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Currency strategists at UBS AG believe that the advance of the European currency versus the greenback may be short-lived. The specialists note that there’s a new wave of concerns about euro zone’s debt problems. As a result, they expect euro to lower to $1.25/30 during the next 3-6 months.

UBS analysts are bearish on the pair EUR/USD. According to them, the stronger euro becomes and the more it climbs above $1.40, the bigger is the negative impact on the region’s economic growth. The long-term fair value of the single currency is at $1.20, claims UBS. Even if the outlook for the peripheral European nations improves and they will be thought to be able to generate sufficient tax revenues to pay back their debts, EUR’s gains will decrease.

The yield spread between 10-year Irish bonds and German bunds of the same maturity climbed last week by 80 basis points as the Ireland’s government struggles to convince investors taht it won’t need financial help.



Chart. Daily EUR/USD

The pair GBP/USD is declining from its maximum in the 1.6300 area and the weekly trend line resistance reached so far.

Technical analysts at Mizuho Corporate Bank expect that if all goes well there pound will set interim minimum in the 1.6000 zone. According to them, the moving averages will help and the Chinkou Span and of the Ichimoku Cloud will get some bullish momentum from October’s candles.

The specialists advise investors to attempt longs at 1.6100 stopping well below 1.6000. First target is at 1.6300, while the eventual one lies at 1.6500.



Chart. H4 GBP/USD

Technical analysts at Commerzbank claim that the single currency is likely to have capped in the 1.4300 area trading versus the greenback as the pair EUR/USD has lost more than 400 pips so far and broke down through the support line of the near-term upside channel. The upside momentum for euro is ruined and it’s possible to observe major divergence of the daily RSI.

The specialists believe that euro is now poised to support in the 1.3734/1.3690 zone. The next support will be found at 1.3365/35 (38.2% Fibonacci retracement and August peak).

Even if the European currency manages to recover, it won’t be able to overcome 1.3940/1.4085 levels, notes Commerzbank.



Chart. H4 EUR/USD

China's State Administration of Foreign Exchange announced today new financial market regulations that are aimed to reduce the inflows of hot money. The measures include strict management of quotas for the use of short-term foreign debt by financial firms and strong oversight of fund repatriation by Chinese companies listed overseas, and of inbound investment by offshore investors.

Analysts at Bank of Tokyo-Mitsubishi UFJ claim that if money flows from overseas decrease, Chinese share and asset prices will weaken and the pace of the country’s economic growth will decline.

The market reacted on such news with investors becoming more risk-averse making investors sell shares and bought the safe-haven yen in the wake of the announcements.

Some short-term-focused investors may try to execute automated stop-loss selling orders between yen range later in the day based on the view that the US economy may remain weak over the coming months. If these orders are triggered, the greenback may fall to 80.00 yen.



Chart. H1 USD/JPY

Currency strategists at UBS AG advise investors to sell the single currency versus Swiss franc at 1.355 as they expect the pair EUR/CHF to weaken to 1.29.

Earlier the specialists recommended entering the trade at 1.3870. The recommendations changed as the renewed concerns about the peripheral euro area’s countries weighted on euro and made investors choose franc as a safe haven currency.



Chart. H4 EUR/CHF

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Analysts at Danske bank note that US dollar and Swiss franc benefit from the pessimistic sentiment that enveloped financial markets. The specialists don’t think, however, that investor’s mood will remain bad as the Federal Reserve’s easing policy encourages the demand for riskier assets. In their view, it’s necessary to hedge dollar income at current levels.

Danske strategists claim that the Bank of England may revise downwards its CPI and GDP forecast for 2011 while revising the 2010 numbers slightly higher. That may weigh on pound which was strengthening so far.



Chart. H1 EUR/USD

Technical analysts at Mizuho Corporate Bank note that the European currency is bouncing for a third time from 38% Fibonacci retracement at 111.75. This time the jump was made with a small “hammer” candle.

The specialists believe that the pair EUR/JPY will find support at the top of the daily Ichimoku Cloud. According to them, euro will be gradually appreciating to rise a bit higher over the coming month. The bank strategists also draw investors’ attention to the fact that the Chinkou Span might have to struggle through candles for another month.

As a result, Mizuho recommends buying at 112.85/112.35 and stopping below 111.50. The pair EUR/JPY is thought to advance to 114.00 and then to 115.40/115.68.



Chart. H4 EUR/JPY

The pair EUR/USD declined yesterday as the successful Greek bond auction was able to weaken concerns about euro area’s debt problems only temporary. The demand for the Greek bonds helped euro regain its positions lost at the beginning of Tuesday trade when investors were selling the European currency as the cost of insuring some peripheral European countries’ debt against default surged to the historical maximums.

As there’s a great tightness in the fiscal and budget system of the region, the level 1.40 for the pair EUR/USD is too high at the moment, claims JPMorgan. The bank specialists expect that the single currency will fall to 1.30 by the end of 2010.



Chart. H1 EUR/USD

The single currency declined versus the greenback by nearly 600 pips falling from the Thursday’s maximum at 1.4281 to the target 1.3715/3690 zone.

Technical analysts at Commerzbank are looking forward to recovery on euro crosses today. According to them, support in the 1.3715/3690 area (Fibonacci retracement, October minimum) will be able to hold the initial test while the daily RSI which continues to break down.

There’s the risk that the pair EUR/USD will drop to 1.3335/65 (38.2% Fibonacci retracement and August peak) as long as it stays below 1.3937/1.4080.



Chart. H4 EUR/USD