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Old 05-04-2011, 14:54
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[COLOR="Green"]Ban Bernanke: the Fed is watching inflation[/COLOR]

The greenback is strengthening versus the single currency during the second day: the pair EUR/USD is moving down to 1.4150. US currency is driven by Ben Bernanke’s comments: the Federal Reserve Chairman claimed that it’s necessary to keep a close eye on inflation.

According to Bernanke, inflation expectations are likely to remain stable, while the rise in commodity prices may slow and, consequently, the increase in inflation will be transitory. The policymaker said that if he is wrong in his predictions, US monetary authorities will have to act timely in order to maintain the price stability.

Bernanke noted that the Fed expects many foreclosures this year and this, in its turn, will affect home prices and construction as well as the country’s economic recovery. In his view, the pace of US economic rebound is not as strong as it should be.

Analysts at JPMorgan Chase claim that while Bernanke’s remarks showed the vigilance on inflation expectations, the Chairman was certainly less hawkish than some regional Fed presidents, for example Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard.

Economists at Bank of Tokyo-Mitsubishi UFJ say that Bernanke’s comments mean that the market might be underestimating the degree to which the Fed could tighten monetary policy. As a result, US dollar has chances to strengthen. The bank also reminds that the euro zone’s debt crisis is far from being solved and that’s another reason that could push EUR/USD lower.

Specialists at Prestige Economics claim that the Fed seems to be concerned about inflation including the growth of food and energy prices, its monetary policy will depend on what happens with commodity prices. The average price of gasoline in the US rose from $3.07 on January 1 to $3.66 on April 3.

[COLOR="Green"]Morgan Stanley: recommendation for AUD/USD[/COLOR]

Australian dollar has significantly strengthened from 2011 minimum versus the greenback at 0.9705 hit after the Japan’s earthquake rising to its post-float maximums. The market players are now trying to figure out whether Aussie’s surge will continue or it’s time to turn bearish.

On the one hand, there are still many factors in favor of the pair AUD/USD. Firstly, Australia has the highest benchmark interest rate of 4.75% among the developed nations that makes its assets and currency attractive for investors. Secondly, though the analysts don’t expect the Reserve Bank of Australia to raise the interest rates in the nearest terms they think this will happen before the end of the year. Finally, the country’s economy benefits from the advance of commodity prices.

Strategists at Morgan Stanley, however, warn that Australian central bank may cut the interest rates this year as the non-mining part of Australian economy remains weak. In addition, stronger Aussie can also harm the economic rebound.

To sum up, long positions on AUD/USD are to be kept in place though traders should be ready that the market’s sentiment may change very quickly.
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J.P.Morgan, Citigroup: pound will rise versus euro[/COLOR]


This week there is a lot of information from the central banks: there are all in all seven central bank meetings and nine Fed officials scheduled to speak. The Reserve Bank of Australia decided to keep the benchmark rate unchanged at 4.75%.

The climax is going to be on Thursday, when there will be rate decisions from the Bank of Japan, the Bank of England and, certainly, from the European Central Bank.

Strategists at J.P. Morgan note that the expectations of higher rates is already priced in the single currency, so euro may decline once any rate hike is announced. As for the Bank of England, no one expects it to lift up the borrowing costs, so if the UK monetary authorities sound hawkish, pound may get some support.

Analysts at Citigroup advise investors to buy pound versus the European currency. In their view, the euro area’s credit risk will increase relative to Britain’s. The specialists believe that the pair EUR/GBP will decline to 0.8400. The trade should be stopped if the euro rises above 0.9062.
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Commerzbank: EUR/CHF is likely to decline[/COLOR]


The pair EUR/CHF rose from the minimums in the 1.2420 area hit after Japan’s March earthquake to last week’s maximum at 1.3184.

Technical analysts at Commerzbank claim that euro was capped by the resistance provided by 200-day MA and February maximum at 1.3203.

The specialists expect some profit-taking and believe that euro may be now poised for a decline at least to 1.3000/1.2965. In their view, it would be better if euro managed to hold above the 38.2% retracement of the move higher from the 1.2400 spike low.
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OECD: economic forecasts for the second quarter[/COLOR]


Pier Carlo Padoan, the OECD chief economist, claimed today that the European Central Bank's anticipated 25-basis-point rate rise won't have any significant negative impact on the euro zone's economy. According to Padoan, the situation in the US is different as the Fed is not as concerned about inflation as the ECB because it still has to fight high unemployment.

The OECD lifted its annualized growth forecast for the US in the second quarter from November estimate of 2.5% to 3.4%, for France – from 1.6% to 2.8% and Canada from 2.6% to 3.8%. The OECD lowered its second-quarter growth forecast for the UK from 1.3% to 1% and Italy from 1.6% to 1.3%. It forecasts growth of 2.3% for Germany, the euro zone's largest economy.

The organization notes that the developed countries should set budget consolidation as their priority. Padoan said that Portugal's instability remains the main source of worry. The country should hurry to solve its political problems and the new government has to be formed as soon as possible.
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Commerzbank: comments on GBP/USD[/COLOR]


Technical analysts at Commerzbank note that as the British pound broke through resistance band between 1.6170 and 1.6177 versus its US counterpart, it may now rise to 1.63.

Never the less, the specialists believe that the bears will remain stronger as long as the pair GBP/USD is trading below 2010 maximums in the 1.6465 area. According to the bank, if sterling falls below the February minimum at 1.5962, it will be poised for a decline to 1.56.

[COLOR="Green"]Julius Baer: SNB will follow the ECB in raising rates[/COLOR]

Currency strategists at Swiss bank Julius Baer expect that the single currency will end the second quarter of the year slightly below 1.30 versus Swiss franc. In their view, the Swiss National Bank (SNB) will follow the European Central Bank in raising the interest rates.

The specialists believe that as the euro zone’s debt problems are gradually being resolved, the demand for franc as the safe haven will be limited. According to the bank, during the 3 months from April to June forex market will be dominated by the monetary policy normalization all over the world.
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Geithner: US debt will reach ceiling by May 16
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Treasury Secretary Timothy Geithner warned the Congress that US debt will reach the country's $14.294 trillion debt ceiling no later than May 16. Earlier the Treasury Department estimated that the limit will be hit between April 15 and May 31.

If US lawmakers don’t raise the ceiling by this May 16, the Treasury will have to employ a range of extraordinary measures to prevent the United States from defaulting on its obligations. However, Geithner said that these measures could put off the inevitable only for eight weeks or so and the US won’t be able to borrow within the limit after about July 8, 2011.

The data on March 31 showed that the debt subject to the legal borrowing limit was $14.218 trillion, or roughly $76 billion under the legal cap. Typically, that's a little over two weeks of borrowing, although debt levels can fluctuate up or down on a daily basis.

Geithner underlined that the Treasury won’t start a “fire sale” of financial assets such as gold because this will damage financial markets making investors lose confidence in the US solvency. If Congress doesn’t increase the debt limit, a broad range of government payments would have to be stopped, limited or delayed, including military salaries and retirement benefits, Social Security and Medicare payments, interest on the debt, unemployment benefits and tax refunds.

According to the official estimates, American government will need to borrow $738 billion by the end of this fiscal year.
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On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets[/COLOR]
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