Yen To Reverse Rally Later In The Year As Economy Struggles. BOJ Maintains Low Rate Policy BOJ's quarterly Tanken survey of business June beat market expectations with the headline present condition DI for large manufacturers and non-manufacturers was +1 and -5, readings in March for both indices were -14. The readings also exceeded the consensus of -3 and -7 respectively. Forecasts for coming months were also robust. While the encouraging survey might have helped push Japanese yen higher, the major driver was clearly the sharp deterioration in risk appetite as worries over double dip reignited. Read more... Euro To Resume Weakness After Brief Rebound, ECB On Hold Until 2H11 The euro has rebounded broadly since early June despite continued concerns about sovereign crisis in the Eurozone and uncertainty about the banking system. In our opinion, the rebound has been driven by well-received auctions for peripheral European bonds and the fact that the ECB has not been required to purchase a large amount of bonds in the secondary market. At the same time, squaring of extended short euro positions has also helped the currency. These factors will only provide short-term gains and we expect the euro to weaken again soon, probably in July, as driven by catalysts such as Spanish and Italian government redemption. In the longer term, the euro's outlook will continue to be pressured by sovereign crisis woes, austerity measures to cut fiscal deficits as well as RMB appreciations. We revise down our EURUSD to 1.18 in 3Q10, 1.2 to 4Q10 and 1.22 to 2Q11. The abovementioned factors will also delay the ECB's original plan to gradually withdraw stimulus measures. It's unlikely for the central bank to raise interest rates until 2H11. Read more... |
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