Bank Recommendations

Deutsche Bank

EUR USD (1.2935) Euro-bullishness among short-term traders has been a theme over the whole of last week. But this view did not really pay off as, despite Friday’s late rebound, the single-currency lost ground over the period. The biggest damage came on Thursday after the BOE rate hike lured some into believing that the ECB would be more hawkish than it was. Thus, long positions may have been pruned and, in view of the forthcoming US long weekend, not rebuilt. At least, the Euro was able to regain its composure rather quickly following the publication of better-than-expected US retail sales on Friday, which on its own suggests that there were not too many more engagements to be squeezed out. This morning, however, the bullish pre-disposition of day-traders does not seem to have been dented at all. They still, refer to more hawkish statements from the Slovenian central bank governor, the latest, highly vocal addition to the ECB board. Presumably, one extra hawk on the Governing Council has to lift the average hawkishness up a notch. There is also a growing conviction, now that the prospect of a Fed cut has been priced out, that the best of the dollar rally is behind us. Thus, one has to reckon with further dip-buying efforts by day-traders and for the market’s search for bullish news to continue. Our current objective is unchanged at 1.2650. The risk limit to this strategy, which was already tightened on Friday, stands at 1.2985.

USD JPY (120.20) The surprise rate move by the BOE is popularly seen as ‘trendsetter’ for other central banks. An extrapolation to the ECB was already made on Thursday. But, even though it proved to be unjustified, this hasn’t prevented market commentators from making hawkish noises about the PBOC, the Fed and, in the light of this week’s rate setting meeting, also about the BOJ. Higher bank lending and better machinery orders are the things that are supposed to tip the Bank’s hand. None of this discussion had too much effect on prices on Friday. The dollar remained comfortably above our downside risk-limit at 119.90 (the upper border of the former range, within which a critical point at 118.70 must also be noted). Our objective remains unchanged at 123.00 therefore. The first overhead supply point comes in at 120.85.

EUR JPY (155.50) Despite good Japanese data and rising expectations of a BOJ rate hike, the cross continued to gain ground on Friday. Our opinion remains neutral near-term, as we observe good nearby supply at 156.30 and at 157.10. To the downside, 154.70 and 153.20 are the points to watch.

GBP USD (1.9595) The Pound is still recouping its early-January losses. Obviously, the
Bank of England's surprise rate hike has provoked a good deal of extra hawkishness in the market. This is at least partly justified by the need to recalibrate the Bank’s sensitivity to inflationary data. However, between 1.9675 and 1.9420, we see Cable as being in a neutral position. The former marks the bullish trigger. Intermediate resistance stands at 1.9620.

AUD USD (0.7850) After the release of new inflation data this morning, the A$ violated our risk limit (at 0.7845) and must be treated as neutral now. Resistances are at 0.7875 and at 0.7910. Meanwhile, the support situation has improved a little. To the downside, we reckon with demand at 0.7810 and 0.7775 (critical for 0.7600).

SEB MERCHANT BANKING

EUR/USD:"The old topside trend line in the May/November range held as last line of support on Friday. The move higher has so far a corrective touch to it and needs to accelerate through the mid-$1.29s and later also seriously challenge $1.3015 to get the Euro off the hook."

GBP/USD: "Unlike euro/dollar, moves higher carry impulse and buyers' initiative. Local rising support sits at the already established $1.9550 reference. With no near-term divergence yet visible, micro-term tools allow $1.97, before getting stretched."

USD/JPY: "The market...have failed to immediately violate the 121 yen handle, but the move off the highs looks corrective and one would expect fresh buying on top of the October 119.90 high, and more of the same around 119.60. Speculative yen shorts are building, but as long as it is rewarding it is not a threat."

UBS TECHNICAL ANALYSIS TEAM

USD/CHF: "Remains bullish having cleared the 61.8 percent retracement of the 1.2771 to 1.1879 francs decline at 1.2430. The outlook remains constructive with scope for 1.2538, Nov 17 2006 high 1.2583, the Nov. 6 2006 high. Initial support lies at 1.2400."

EUR/CHF: "Remains constructive following the bounce off last Monday's 1.6059 francs low. Penetration of the 1.6174 trend high would open the door toward the Jan 1999 high at 1.6222."

EUR/JPY: "Recovery from 153.66 yen has stalled thus far at 156.35, a break above this level would undermine our preferred view for an eventual drop below 153.66."

EUR/GBP: "Remains weaker following rate related sell-off last week. The cross has now broken out of a multi-year triangle and breached 66.10 pence low from June 23, 2005, heading lower towards 65.42, the November 2004 low. Initial resistance is around 66.69, the Oct. 31 2006 low."