ING Bank - "the reversal of the flight to quality flows into the short end of the German bond market has lifted rate spreads and EUR/USD. We are a little concerned that Eurozone policy makers could find themselves ‘asleep at the wheel’, and wake up to a EUR/USD trading substantially above 1.40. However, the ECB seems to recognise this risk and downward revisions to ECB staff inflation forecasts in March should keep Eurozone money markets and EUR strength in check. When adding in the risks of US fiscal cliff discussions, Italian elections and fiscal slippage in southern Europe, we still prefer a weaker EUR/USD later this year.
(...) We believe JPY weakness is now testing the patience of Washington – primarily because it takes the pressure off Asia ex-Japan (AXJ) to revalue. This runs counter to the core G7/G20 policy of the last decade, which had sought a stronger AXJ to re-balance the global economy. In fact, we have revised our USD/AXJ forecasts substantially higher this month, including those for USD/CNY. Even though we expect Japanese policy makers to soften their weak Yen rhetoric, we do not expect any change in the very expansive BoJ policy, and now look for USD/JPY to trade to 100 in 2H13."