Bank Recommendations

Deutsche Bank

EUR USD (1.3030) As the Chicago PMI was the only dull spot on an otherwise cloudless sky for US data yesterday, speechless market commentators have been obliged to blame it for yesterday’s late dollar decline. Yet, are we to believe that against a backdrop of solid US mortgage applications, robust Q4 growth, good indications for this week’s non-farm payrolls, a three-digit rise for the DJIA and brokers ‘high-fiving’ the US President on the floor of the NYSE, that FX dealers preferred to focus on a slightly below- consensus figure in a volatile data series for a sector that anyway only reflects a small part of US growth? No, this buying took place well ahead of the PMI; the bids were probably in place at the time the GDP numbers were published as the bulk of yesterday’s volume actually took place near the session low. Thus the demand was not data dependant and would probably have been indifferent had, subsequently, the euro continued to fall. Once again, we are probably looking at demand from the same longer-term source that we have been observing over the last three weeks – this time at a slightly higher price. Then current price level is still a neutral one for the single-currency. We will remain on the sidelines whilst it moves between 1.2860 and 1.3100, which, respectively, represent the bearish- and bullishtriggers.

USD JPY (120.65) Against the yen, the across-the-board dollar decline was additionally hit by a statement from Hank Paulson, who is reportedly watching the yen ‘very, very closely’. Although he concedes that the currency’s plight is rightly due to low interest rates and an anaemic economy, the US Treasury Secretary’s tone on Japan and on China was notably more aggressive than of late. Of course, ‘currency manipulator’ discussions will soon be coming round again and one can wonder how he will respond. Cynics might say that even Japan could find itself in the sights of the US Congress if, indeed, political pressure was behind the BOJ’s decision to keep rates unchanged. So far the dollar’s decline has done no more than test the critical support, which today comes in at 120.45. As before, however, a violation there would meet no reliable demand ahead of 115.60! This would then be our target. To the upside, fresh hurdles have now been erected at 121.20 and at 121.65. The former would serve as a risk-limit in the case of a bearish resolution.

EUR JPY (157.15) Despite the Paulson comments, the cross held to the narrowest part of the neutral sideways range that we sketched out yesterday. However, it has remained rather closer to the lower end. And, yen volatility is on the rise again. As before, nearby demand points are not too reliable. They stand at 156.30 and at 154.30(critical). On the upside, 157.70 and 158.60/70 mark the supply points. Gains should become noticeably easier beyond the latter.

GBP USD (1.9640) The Pound clings to a level where market participants are likely to feel very comfortable (bias-free). We therefore remain neutral. Support is now at 1.9465. Resistances stand at 1.9665 and at 1.9755 (bullish trigger).

AUD USD (0.7745) The current target remains 0.7615 with a risk-limit set at 0.7770 (tested overnight). An additional support is at 0.7720. All price levels mentioned in this report require a 10-pip break to be invalidated.

TECHNICAL ANALYSIS TEAM, CAPITAL MANAGEMENT

USD/CHF: "Suspect the decline into intial 1.2410 support is enough in short-term to end first leg of correction. This allows attempt at 1.25 before at 1.2390 objective."

GBP/USD: "Rally to fail $1.9670-90 resistance is enough to offer another attempt to renew downtrend. Be wary of erratic pullback that holds $1.9560."

EUR/JPY: "Beware a loss 157.40 for start of a decline to 154. Over 158.60 accelerates."

TECHNICAL ANALYSIS TEAM, MERRILL LYNCH

JPY : "The journey of EUR-JPY gains began with the October 2000 intervention on behalf of the euro, but the question of over extension originates from the beginning of the current bull continuation from June 2005. In addition, the question of excess Japanese currency losses has intensified with the two-year USD-JPY bullish reversal that has neutralised the cyclical 2001-2005 bear trend... Structural post Bretton Woods yen strength has reached exhaustion, and in our opinion the Japanese currency is vulnerable to further deterioration in the years ahead. However, the severity of 2005-2007 deterioration has been extreme, and the pace of deterioration is becoming a concern.

TECHNICAL ANALYSIS TEAM, SEB

EUR/USD: "After having spent the greater part of the session in the $1.2945/3001-range the pair leaped higher and are now about to challenge the first more important resistance, the broad $1.3044/53/82 zone. On the downside we carefully watch $1.2980."

EUR/GBP: "The pair yesterday passed a couple of its resistances, ending the session sharply higher. The impulsive advance and the internal wave structure (hourly chart) calls for some more upside. An hourly triangle created overnight points at a test 66.60/65 pence."

USD/JPY: "The pair continued to suffer yesterday as longs continued to bail out. With the increased downside momentum we do see the low end of the support zone being challenged within soon. Offers today are likely to be gathered around 120.80/90."