fallenDC

Westpac: trading AUD/NZD

Analysts at Westpac claim that one should wait until the pair AUD/NZD rises on the RBNZ rate-cut talk, and then sell the Australian dollar versus its New Zealand’s counterpart around 1.2870, targeting 1.2600 and stopping at 1.2960.

The Reserve Bank of New Zealand will be meeting Wednesday night. Westpac believes that the central bank won’t lower the borrowing costs, so trade on the market’s expectations seems like a good opportunity.

According to Westpac, the RBA will cut rates a couple more times, but the RBNZ will remain on hold for the rest of 2012.

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RBNZ is unlikely to cut rates

The Reserve Bank of New Zealand is likely to leave the official cash rate at 2.5% when it meets on Thursday, June 14. Despite the increased uncertainty in the euro zone and the slowdown of the global economic rebound, further rate cuts, according to the RBNZ Governor Alan Bollard, could cause a new credit boom.

The rate cut expectations declined sharply in recent weeks: after about 80% of probability a few weeks ago, these days only 20% of economists believe in the chance of a cut.

Specialists at JPMorgan expect a rate cut to happen in the next few months, because the CB needs more information on the global economy prospects to take the right decision.

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Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2400, $1.2440, $1.2445, $1.2455, $1.2465, $1.2500, $1.2550, $1.2570, $1.2650.

USD/JPY: 79.55;

USD/CHF: 0.9850;

AUD/USD: $0.9800, $0.9870, $0.9950;

EUR/GBP: 0.8030, 0.8050;

GBP/USD: $1.5500, $1.5600, $1.5685.

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EUR/USD: negative pressure’s again here

The single currency is consolidating versus the greenback above $1.2500, but below 23.6% Fibonacci retracement of its decline in May. Euro’s chances for rebound are limited ahead of Italian debt auctions (especially the sale of Italian debt maturing in 2015, 2019 and 2020 which will take place tomorrow) and Greek elections on Sunday.

Spain’s 10-year bond yields surged to 6.83% (the highest since 1997), after the nation became the fourth euro zone member to ask for an international bailout. On Tuesday Fitch ratings downgraded 18 Spanish banks and added that the country is likely to remain in recession until late 2013. Italian yields went up to 6.3% yesterday, the highest level since end of January.

The ECB and the European Commission propose to create a tight banking union that will supervise the biggest banks and provide a deposit guarantee scheme. German officials, however, oppose the quick establishment of the union. In their view, the current level of economic and financial integration isn’t high enough. Meanwhile, the IMF chief Cristine Lagarde underlined yesterday that the euro block has only 3 months left to solve its problems, otherwise it will become difficult to avoid a breakup. The market’s speculating that the issue with the banking union may be adressed at the G20 meeting on June 18-19.

Bank of Tokyo-Mitsubishi UFJ: “Euro is going to drift around $1.25 before the weekend. It’s also possible that even on Monday we may still know very little about who’ll be in government in Greece. That's why we have to brace ourselves for more uncertainty ahead.”

Commerzbank: bearish pressure on EUR/USD will decline only above $1.2672.

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Wednesday, June 13: economy and currencies

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Risk sentiment is affected by lack of details in a loan agreement to help Spain recapitalize its banking sector and concerns that the bailout will aggravate the country’s huge public debts. Italian yields went up to 6.3% yesterday, the highest level since end of January. Spanish borrowing costs rose to 15-year maximum of 6.83%. EUR/USD is trading below 23.6% Fibonacci retracement of its decline in May.

Demand for safe havens strengthened after Fitch Ratings predicted Spain will miss budget-deficit targets. Moreover, the agency downgraded 18 Spanish banks yesterday. US dollar strengthened versus its major peers. USD/JPY remains seated in the 79.10/80 area, above Kijun-sen at the daily Ichimoku chart.

Aussie should have gained on comments of the RBA Governor Glenn Stevens who said that the strength of the nation’s currency benefits consumers and though “a number of sectors are really struggling with the exchange rate where it is, we shouldn’t wish too quickly for a low exchange rate.” However, AUD followed euro stalling its progress against the greenback, unable to overcome the parity level.

Events to watch today:

Euro zone: Industrial production in the region is forecasted to drop by 0.9% in April after a 0.3% decline in March. Germany holds a 10-year bond auction. Italy holds a T-bill auction.

U.S.: Retail sales are expected to decrease by 0.1% while core retail sales (excluding automobiles) – to increase by the same percent. Producer price index may go down by 0.6% in May. The April disappointing results, when a 0.2% decline was recorded, reinforce the worries about the further monetary policy easing. Business inventories may increase by 0.4% April. Later in the day a 10-year bond auction will be held.

Commerzbank: euro’s recovery may be over

Technical analysts at Commerzbank claim that euro’s correction versus the greenback may be over as EUR/USD didn’t manage to overcome resistance at $1.2672 (38.2% Fibonacci retracement of May decline). In addition, the specialists spotted divergence on the H4 RSI chart. As a result, the bank recommends selling the single currency. As the same time, the analysts don’t completely rule out the possibility of euro’s advance to $1.2786 (50% retracement) and even $1.2825 (May 21 maximum) if EUR/USD overcomes resistance and rises above June maximums. On the downside, below $1.2435 (June 8 minimum) euro will be vulnerable for a decline to $1.2288 (2012 minimum) and then to $1.2058 and $1.2000.

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Chart. H4 EUR/USD

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2450, $1.2540, $1.2625;

USD/JPY: 78.00, 79.00, 79.05, 79.25, 79.30, 80.00;

EUR/JPY: 99.80;

AUD/USD: $0.9700, $0.9770, $0.9950, $1.0000;

EUR/GBP 0.8050.

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June 12: economy and currencies

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EUR/USD began today’s trading day edging higher. However, the pair’s staying below the strong psychological resistance of $1.2500. On Monday the common currency has sharply declined when the initial optimism caused by the Spain’s bailout request began dissolving as investors realized that the region’s crisis is far from over. Italy’s 10-year bond yields reached 6.03% on yesterday’s auction, while Spain’s borrowing costs have already overcome the 6.50% threshold. Riskier currencies such as Australian and New Zealand’s dollar recovered from yesterday minimums, but the trade promised to be quite choppy this week, so be careful.

The Japanese yen declines against its major peers after the International Monetary fund said that the currency is overvalued and the Bank of Japan should ease the monetary policy further. In other words, the IMF justifies the potential BoJ intervention at forex market. The next BoJ policy meeting is scheduled on Friday, June 15. Note that Japanese tertiary industry activity went down by 0.3% in April (consensus-forecast was +0.4%). USD/JPY consolidated above Kijun-sen at the daily Ichimoku chart in the 79.10/80 area.

Events to watch today:

Euro zone: Greek T-bill auction.

Great Britain: A bunch of important figures is to be released: manufacturing and industrial production data and NIESR GDP estimate. According to economists, manufacturing production increased by 0.1% in April compared with a 0.9% growth in March.

U.S.: Federal budget balance is expected to show $107.2 billion deficit in May after $59.1 billion surplus in April.

RBS: GBP/USD may break higher

British pound keeps rebounding versus the greenback from 4-1/2 month-minimum at $1.5268 hit on June 1. Today sterling opened with a gap higher following euro and other riskier currencies on relief that Spain will get external funding for its troubled banks.

Analysts at RBS note that the reliable support at $1.5300, which had been tested for several times since 2010, has managed to hold the bears. As a result, the specialists see the chance of sterling’s return to the $1.6000/50 area. In their view, the outlook for the British currency for the rest of the months has improved and GBP/USD has more chances to break higher than EUR/USD.

Resistance: $1.5602 (March 12 minimum, June 7 maximum), $1.5664 (38.2% retracement of the decline in May), $1.5786 (50% retracement).

Support: $1.5514 (23.6% retracement of the decline in May), $1.5300, $1.5233 (2012 minimum).

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Chart. Daily GBP/USD

Spanish bailout: mixed feelings

Euro’s reaction at the announcement that Spain will get 100 billion euro to refinance its banks was impressive: the pair EUR/USD opened 130 pips above Friday’s close. However, there are many things which still remain unclear.

Analysts at Danske Bank note that, firstly, it’s not clear who will be providing the funds – the EFSF or ESM? Secondly, the big question is how the rating agencies will react on the news taking into account the fact that the bailout means another 10% of GDP in debt – European nations will lend money not to Spain's banking system directly, but to Spain. Spain’s Prime Minister Mariano Rajoy called the money “a credit line” and not a “bailout”, but that doesn’t seem to reflect the reality. Although this debt will be cheaper than borrowing at the market, it will still increase the nation’s debt burden.

What’s even more important to ask: will 100 billion euro be enough? Although the IMF claimed $50 billion could be an appropriate amount, JPMorgan Chase analysts recently estimated that Spain could need as much as 350 billion euro. Another unknown is how much time Spain will be given to pay back the cash and what kind of conditions could be applied. If Spain gets better terms than other bailed out euro zone countries, this may lead to tensions, particularly with Ireland. Anyway, looks like we’ll get a lot of details in the next few weeks. In addition, don’t forget that there’s the risk that investors’ attention will turn elsewhere, for example, to Italy, whose banks are also in trouble and whose own borrowing costs are rising.

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Cartton by Paresh Nath, The Khaleej Times, UAE

CFTC traders positioning data

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that during the week to June 5 speculators’ positioning changed the following way:

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EUR: the net short position rose by 11K contracts to the new record of 214.4K.

GBP: the net speculative position switched from long to short of 3K contracts for the first time since the end of April.

JPY: the net speculative position switched from short to long of 12.1K contracts for the first time since the end of February.

CHF: the net short position rose from 30.6K to 33.6K contracts – not much of a change.

CAD: the net long position decreased by almost 20K to just less than 15K, the smallest since the end of February.

AUD: the net short position increased from 35.5K to 51.2K contracts. Until recently, the largest net short position since at least 1993 was recorded in 2006 just below 32K contracts – the bears are multiplying.

USD: traders betting on the greenback’s advance held a net $40.06 billion in wagers, up 5% from the previous week. That is similarly a record since at least 2007.

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.

Euro area in June: meetings & bond auctions

Just to be ready – here’s the info on the euro area’s coming debt auctions and the meetings’ agenda:

- Tuesday, June 12: Greek T-bill auction. Dutch 20-year government bond auction.

- Wednesday, June 13: Italian T-bill auction. German bond auction. German parliament will decide whether it will vote on ESM/fiscal pact before end June.

- Thursday, June 14: Italian bond auction.

- Sunday, June 17: Second round of French parliamentary elections. Greek national elections.

- Monday, June 18: G20 Leaders summit in Los Cabos, Mexico.

- Tuesday, June 19: Spanish T-bill auction, Greek T-bill auction [tentative]. G20 leaders summit.

- Wednesday, June 20: German bond auction.

- Thursday, June 21: Spanish and French bond auction. Euro-zone finance ministers meeting.

- Friday, June 22: European Union finance ministers meeting. German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy meet in Rome.

- Monday, June 25: Belgian bond auction.

- Tuesday, June 26: Spanish T-bill auction, Italian bond auction. Dutch 10-year government bond auction.

- Wednesday, June 27: Italian T-bill auction. Allotment of ECB three-month long-term refinancing operation.

- Thursday, June 28: Italian bond auction. EU heads of state summit

- Friday, June 29: EU heads of state summit.

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Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2500, $1.2510, $1.2650;

USD/JPY: 78.00, 78.10, 78.15, 78.25, 78.60, 79.00, 79.15, 80.00;

EUR/JPY: 100.00;

AUD/JPY: 78.60.

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EUR: Spain’s bailout and French elections

There’s much to discuss after an eventful weekend – and it’s all about Europe.

Firstly, after all the talk Spain’s bailout deal has finally been decided: European governments agreed to provide the nation 100 billion euro ($126 billion) in order to save its banking system. Spanish Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize banks without external help. Spain is the fourth euro zone member after Greece, Ireland and Portugal to get financial help. EUR/USD opened the week with a gap up at 2-week maximum in $1.2640 area. The single currency gained as the markets saw uncertainty diminish and the European policymakers willing to act.

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Mariano Rajoy. Photo ITAR-TASS

Secondly, he first round of French parliamentary elections took place on Sunday. President François Hollande’s Socialist Party and its allies are leading in the race for the 577-seat lower house. The final results will be clear only after another round of voting next Sunday as few candidates got more than the 50% of the vote required to win their seats outright. Hollande needs a majority in the legislature to ensure a Socialist prime minister and to more easily pass legislation to keep his campaign promises (such as tax increases on the wealthy and corporations). The upper house, the Senate, already passed to the Socialist control.

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François Hollande. Photo Laurent Cipriani / AP

Euro’s current recovery is viewed as correction. EUR/USD has already retraced about 38.3% of its May decline. The scope for the rebound is to $1.2785 (50% retracement). CFTC reports that euro shorts reached last week another record maximum, so these positions may be unwound – positive factor for euro. As for the factors acting against EUR, one should name this week’s economic data (may confirm that the regions is craving for ECB’s monetary stimulus) and Greek elections on June 17.

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Chart. Daily EUR/USD

EUR/GBP: technical comments

The EUR/GBP cross is trading sideways since early May. Most analysts expect the pair to continue a downward movement: the ECB is going to lower rates in the forthcoming months, while the sterling will benefit as a safe haven within Europe. For instance, strategists at BNP Paribas expect the pair to reach 0.7899 pounds.

According to analysts at RBS, however, in a short term the EUR/GBP cross is not likely to leave the 0.7951/0.8220 range, because there is a number of important levels inside.

Resistance:

0.8140 (Aug.2010 minimum);

0.8220 (former support).

Support:

0.8066 (June 2010 minimum);

0.7951(2012 minimum);

0.7695 (2010 minimum).

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Chart. Daily EUR/GBP

EUR/USD: bears never left

The EUR/USD cross resumed the bearish movement: euro failed to overcome the $1.2626 resistance (January minimum).

Many analysts believe that yesterday the cross reached its peak before the Greek elections (June 17, Sunday). This week Greek question was a wallflower and the focus moved to Spain, but, obviously, the closer the vote is, the higher is the pressure. However, there are several timid beams of light in Europe: German Chancellor Angela Merkel seems to be ready to act to ensure stability in the euro region, while Spain managed to raise 2 billion euro on a bond auction.

Analysts at Commerzbank believe the EUR/USD cross could continue the upward movement after the current pullback. In their view, the next targets for the pair are $1.2786 and $1.2825. However, the downside is still more likely: support lies at $1.2058 (200-month MA) and $1.2000 (psychological support).

Also note that market players will trade on a strong correlation of EUR/JPY and AUD/JPY with stock markets (uncertainty weighs on stock markets – yen strengthens).

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Chart. Daily EUR/USD

Lloyds, RBS: GBP/USD is range bound

British pound fell from 1-week maximum versus the greenback at $1.5600 to the levels in the $1.5440/00 area as the markets are in the risk-off mode today.

Risk sentiment worsened as the Federal Reserve gave no indication of further monetary stimulus tand the Bank of England refrained from increasing asset purchases.

UK PPI Input fell in May by 2.5% (m/m) after a 1.4% drop in April and below market consensus of a 1.3% decline. Тote that sharper-than-expected drop in input prices could give the BOE more leeway to ease policy in coming months.

As for the near-term, many analysts expect GBP/USD to stay range bound: Lloyds and RBS speak about the levels between $1.5250 and $1.5600. RBS recommends buying and selling sterling on the extreme of this range reassessing any fresh opportunities next week. Within the range mentioned above the specialists distinguish levels: $1.5299 (number of minimums since the end of 2010), $1.5504 (38.2% retracement of the advance from January to February) and $1.5514 (23.6% retracement of the May-June range).

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Chart. Daily GBP/USD

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2400, $1.2430, $1.2500, $1.2550, $1.2600, $1.2650;

GBP/USD: $1.5500;

EUR/GBP: 0.8055;

USD/JPY: 79.00;

AUD/CAD: 1.0250;

AUD/USD: $0.9975.

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SocGen: sell AUD/USD on China

Analysts at Societe Generale recommend selling Australian dollar versus its US counterpart at $0.9975 stopping at $1.0175 and targeting $0.9500.

The specialist claim that the fact that China has cut interest rates means that the nation’s authorities are concerned about growth: “a simple interest rate cut would have been good news, but China also adjusted deposit rates and lending rates implying that we won't see a big investment stimulus like we did in 2008.”

The People's Bank of China (PBoC) cut official 1-year borrowing rate by 25 bps to 6.31% and 1-year deposit rate by a similar amount to 3.25%. The cut marked Beijing's biggest move to date to support growth.

The PBOC announced it was giving banks the freedom from June 8 to set deposit rates as high as 110% of the benchmark rate and offer rates on new loans for as little as 80% of official policy rates, an additional 10% points of leeway from the current 90% limit. Until now commercial banks have been barred from charging rates on deposits higher than the benchmark set by the central bank.

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Chart. Daily AUD/USD

UniCredit: 2012 currency outlook

UniCredit doesn't expect the single currency to show significant rebound versus the greenback anytime soon. In their view, EUR/USD has settled in the $1.2500/$1.2000 trading area and the potential recovery will remain limited and offer new selling opportunities.

The specialists think that the concerns about the Bank of Japan’s intervention will prevent more USD/JPY sales. The greenback’s strength will drive GBP/USD down to $1.5200/5000. As for the Swiss franc and commodity currencies (AUD, NZD, CAD), trading’s expected to remain quite volatile.

Here are the bank’s forecasts (submitted on June 1):

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Data from UniCredit

June 8: economic background

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The day has begun with a risk-off trade as potential gains on the unexpected Chinese interest rate cut quickly evaporated after the Fed’s Chairman Ben Bernanke didn’t signal further monetary stimulus yesterday.

On Thursday China cut its interest rates for the first time since 2008, attempting to defend the export-oriented economy from the euro zone’s turmoil. The move may mean that the economy is weaker than expected. Tomorrow watch for inflation report, investment and output figures –traders are now worried that the figures may be quite disappointing.

Asian stocks declined (MSCI Asia Pacific Index +1.3%), commodity currencies weakened. Japanese yen strengthened versus all of its main counterparts The Dollar Index rebounded from almost 1-week minimum.

Yesterday Japan’s Q1 GDP was revised up to +1.2% (q/q). USD/JPY declined today, though the pair retains weekly gain as the Bank of Japan’s expected to announce more easing next Friday (June 15). Analysts at Westpac think that the BOJ will be the first among the 2 central banks (the BOJ, the Fed) to ease policy, so this may provide support for the greenback.

Commodity prices and Chinese slowdown still have an impact on the Australia’s trade, but improvement could be on the way: Australia’s trade deficit declined from 1.28B Australian dollars in March to 0.20B in April. According to RBA Governor Glenn Stevens, the economic situation in the country is much better than in other economies. Stevens didn’t give any hints on the future monetary policy easing. Moreover, he underlined that the previous easing was not supposed to create speculative demand for Australian assets. AUD/USD is down in the $0.9850 zone after testing the parity yesterday.

The single currency eased down from $1.2625 (January minimum, June 7 maximum) to test the levels below $1.2500. German trade surplus exceeded the forecast of 13.3B euro posting 16.1B euro in April, up from 13.7B in March. The positive figures provided some support for EUR/USD, but not much as the debt woes are still hovering over the region.

There’s a bunch of important Canadian data (housing, employment and trade) as well as US trade balance released later today.

BoE left policy unchanged… for now

The Bank of England decided to leave its monetary policy unchanged: the benchmark rate remained at 0.5%, while the size of the asset purchase program was left at 325 billion pounds.

UK central bank was under serious pressure to do more stimulus as British economy has entered official recession and is affected by the European debt crisis. The nation’s GDP contracted by 0.3% in the first 3 months of the year. In addition, manufacturing activity plunged in May in the sharpest fall since November 2008. So, the market had reasons to expect more easing from the BoE.

At the same time, the story isn’t clearly over yet: there are a lot of events ahead which concern Europe, Britain’s main trading partner. The matter is about Greek elections and the decisions which the region’s authorities will have to make afterwards. So, as with the European Central Bank the focus turns to the next BoE meeting in July and analysts at ING Bank expect further stimulus.

British pound showed the second day of solid gains versus the greenback and retraced more than 50% of last week’s slump. GBP/USD rose from Friday’s minimum at $1.5233 to the levels in the $1.5670 area, above the previous weekly maximum of $1.5515.

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Chart. Daily GBP/USD

SNB increased currency reserves

According to the Swiss National Bank statement, the SNB’s foreign currency reserves reached a record high in May (303.8 billion Swiss francs from previous 237.6 billion francs).

The regulator attempts to defense the franc floor under the conditions of the uncertainty in the euro zone. It is necessary to note, that the 1.20 threshold protects the franc from excessive strength as a safe haven currency and supports the Swiss economy.

Analysts at Bank Sarasin underline that the SNB will be forced to intervene if the euro zone’s situation worsens. However, according to analysts at ING Group, for the moment there is no reason to believe that the floor could be broken even under higher pressure.

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SocGen, RBS: comments on EUR/GBP

Analysts at Societe Generale note that the single currency has made something like a U-turn 2 weeks ago as it rose from 0.7950 (May 16 minimum) to the levels in the 0.8100 area this week. The specialists point out, however, that EUR/GBP is facing resistance at 0.8130 (50-day MA). If the Bank of England doesn’t deliver monetary stimulus today, euro may get under renewed selling pressure. In addition, the bank underlines that the pair isn’t oversold now, while there will likely be more negative news from the euro area. As a result, SocGen regards bearish risks as quite high.

Strategists at RBS claim that EUR/GBP may get stuck in the 0.7950/0.8221 area. In their view, resistance for the pair lies at 0.8142 (May 3, June 5 maximums), 0.8192/97 (May 1 maximum) and 0.8222 (April 25 maximum), while support is found at 0.8063 (gap opening), 0.7950 (2012 minimum) and 0.7695 (2010 minimum).

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Chart. Daily EUR/GBP

EUR: how long will the strength last?

The EUR/USD cross bounced from its two-year low (June 1) and broke through the strong $1.25 resistance level. The pair is pushed up by the prospects of the additional QE in the US, the words of the ECB President Mario Draghi that the market underestimated the political decision of the EU to preserve the currency block and the results of the Spanish and French bond auctions.

Strategists at BMO forecast the EUR/USD to reach $1.2625 (Jan. low), while analysts at Nomura expect the pair to bounce to $1.2700. The nearest resistance for the pair lies at $1.2600 (psychological level) and $1.2690 (38.2% retracement of May 1-June 1 drop).

However, in long-term most analysts remain bearish on the prospects of the common currency. The euro is expected to decline against the greenback as the EU leaders struggle to resolve the crisis. Moreover, economists expect that Germany will finally agree on the Eurobonds issue in order to support the peripheral countries. In case European politicians fail to compromise, the market situation will definitely worsen: massive outflow of capital out of the region is expected. Draghi said the ECB will continue to supply euro zone banks with the liquidity they ask for in the refinancing operations at least until early 2013.

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Chart. Daily EUR/USD