Bank Recommendations

Deutsche Bank

EUR USD (1.2970) Friday could not bring much more for the euro than just the repeat of what we have seen over most of last week. By the time the Uni-Michigan survey came out, which showed its biggest gain in three years, the single currency had already edged lower. For the shorts, this probably did nothing more than to serve as an opportunity to jump out of their positions. As a consequence, the euro was well supported ahead of the $1.29 level. Although, we have spoken about the possibility of long-term at these lower levels, it could very well be that the short-term crowd had gone into the day anticipating some long-term buying interest here and that they ended up creating the demand themselves. This aside, the recent stronger US data has helped to further push aside the possibility of a Fed rate cut in the first half of 2007, but so far it has not helped the dollar much. Even though the data suggests that the economy could avoid a significant slowdown, especially against the backdrop of the lower oil prices, it still seems that many market participants are simply more eager to see the euro higher. Even though we opt to view the euro in a neutral position we would, nevertheless, establish a bearish position just ahead (15-pips) of the 1.3065 supply point. The latter would then serve as the risk-limit. The target for the new orientation would then be pinned at 1.2835.

USD JPY (121.40) The current objective remains at 123.00. It is difficult to imagine a worse situation for the yen than the one that emerged after the rate-decision debacle. Not only have Japanese rates remained at a miserly quarterpercent, but the BOJ’s dependence has been questioned, Fukui’s authority has been doubted and the whole matter revealed failings in information security because the decision was leaked to press in advance. Short-term traders could hardly have expected the news to deteriorate further, so some profit-taking on yen shorts had to be expected on Friday and this was probably the case. However, the dollar did not retreat too far; following a small decline early in the session, it recovered to close unchanged on the day. The modesty of the correction reveals the extent to which many would-be carry-traders still wait for more favourable prices to get in (the market’s current preoccupation with the size of yen shorts on the IMM and the risk of a that this represents is nothing more than a reflection of this desire). We still count on such demand to buoy the dollar on dips ahead of 120.50, the risk-limit to our current bullish scenario.

EUR JPY (157.45) The target remains 161.00. Ahead of this, we expect to run into supply at 158.00/10. The risk-limit still stands at 156.30.

GBP USD (1.9750) Stronger than expected UK retail sales weren’t able to push the Pound higher on Friday, which suggested that the market was long already. Instead, the subsequent dip afforded us the opportunity to re-enter into a bullish strategy for target 2.0100. The risk-limit is at 1.9640. However, should 1.9780 be overtaken, the risk-limit must be tightened to 1.9690.

AUD USD (0.7895) The current target remains 0.8050. The first hurdle is visible at 0.7960. We keep the risk-limit unchanged at 0.7860.

JP MORGAN

GBP/USD: "Cable remains our clearer USD chart from a wave perspective at the moment, with the short term $1.96 to $1.98 range expected to give way to new highs in the days/week ahead. This should then see a significant top develop between $1.99 and 2.00/2.01."

EUR/GBP: "Still a risk of a pop back to 66.05 pence area of resistance while 65.45 key support holds. But the trend is down and such a rally is a selling opportunity."

USD/CAD: "Pullback and rejection of C$1.1650 has been in 5 waves and we therefore will be looking to buy this pullback towards C$1.1700/1.1680 for a break through C$1.1800"

STEVE WESIAK, ABN AMRO

EUR/USD: "The market is still hammering out a base and the new upward sloping support line has again been tested and held at $1.2916. The expectation is for a break above $1.3002 and $1.3030 then a push to $1.3082 and eventually $1.3133. The market might drift lower first, but holding above $1.2916/00 keep the base intact. However, if that area fails as support then the bears will likely start chipping away at the $1.2867 low."

USD/JPY: "The bulls are backing off the 121.88 yen resistance and this could mark the start of a correction lower. Failing to take out that clear barrier calls for a decline to 120.74 and as far as 120.22 before any new base starts to build. On the upside, pushing past 121.88 means that the market is focused in a Fibonacci level at 124.50, where any rally might also correct lower."

EUR/GBP: "The recent sell-off is trying to bottom out at the former 65.47 pence double bottom. A rebound is likely there which could go as far as 66.71 to test it as new resistance. If that cleared, then a rise to the 67.50 level can be expected. On the downside, under 65.47 opens the way for a decline to 65.15 and as far as the 64.65 Fibonacci level."

GBP/USD: "The bulls keep hammering the $1.9750 resistance and this keeps prices on track to $1.9848. Above that lies no real resistance until $2.0000-2.0115. Large declines previously occurred at that massive barrier. The first time to $1.6040 in five week's time and the second time to $1.4075 in six week's time so reaching that area will likely cause the uptrend to pause and perhaps correct lower. Zooming in, the current upswing only ends under $1.9532, which would expose the last low at $1.9263."

EUR/JPY: "The market keeps pressing higher and no sign of any top has appeared. The only real resistance is the 158.04 yen all-time-high. It looks vulnerable and taking it out should see prices reach a projected possible top at 159.00. First, minor, support has been established at 156.36 but the more important is the tested 155.09 low. Only below that signals a shift in the prevailing bullish sentiment."