates have snowballed in recent days. Encouraged by Tuesday’s CPI data, whose high reading should already have been priced in after the BOE’s surprise rate hike last week, predications have ticked higher on the basis of a high RPI measure of inflation, even as average earnings figures came out softer-than-expected. The current ebullience already produced a stabilization for Cable on Tuesday. Continued strength overnight has left it without any good resistance ahead of 2.0100. We therefore set this as a new target. The risk-limit of the new scenario must be fixed at 1.9650.

AUD USD (0.7880) The last good supply point is now at 0.7895. Beyond there, the prospect of a move beyond the 2006 high (0.7980) would become a near-term possibility. We would open a target at 0.8050 and set a risk-limit at 0.7860.
JP MORGAN

USD/JPY: "Yen set to be focus of attention today with BOJ on hold. Dollar/yen has broken up through 121.00 yen and keeps the series of higher lows and highs going for now. This grind is likely to continue with next key level being the 121.40 previous highs, but then we have little till 122.50...on the way to our 125-127 targets for the year."

EUR/JPY: "Showing signs of trying to play catch-up after breaking back through key short term resistance at 156.40 yen. We were clearly wrong to be looking for that deeper correction and it seems to be another case in the yen crosses where any kind of a pullback is a buy and close your eyes for now."

COMMERZBANK CORPORATES & MARKETS

EUR/GBP: "Whilst the market holds below resistance at 66.00/10 pence (June 2005 low) further near term losses are favored to be seen. We maintain the recent breach of key support at 66.65/80 (October 2006 low and its 3-year up-trend) last week, reverted the longer-term technical picture to negative. Whilst capped below here (66.65/80) further losses towards initially a test of key support at 65.35/45 (down channel and 2004 low) are still looked for shorter term."

USD/CHF: "Tested marginally higher again yesterday but then reversed lower to close below its open. The market continues to exhibit signs of upside failure. We therefore maintain that whilst the market holds below key resistance at 1.2540/70 francs the near term outlook remains neutral to negative."

SEB MERCHANT BANKING

EUR/GBP: "The hourly spike/failure below $1.2904 spurred a short covering rally. The three wave pattern, $1.2988/1.2898, seen in the hourly chart suggests more upside pressure for today. To lower the downside risk we must however pass $1.2988."

GBP/USD: "The market is now about to test the $1.9750-resistance, the barrier to the $2.00/01-long term resistance zone. Some hesitation and even a minor setback wouldn't be surprising to see occurring from resistance but should be used adding to longs."

EUR/JPY: "If the market can sustain today's break of 156.35 yen by the close, strong evidence of new highs will be given. Also the consistently rising lows support a bullish picture."