Moody’s once again confirmed top US rating

Moody’s Investors Service confirmed US top Aaa rating for the second time in a week. It happened after another major rating agency, Standard & Poor’s, downgraded the world’s largest economy.

It’s necessary to note that Moody’s left the outlook for American debt ranking negative. The agency underlines that the greenback remains the main reserve currency and this fact allows the United States to have higher debt levels than other countries. In addition, Moody’s notes that US authorities have made much effort to fix the debt & deficit issue. The agency also pointed out that the nation has “unparalleled size and diversity” and enjoys “political and institutional stability”.

According to Moody’s, to keep the top rating the US has to hold its debt at “not far above” 75% of GDP by about 2015 – this ratio is forecasted for 2012, this year it’s expected to be 69.8%. The downgrade may happen before 2013 if US fiscal discipline or economic outlook deteriorates.

American stock markets fell by the most since December 2008. By the end of Monday’s US trading session Down Jones Index fell by 5.55%, S&P 500 contracted by 6.66%, while Nasdaq 100 lost 6.11%. At the same time, US dollar rose as even now it’s still perceived as a refuge. Yields on Treasury 2-year notes reached a record low.

RBS, SocGen on ECB's decision to buy Spanish and Italian debt

As the euro zone’s policymakers failed to stop the spreading of Greek debt crisis the European Central Bank had to start acting to save euro: yesterday it began buying Italian and Spanish assets.

To do this, the ECB will need to expand massively its balance sheet. Moreover, the central bank risks being accused of breaching a key principle in the euro’s founding treaty by bailing out the nations that didn’t abide the terms of Stability and Growth Pact.

Since starting its bond purchases in May last year, the ECB has bought about 74 billion euro of assets to help stabilize Greek, Irish and Portuguese markets. Four months ago the ECB ceased bond purchases trying to force the governments to find the solution of the debt issues on their own and engaged in counter-inflation moves.

Daiwa Capital Markets notes that the ECB may lose its credibility. According to the analysts, the euro area’s central bank will have to buy about 200 billion euro ($287 billion) of Italian bonds and 60 billion euro of Spanish securities to ease the pressure on these nations.

Strategists at ING warn that as the ECB will have to spend very large sums – about 50 billion a week – to make an impact on the market, it may not be able to continue to sterilize its purchases by absorbing the equivalent amount from banks via term deposits. That would significantly increase the money supply in the region stimulating inflation that opposes the central bank’s principles.

Economists at Royal Bank of Scotland expect ECB to buy on average about 2.5 billion euro of bonds a day – that would make 600 billion euro in a year. The specialists note that the European Central Bank may keep doing that until the European Financial Stability Facility is allowed to purchase bonds on the secondary market and could end with the half of the traded Italian and Spanish debt in its assets.

Analysts at Societe Generale believe that the ECB purchases may do some good, but won’t solve the fundamental problems. In their view, the euro area has to become fiscal union for that.

Kenneth Rogoff: the Fed may relaunch QE

Harvard University economist Kenneth Rogoff sees the possibility of the third round of monetary easing in the United States as high. In his view, the Fed is likely to act to support US economy. The specialist says that US central bank has to be more decisive in this.

At the same time, Rogoff claims it’s not clear whether the Federal Reserve’s Chairman Ben Bernanke will manage to immediately gain the support of Federal Open Market Committee members for more easing. Last month after QE2 ended in June Bernanke outlined policy options including additional asset purchases or strengthening the commitment to low interest rates.

The FOMC meeting takes place today and its statement is released at 10:15 pm (GMT+4).

Analysts at JPMorgan Chase, BNP Paribas and Goldman Sachs also believe that the Fed will pledge to maintain record monetary stimulus. According to them, the central bank will probably make commitment to hold its $2.87 trillion balance sheet steady for an extended period.

Rabobank: Swiss franc will keep strengthening

Currency strategists at Rabobank believe that the demand for Swiss franc as a refuge will remain high and the Swiss National Bank is unable to prevent the strengthening of the national currency.

The central bank has already cut the borrowing costs last week narrowing the range of the interest rates from 0.00-0.75% to 0.00-0.25%. Another reduction simply won’t have much impact at the currency market, while the intervention will be too costly, says the bank.

According to the specialists, there’s a strong risk that the situation in the euro zone deteriorates, so the odds that franc will keep appreciating are high.

The single currency has renewed today the record minimum versus franc sliding to 1.0476. Analysts at Commerzbank note that as long as the pair EUR/CHF is trading below 1.1020, it will remain under bearish pressure. The pair USD/CHF has also dropped to the all-time low at 0.7359.

Jyske Bank: EUR/USD will break down current range

Technical analysts at Jyske Bank believe that the pair EUR/USD will continue trading within the recent range between 1.4055 and 1.4450 for some time. Then the specialists expect the single currency to break down falling to 1.3746 in the middle of August.

UBS: bearish view on USD/CHF

Technical analysts at UBS are bearish on USD/CHF. The pair is currently trading just above the record minimum at 0.7359. The specialists say that there isn’t much support for the greenback until the psychological level at 0.7000. Resistance for American currency is found at 0.7741.

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Societe Generale: China’s inflation reached new maximum

According to the data released today, China’s inflation pace rose to the maximal level in 3 years. Consumer prices increased in July by 6.5% on the annual basis, while the economists expected the CPI to rise by 6.4% as it was in June. The nation’s PPI added 7.5% last month from the previous year, showing the biggest gain in almost 3 years, while food costs climbed by 14.8%. The Shanghai Composite Index fell by 20% from its maximum in November.

Analysts at Societe Generale note that in normal conditions rising inflation would make Chinese authorities raise the borrowing costs, but given the current uncertainty at the global financial markets the policymakers will likely delay tightening.

Analysts at Royal Bank of Canada expect one more rate hike in the next few months, while UBS and Standard Chartered forecast no more rate increases this year. The specialists at UBS claim that the pace of CPI growth may decline to 4% by the end of the year. Analysts at Mizuho Securities believe that the average inflation this year will be at 5.3% that’s 1.3 percentage points higher than the government’s target.

Economists at Credit Suisse remind that China will get vulnerable if the global economy slows down sharply as that will have negative impact on Chinese exports and consumption. Strategists at Bank of America Merrill Lynch think that in order to support national economy China may use fiscal measures such as increase of spending on social housing and water infrastructure instead of easing its monetary policy.

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BNY Mellon: EUR/CHF will resume its decline

The single currency managed to make yesterday the biggest advance versus Swiss franc since it was launched in 1999 – the pair EUR/CHF climbed from 1.0252 to the day’s maximum of 1.0929.

It happened as franc slumped after the Swiss National Bank’s Vice President Thomas Jordan claimed that there’s a possibility of franc’s temporary peg to euro.

Currency strategists at UBS think that such measures would require constant efforts on the SNB’s part to defend franc’s trading range as investors continue buying franc as a refuge. As a result, the central bank more obligations to intervene.

Analysts at Bank of New York Mellon believe that the SNB won’t be able to defeat the high demand for franc as for the safe haven and Swiss currency will resume strengthening the next week.

HSBC: investors bet on euro’s collapse

Analysts at HSBC believe that the fact that investors are massively selling Italian and Spanish bonds means not only that they have negative view on the prospects of these nations, but that the market fears the single currency will collapse.

According to the economists, if euro breaks apart, some former European currencies such as the Deutschemark will gain, while the others like Italian lira will weaken.

To trade on this assumption means to sell Italian debt versus German one and that’s exactly what has been happening during the last few weeks, says HSBC.

The strategists say that Italy's fiscal management has been better than that in several other countries, so the market players bet not against Italy specifically, but against the euro.

BoA Merrill Lynch: dollar will keep being steady

Analysts at Bank of America Merrill Lynch note that after the S&P cut US credit rating the greenback performed surprisingly well. In their view, dollar will keep being steady at rather strong positions.

The specialists say that investors are going to the nations where growth prospects look stronger. Never the less, the bank doubts that US currency will weaken even if the Federal Reserve goes down the path of quantitative easing over the next 6 months.

The economists claim that though in the past, when the U.S. economy has weakened, it's been negative for the greenback, if the slowdown spreads to the rest of the world and to the emerging markets in particular, the impact on US dollar will be quite positive. According to Bank of America, there’s a real possibility of the global economic slowdown.

As for the short term, however, the specialists favor British pound and Japanese yen. In their view, sterling is a good alternative for those who are nervous about US dollar or the single currency, while yen will be supported by strong fundamentals despite the risk of Bank of Japan’s interventions.

BBH: trading recommendations on EUR/USD

Currency strategists at Brown Brothers Harriman advise traders to watch next week the economic data as well as the tensions in the euro zone peripheral nations and the signal from the equity market.

Euro area’s flash GDP for the second quarter is released on Tuesday, August 16, at 1:00 pm (GMT+4). Weaker Euro zone growth in an environment of slowing global activity, government austerity and a banking crisis would add pressure on the euro and global economic confidence.

French President Nicolas Sarkozy meets German Chancellor Angela Merkel meet the same day in Paris amid market turmoil that prompted France to speed up completion of its 2012 budget. The French government’s commitment to its deficit goals is “untouchable,” Sarkozy said. BBH expects that the meeting will provide an initiative in an attempt to stem the slide in French bank shares.

According to BBH, EUR/USD will remain in the recent range between $1.40 and 1.45. The specialists recommend selling euro as it rises to the top of this area until the European authorities do something more concrete to stem the crisis.

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Goldman Sachs: QE3 in the US is very likely

Analysts at Goldman Sachs are sure that the third round of quantitative easing in the United States is coming later this year or at the beginning of 2012. The reason why the additional monetary stimulus is needed is the US economic growth slowdown and high unemployment rate.

The possibility of QE3 rose as on it last meeting that took place on August 9 the Federal Open Market Committee pledged to keep the interest rates at the record low at least until the middle of 2013 that means that US monetary authorities are ready to act employing more policy tools if the economic outlook keeps worsening.

According to Goldman, though not all members of the FOMC support the idea of the new QE – Presidents Fisher, Kocherlakota and Plosser spoke against loosening policy – that won’t stop the Fed’s Chairman Bernanke from pushing through the measures.

It’s necessary to note that though there are different forms of stimulus from the small steps such as a commitment to keep the balance sheet large, a gradual shift of the securities portfolio into longer maturities or a cut in the interest rate on excess reserves from 0.25% to 0% to very aggressive ones such as rate caps (a form of QE in which the Fed promises to buy as many securities as needed to hit a longer-term yield target), a price level or nominal GDP target, or interventions in non-government securities markets (for which funding from Congress would be needed). Goldman specialists say that from all the measures mentioned the conventional QE seems to be the most acceptable option.

To sum up, the economists expect quantitative easing to be resumed, but see several risks to such forecast: stronger economic performance, higher inflation and public backlash. As for the latter, the Fed may try to smooth the situation by proposing monthly numbers that not look as big as the $600 billion purchase over 8 months announced last year. In addition, the decision of continuing the program may be made on the monthly basis as well that would also improve the negative sentiment.

Danske Bank: EUR/USD will rise in a year

Currency strategists at Danske Bank came up with concrete forecasts for the pair EUR/USD.

The specialists note that the United States face weaker than expected growth, long period of minimal interest rates, large current account deficit as well as the serious fiscal challenges and increased political risks.

As a result, in medium-term the bank is bearish on the greenback and thinks that in such conditions the single currency will be able to gain.

According to Danske Bank, euro will rise to $1.50 versus its American counterpart in a year. The previous forecast was at $1.36. The 3-month estimate though was reduced to $1.42 on the expectations of weak macro data during the next few months.

Commerzbank: comments on GBP/USD

Technical analysts at Commerzbank note that if British pound managed to rise versus the greenback above the downtrend resistance line from May maximums in the $1.6444 zone, it will head up to $1.6539/47 (78.6% Fibonacci retracement of the decline from April peak and May high).

Never the less, pound still didn’t manage to overcome the mentioned resistance: the pair GBP/USD slid today from August high at $1.6475 posting the low at $1.6347.

BarCap: Merkel and Sarkozy disappointed investors

Yesterday’s meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel didn’t bring much results.

The leaders of the biggest euro zone’s economies, which are expected to lead efforts to contain the debt crisis, spoke about the plan to form a euro-zone economic council, but didn’t voice support for the creation of the common euro-zone bonds at it may affect the region’s healthiest economies. The market regards the common bonds as the last chance to improve the situation.

Merkel and Sarkozy called for spending cuts and other long-term measures to bring down debt levels but offered no immediate solutions.

Analysts at Barclays Capital note that the markets were disappointed by the focus on long-term governance issues lack of the concrete steps at the time when it’s very important to encourage the economic growth.

In the second quarter German GDP growth pace slowed down to 0.1%, while the economists were looking forward to 0.5%. The economic growth pace of the entire euro area during the same period accounted only for 0.2%, while during the first 3 months of 2011 this indicator was equal to 0.8%.

BNP Paribas: SNB failed to affect the market

The Swiss National Bank for the third time tried to weaken the national currency.

Switzerland’s central bank announced today that it will boost liquidity to the money market expanding banks’ sight deposits from 120 to 200 billion francs ($253 billion). The SNB also decided to repurchase outstanding SNB Bills and use foreign-exchange swap transactions.

Economists at Credit Suisse think that the SNB has other means of action, but for it just keeps pursuing this liquidity strategy.

Analysts at BNP Paribas note that the market was looking forward to interventions or a peg and got disappointed by the outcome. In their view, it will be very difficult for the Swiss monetary authorities to act against the market that’s seeking refuge in franc. The bank thinks that it would be near impossible for policy makers to peg the franc to the euro and commit to unlimited currency interventions as it would be too expensive and wouldn’t guarantee success.

UBS specialists think that the SNB’s move didn’t impress the market. Taking into account the lack of results after yesterday's Franco-German bilateral summit, the bank says that euro may drop back to 1.10 and even lower.

The pair EUR/CHF is still trading under 1.5000. Today it hit the low at 1.1221.

Commerzbank: EUR/USD will go down again

In the morning the single currency hit the day’s minimum versus the greenback at $.4320. Then it found support and jumped above the 4-month downtrend resistance line at $1.4435.

Never the less, technical analysts at Commerzbank believe that euro’s advance will stall in the between the broken resistance and July 27 maximum at $1.4537 and the pair EUR/USD will return down to the 38.2% Fibonacci retracement at $1.4259.

MPC unanimously voted to keep rates at 0.5%

According to the minutes of the Bank of England’s Monetary Policy Committee August meeting released today, the 9-member MPC unanimously voted to leave the benchmark interest rate unchanged at 0.5%.

The two hawks – the BoE’s chief economist Spencer Dale and the external policymaker Martin Weale – abandoned their calls for the rate hike.

It’s also necessary to note that the odds of the second bout of quantitative easing in the UK have strengthened. This time only Adam Posen repeated his proposition to raise the QE program by 50 billion pounds to 250 billion pounds, several other members seems to consider the idea.

The debt crisis in the euro area, US economic slowdown and UK's own problems persuaded the committee that inflation would fall to its 2% target without the increase of the borrowing costs. The pace of British CPI growth rose from 4.2% in June to 4.4% in July.

Rabobank International notes that the minutes were clearly dovish, though the BoE Governor Mervyn King had already indicated earlier that central bank could remain on hold until 2012.

Currency strategists at Credit Suisse believe that if cyclical indicators deteriorate during the next few weeks, there will be likely more votes for QE in September.

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BBH: USD/CAD will keep declining

The greenback gained nearly 6.5% versus Canadian dollar after it hit the 4-year minimum in the 0.9400 area at the end of June and tested on August 9 the levels above the parity for the time since February. Then, however, US dollar weakened to the 0.9830 zone erasing about a third of its advance.

Analysts at Brown Brothers Harriman claim that the pair USD/CAD may decline more. In their view, in the coming days US dollar may fall to 0.9700 and 0.9640 versus its Canadian counterpart.

The specialists note that Canadian dollar strengthened due to the revival of the equity markets, in particular, US S&P 500 (CAD’s one-month correlation coefficient with the benchmark American stocks index reached 0.89). In addition, the price of the crude oil, Canada’s largest export, has also risen supporting the nation’s currency (one-month correlation coefficient is at 0.45).

Strategists at MF Global advise investors to watch loonie on Friday: Canada’s CPI release and the Bank of Canada Governor’s Mark Carney’s and the Finance Minister Jim Flaherty’s speeches on the euro zone’s debt crisis and the US budget deficit will likely make the trade more volatile. Analysts at Royal Bank of Canada believe that the officials will sound more cautious than they did in the middle of July.

BOTMUFJ: comments on EUR/USD

The single currency went down versus the greenback from yesterday’s maximum at 1.4518 to the levels in the 1.4400 area.

Analysts at Bank of Tokyo-Mitsubishi UFJ believe that EUR/USD may fall to Wednesday's minimum at 1.4320. The specialists advised investors watch US economic indicators due at 4:30 and 6:00 pm (GMT+4).

RBC: comments on USD/JPY

Analysts at RBC Capital Markets note that despite the fact that the market’s risk sentiment has worsened the greenback has managed to stay within its recent trading range above 76.40 yen.

The pair USD/JPY has found support due to the information that Japanese Ministry of Finance and the Bank of Japan agreed to join their efforts and to work as one in order to fight yen’s strength.

The specialists note that investors are now cautious of interventions. However, if US dollar doesn’t show significant advance during the next 1-2 days, the market may lose confidence in the intervention pledges and USD/JPY will go to the record minimum at 76.22 yen.

BBH, Commerzbank: comments on EUR/CHF and USD/CHF

Analysts at BBH think that all the talk about intervention will keep EUR/CHF between 1.12 and 1.15. Economists at ZKB note that the resistance for euro lies at 1.1555. If the single currency breaks above this level, it will manage to rise to 1.1665, while if it drops below 1.1350 would make it slide to 1.1165.

Citi, Commerzbank, BBH: GBP analysis

EUR/GBP

The single currency declined from the levels around 0.8800 to the 0.8700 zone. Technical analysts at Commerzbank note that support for EUR/GBP lies at 0.8668/44 (August minimum). The slide below this area will bring euro down to the 55-week MA at 0.8612 and to the 4-year uptrend line at 0.8556. If the pair climbs above 0.8883/86 (late July maximum and current August peaks) it will be able to stabilize and get chance to rise to 0.8977/0.9000.

Currency strategists at Citi believe that EUR/GBP may move only a bit down on the fears about the euro zone’s debt crisis as the pound may suffers as well because UK banks have a sizable 14% GDP exposure to weak euro-zone countries, surpassing that of Germany and France, while that the euro zone remains the UK's largest trading partner and exports are seen as a preferred way out of the crisis in the UK.

GBP/USD

Analysts at Brown Brothers Harriman believe that British pound is overbought versus the greenback. In their view, GBP/USD may consolidate between 1.6480 and 1.6600.

According to Citi, the pair will keep getting support from the fiscal austerity in the UK, though the further deterioration of the economic growth will likely put sterling under negative pressure.

Morgan Stanley: US growth forecast reduced

Analysts at Morgan Stanley reduced their forecast global economic growth in 2011 from 4.2% to 3.9% and in 2012 – from 4.5% to 3.8%.

As the main reason for the downside revision the specialists cited the debt burdens of developed nations.

According to the bank, the policymakers didn’t do enough to contain the euro zone’s debt crisis, while the business and consumer confidence weakened due to the German economic slowdown and the looming threat of the recession in the United States. In addition, the situation is complicated by the fact that many governments have to conduct austerity measures.

The bank diminished prediction for G10 nations from 1.9% to 1.5% this year and from 2.4% to 1.5% in 2012.

Fiscal tightening will have a negative impact on the demand in the Western world that, in its turn, will affect Chinese economy. Morgan Stanley cut the projections for China’s growth from 9% to 8.7% (in 2012), while Deutsche Bank lowered the forecast from 9.1% to 8.9% (in 2011).

Pimco: Greece has to dafault to save Spain and Italy

Economists at Pacific Investment Management Co., the world’s largest bond fund manager, believe that the European policymakers should allow Greece, Ireland and Portugal default making sure that Italy and Spain will be able to avoid this fate.

The specialists note that while the region’s authorities are reluctant to admit the necessity of such desperate step, the situation keeps deteriorating.

According to Pimco, Germany, France, the International Monetary Fund and the European Central Bank have to come up with a huge bailout package available to the entire euro zone, except for Greece, Ireland and Portugal, thus letting these indebted peripheral nations default and making Italy and Spain safe.

As French President Nicolas Sarkozy and German Chancellor Angela Merkel rejected at their summit on Tuesday, August 16, the idea of creating the common euro zone bonds and the expansion of the 440 billion-euro ($633 billion) rescue fund, Pimco thinks that the most likely scenario will be that the ECB will keep supporting the problem nations, while it itself will be bailed out by Germany.

MIG Bank: bullish view on GBP/USD

The pair GBP/USD climbed from August 11 minimum at $1.6110 to yesterday’s maximum at $1.6591. Technical analysts at MIG Bank believe that although today sterling has pulled back to the $1.6475 area, the outlook for British currency remains positive.

The specialists think that when pound once again overcomes the $1.6476/78 zone, it will gain enough strength to rise to $1.6747. In their view, support for GBP/USD lies at $1.6111.

It’s also necessary to note that pound has risen above the long-term trend-line resistance (watch the weekly chart).

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Commerzbank: USD/JPY will test the record minimum

The greenback keeps failing to jump above 77.00 yen. US currency remains in the dangerous closeness to the record minimum at 76.22 hit on March 16 that’s regarded at the key support level.

Technical analysts at Commerzbank believe that USD/JPY will retest this mark today. The specialists say that if the pair goes below there, it will drop to the psychological support at 75.00 and the support line of the downtrend from 2009 to 2011 at 74.23.

According to the bank, resistance for US dollar is found at 78.04 (August 1 maximum), 78.45 (July 13 minimum) and 79.16/69 (55-day MA, May and June minimums).

Japan urged G7 for more coordination

Japan called on Group of Seven nations to work together to counter market turmoil. It happened after equities fell in Asia hitting consumer and business confidence and worsening the global economic outlook that is already undermined by the debt problems of the developed nations. The main reason of fear is the risk that US economic recovery has stumbled.

The nation’s Finance Minister Yoshihiko Noda underlined that during the next few weeks G7 has to cooperate very closely. Noda reminded that on August 8 the group’s finance ministers and central bank governors pledged to do all that is needed to ensure financial stability and growth.

According to Bloomberg, Japanese Topix index fell today to 2-year minimum; China’s Shanghai Composite Index went down by 1.4%; Hong Kong’s Hang Seng index dropped by 2.4%; South Korea’s Kospi index lost about 6%.

The last time G7 nations acted together was in March when they performed joint intervention to calm down volatile yen moves after the nation’s March earthquake.

RBC: euro zone nations lack cooperation

Analysts at RBC Capital Markets note that the euro area faces serious political risks.

The specialists note that while European nations are supposed to show strong cooperation and coordination, the latest debates about the Greece’s second bailout indicate the opposite.

The matter is that Finland that was reluctant of supporting indebted peripheral countries forced Greece to agree to put up collateral in exchange for a bailout loan. This made other nations – Austria, Slovenia, Slovakia and the Netherlands – demand the same from Greece.

As a result, Greece will have to spend scarce money on collateral rather than on getting its house in order, while the process of July deal’s implementation stalled. There’s the risk now that other countries who do not receive collateral may not vote in favor of the loan bailout casting doubts on the survival of the currency bloc.

Morgan Stanley increased yen forecasts

Japanese currency is still very strong staying in the area of 76.40 yen per dollar.

Analysts at Morgan Stanley argue that by the end of the year yen will climb even higher and rise to the record maximum versus its US counterpart. In their view, the actions of the nation’s monetary authorities won’t manage to change yen’s uptrend.

The specialists revised down their forecasts for the pair USD/JPY from 81 to 74 yen and for and EUR/JPY from 110 to 101 yen. According to the bank, yen remains extremely overvalued relative in the longer term.

Citigroup reduced US GDP forecast

Analysts at Citigroup lowered US economic growth forecast from 1.7% to 1.6% in 2011 and from 2.7% to 2.15% in 2012. The estimates for the S&P 500 Index’s earnings per share were reduced from $98 to $97 this year and from $105 to $101 next year.

The analysts claim that the main reason to cut the outlook for American GDP growth rate was the potential inability of political parties to agree on reducing the budget deficit as well as the fiscal tightening. Citigroup warns that if there’s no agreement, both tax increases and spending cuts larger than expected would be automatically triggered, so that very sharp tightening steps would occur in 2013 and could be sensed in financial market expectations during 2012.

Yesterday there was a bunch of negative news in the United States: S&P 500 lost 4.5%, Philadelphia manufacturing PMI dropped to the minimal level since 2009, unemployment claims and consumer prices rose, while existing home sales decreased.

Citigroup, however, doesn’t speak about recession. According to the bank, the US is going through weak recovery that won’t be able to gain full force.

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BBH and UBS regard QE3 as unlikely

Analysts at Brown Brothers Harriman believe that the although investors’ sentiment has worsened during the last several weeks, the markets will get disappointed as the Fed, in their view, won’t announce the third round of quantitative easing in the current circumstances. According to the specialists, the markets will remain in the risk-off mode and the demand for safe haven currencies will continue being high.

Strategists at UBS also don’t expect the QE3. The bank thinks that the Fed will try to reassure investors by outlining the central additional monetary policy tools against the nation’s economic weakness without committing to use them. As a result, that might disappoint dollar bears.

The Federal Reserve’s Chairman Ben Bernanke will speak today at 6:00 pm (GMT+4) in Jackson Hole, Wyoming.

Capital Economics: USD/JPY forecast

Currency strategists at Capital Economics still think that he greenback will be able to rise to 85.00 versus Japanese yen by the end of 2011. Such forecast is based on the assumption that the Bank of Japan will continue easing its monetary policy and that Japan will become less attractive as a refuge.

The specialists underline that if the Federal Reserve doesn’t start new round of QE, while the BOJ continues expanding its asset purchase program that will be sufficient to drive yen down. In addition, investors may start worrying about the economic and fiscal position of Japan itself.

Yesterday Moody’s Investors Service reduced Japan’s credit rating by one step to Aa3 – not very surprising event taking into account the fact that Japanese monetary authorities have made no efforts to reduce the nation’s dent.

It’s necessary to note, however, that if the Swiss Central Bank will do more easing measures to weaken franc, demand for yen may rise, says Capital Economics. In this case the pair USD/JPY may drop to 70 yen and even lower.

Bernanke's won’t signal more QE

The majority of experts think that the Federal Reserve’s chairman Ben Bernanke won’t announce the resumption of the quantitative easing program. The main arguments against more QE are increasing inflation and the fact that the US is currently in no recession.

It’s widely thought that Bernanke will talk about the options for further stimulus and clarify how much the Fed’s reduction in its outlook this month stems from long-term obstacles to growth.

The economists point out that it’s necessary to realize that the current situation is different from what was seen a year ago when QE2 was launched. The core CPI index that doesn’t include volatile food and energy prices added 1.8% during a year through July, while during the 12 months up to July 2010 it gained only 0.9%. The S&P 500 Index is still above 12% of the on the eve of Bernanke’s speech last year.

Bernanke will speak tomorrow at 6:00 pm (GMT+4) in Jackson Hole, Wyoming. His speech is entitled “Near- and Long-Term Prospects for the US Economy”.

Standard Chartered cut euro area's GDP growth forecast

Analysts at Standard Chartered lowered euro zone’s economic growth forecast from 2% to 1.8% in 2011 and from 2.2% to 1.5% in 2012.

Among the reason of the downward revision of their projections the specialists named weak GDP growth in the region’s core economies and worsening European consumer and business sentiment. In their view, these factors have aggravated the situation that has already been quite complicated. The serious obstacles come from the fiscal and monetary tightening, weaker global growth and continued weak bank lending.

At the same time, the strategists note that the 2Q GDP numbers may be exaggerated to the downside, while the burden of higher commodity prices and Japan's supply-chain disruptions might no longer affect growth in the third quarter.

J.P.Morgan recommends avoiding loonie

Currency strategists at J.P.Morgan claim that once one is bullish on oil, all he needs is to choose which currencies of oil-producing nations to trade.

The specialists warn that it’s necessary to be very cautious with Canadian dollar as its dynamics is strongly correlated with the moves of S&P 500 Index. So does Mexico's peso and Russian ruble.

As a result, the best choice for such traders is Norwegian krone.

UBS: forecast for USD/JPY

Analysts at UBS claim that Japanese monetary authorities have to wait until the Federal Reserve’s intentions about the QE become clear before conducting any forex interventions.

In their view, if the Fed doesn’t signal additional QE, there’s no need to step in the currency market. Otherwise, it may be necessary to wait until US dollar drops lower where it would be easier to make a big push.

The specialists left their 1-month forecast for USD/JPY at 77 yen.

Feldstein on weak US dollar

Martin Feldstein, well-known economics professor in Harvard University, thinks that weak dollar is a really positive factor for US economy as it’s encouraging the nation’s exports and increase domestic demand for the goods produced in America as the import prices rise.

Moreover, another positive moment is that the declining dollar isn’t increasing the national debt. In addition, the greenback’s slump didn’t propel the pace of CPI growth.

It’s necessary to note, however, that although Feldstein forecasts further declines in dollar’s rate, he says that he isn’t calling for the currency’s depreciation. The thing is that declining dollar affects personal incomes as the households to pay more for imported items.

The economist warns that the Fed is running out of monetary tools to stimulate the US economy. Feldstein says that another round of asset purchases accelerate dollar’s fall.

According to the data from Bloomberg, the greenback has lost 6.3% this year being the worst performer among the 10 major currencies. USD contracted by 49% since the record maximum in 1985. American exports have climbed 16% this year through June compared with a year ago. The nation’s annual economic growth slowed down from 3.9% at the beginning of 2010 to 1.3% in the second quarter of 2011.

Commerzbank: GBP/USD technical levels

British pound didn’t manage to get yesterday above resistance in the $1.6539/47 area and pulled down below the 50% Fibonacci retracement level of the decline from April to July at $1.6370.

Technical analysts at Commerzbank believe that GBP/USD is poised down to July 21 maximum at $1.6330. If the pair breaks even lower than this level, it will drop to the channel support and the 50% Fibonacci retracement at $1.6264 and 55-day MA at $1.6224.

The specialists claim that if sterling closes today above the 3-month maximum at $1.6617 reached last week, it will once again get chance to climb to $1.6687/1.6745 (200-week MA and April maximum).

Wells Fargo: Friday release of US GDP

US second quarter GDP is released for the second time on Friday at 4:30 pm (GMT+4). Consensus forecast is that the initial reading will be revised down from of 1.3% to 1.1%.

Analysts at Wells Fargo point out that since the last publication of the Q2 growth figures some new data has been released.

On the one hand, inventories and net exports were weaker than the government’s initial estimates, so their contribution to GDP will be revised down. On the other hand, the negative effect will likely be offset upward revision in the construction and consumer spending.

Roubini: comments on US labor market data

According to the data released today, initial jobless claims in US rose to 417,000 during the week ended on August 20 from 412,000 a week ago, while the economists were looking forward to the decline to 403,000.

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, says that Non-Farm Payrolls may be in August zero or even negative, while in July the number of jobs in the United States rose by 117,000. The NFP data is releases on Friday, September 2, at 4:30 pm (GMT+4).

Citigroup: world’s economic growth forecast reduced

Analysts at Citigroup reduced its global economic growth forecast from 3.4% to 3.1% in 2011 and from 3.7% to 3.2% in 2012.

The specialists think that the growth of the developed nations will likely remain sluggish at least until the end of 2012, while the unemployment will keep rising. The situation is aggravated by the abrupt tightening in financial conditions and doubts over scope for monetary and fiscal stimulus needed to help the economies rebound. At the same time, the major economies aren’t, in their view, in the treat of recession.

The United States, the euro area, Japan, and the United Kingdom are expected to go through a long period of extremely low interest rates.

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