*Euro Will Resume Decline to $1.20, Barclays, UBS Say* May 10 (Bloomberg) -- Investors should use a rally in the euro to make fresh bets the currency will decline toward $1.20 within three months, according to Barclays Capital, the world’s third-largest foreign-exchange trader.
The advance in the euro this week will be “temporary” as policy in the region is becoming “very unfavorable,” said UBS AG, the second-largest currency trader. The euro strengthened today after European policy makers announced an unprecedented loan package worth nearly $1 trillion and unveiled a program of bond purchases. “We remain euro bears,” David Forrester, a currency economist at Barclays Capital in Singapore, wrote in a note to clients. The agreement means “the ECB will have to play a larger role in terms of keeping monetary policy loose for longer in order to help euro area countries to grow out of their fiscal problems.” The euro advanced 1.8 percent to $1.2983 as of 7:37 a.m. in London from $1.2755 on May 7 in New York. The currency tumbled 4.1 percent last week, the biggest drop since the five days to Oct. 24, 2008. The euro last traded at $1.20 in March 2006. The European Central Bank said in a statement it will buy government and private bonds “to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy.” The bank said the moves won’t affect monetary policy and the resulting liquidity will be reabsorbed. ‘Negative for Euro’ “To access the new facilities, countries would need to agree to fiscal consolidation measures,” Forrester wrote. “This tight fiscal/easy monetary policy mix is likely to be negative for euro.” Analysts have cut forecasts for where the euro will trade by June every month this year on speculation the region’s expansion will slow as nations from Greece to Portugal are forced to curb spending. The currency will trade at $1.33 in the second quarter, according to the median prediction. The European package may drive a “temporary rally” in the euro toward $1.35 before the currency resumes its decline, said Mansoor Mohi-uddin, Singapore-based global head of currency strategy at UBS. “The euro will definitely hit what we call its long-term fair value at $1.20 and it may easily overshoot that if difficulties in Europe persist,” Mohi-uddin said. “The policy mix in Europe is becoming very unfavorable to the currency.” Treasury Purchases The dollar slid as much as 3.6 percent on March 18 after the Federal Reserve said it would buy as much as $300 billion in Treasuries, joining the Bank of England and Japan’s central bank in a campaign of so-called quantitative easing. “Medium-term we’d like to the sell euro against the dollar and against sterling as well, primarily because it looks like the BOE and Fed have finished QE, while the ECB is now embarking on a form of quantitative easing,” Mohi-uddin said. Greece’s parliament on May 6 approved austerity measures demanded by the European Union and International Monetary Fund as a condition to secure a 110 billion-euro bailout that may deepen the nation’s yearlong recession. Portugal is lowering its 2010 budget-deficit target to 7.3 percent from 8.3 percent of gross domestic product, Prime Minister Jose Socrates said May 8 in comments broadcast on RTP1 television. Spain has pledged to reduce the ratio to within the EU limit of 3 percent of GDP in 2013. At 14.3 percent of gross domestic product, Ireland had the euro region’s largest deficit last year followed by Greece at 13.6 percent and then Spain with 11.2 percent. That compares with an EU target of 3 percent. -- Best Regards, Jay Shah, FRM "Expect The Unexpected" Blog: http://fuzylogix.blogspot.com/ -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
