fallenDC

GBP/USD: is the demand back?

Demand for sterling grows regardless of the increased risk aversion on the currency markets: GBP/USD strengthens on Monday after declining last week for five consecutive days.

The cross has already overcome its Friday’s closing price and reached $1.6172 level. However, only a strong break above $1.6200 resistance will reverse the bearish trend.

On Tuesday watch out for UK retail sales and housing prices data releases.

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Analysts: outlook for AUD/USD

The Australian dollar opened the week on a downside amid concern election results in France and Greece will deepen the euro zone’s crisis. However, throughout the day positive news from Australia improved the market sentiment.

FX Prime: There are major concerns about the euro. What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.

Europe’s economic and political mayhem is may influence the economies, regarded as safe havens: policymakers may cut interest rates to weaken the currencies.

Societe Generale: In a weakening global environment, countries that can cut rates will do so and their currencies can fall. Europe is an economy with a currency that isn’t expensive, with not much scope or appetite for cuts.

Westpac Banking: We’ve got what may well prove to be the next wave of instability from Europe. There’s a clear voter rejection of austerity evident. We’d expect the Aussie and the kiwi to remain under pressure.

Australia’s retail sales grew by 0.9% in March after a revised 0.3% gain in February. Number of new building approvals increased by 7.4% after an 8.8% decline in February, pointing that the housing market improved in March.

Standard Chartered: The data was actually very strong, so it’s more like it’s putting a floor on the Aussie weakness that we’re seeing. It’s difficult to see the Aussie bouncing in this environment where risk sentiment is pretty weak.

The AUD/USD pair is currently trading in the 1.0180 area. Analysts at ANZ expect the Aussie to trade at $1.07 by December versus the greenback. According to Bloomberg forecast, the currency will end 2012 at $1.04.

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JP Morgan: trading EUR/JPY

Analysts at J.P. Morgan Asset Management recommend selling EUR/JPY at current levels, setting a stop at 106.00 and a target of 102.50.

According to specialists, the Hollande’s victory was already priced in, while Greece will weigh on the euro. They underline that the market is unstable: any comments from Hollande after the election or something later in the week may influence the pair.

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Euro slides on political uncertainty

The common currency fell to a three-month low after France and Greece voted against pro-austerity politicians on Sunday.

As expected, Francois Hollande got 51.7% of the vote in the French presidential election held on Sunday against about 48.3% given for incumbent Nicolas Sarkozy. According to analysts, his victory may be interpreted more as an outcry against the austerity policy, pursued by Sarkozy, than the support of Hollande's own program.

Societe Generale: Mr. Hollande’s victory was largely expected, but it does act as a trigger to increase demand for the dollar.

Parliamentary elections in Greece increase bearish pressure on the euro: the debt crisis shaved the popularity of two main parties, attempting to eliminate budget deficit and to collaborate with EU. Centre-right New Democracy led with 19%, down from 33.5% in 2009. Left-wing coalition Syriza came surprisingly in second place with 16.7%, while centre-left PASOK stood in third place with 13.3%, down from 43.9% in the last elections.

UBS: If Greece chooses to resolve the crisis on its own, the EU may refuse credence and financial aid.

FX Prime: There are major concerns about the euro. What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.

EUR/USD dropped to $1.2954 early Sunday, but then bounced back to $1.3010. However, the key $1.3000 support, the lower bound of a side channel (exists since January), was broken.

Analysts at Nomura Holdings expect the pair to consolidate in the $1.26-1.28 area within a few weeks.

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French elections: pessimistic scenario

On Sunday, May 6, the French hold the second round of their presidential elections. French centre-right President Nicolas Sarkozy is widely expected to lose to his socialist rival Francois Hollande, possibly becoming the first one-term French president in over 30 years.

Financial markets seem to underestimate the danger for the common currency coming from the program, proposed by François Hollande. The Socialist party candidate insists on the re-examination of the euro zone’s austerity policy, pursued by Nicolas Sarkozy in consort with German Chancellor Angela Merkel. According to Hollande, in case of victory he will aim for the revision of the “fiscal pact”, signed in March, and focus on the region’s growth.

Some analysts believe the strict austerity measures supported the indebted periphery countries and prevented the euro zone’s collapse. Others, however, argue that austerity only hinders growthand rest responsibility on the incumbent Europe’s leaders.

Francois Hollande wants to lead the European Central Bank to enlarge money printing programs. He has campaigned for an issue of the common European euro bonds, something that Germany has always opposed. Socialist Hollande seems to set himself up as Merkel’s political antipode, acting on behalf of the oppressed European nations. The question is whether this is nothing more than a pre-election rhetoric or his real political intentions?

The disaccord between the euro-zone’s key leaders during a complicated phase of the region’s history may weaken the common currency against its other counterparts. Spain and Italy may be the first victims of the political shift. Furthermore, yields on French bonds may also rocket, expanding the budget deficit. In such case scenario we can see the downgrade of the country by the rating agencies and the escalation of the domestic, regional and global debt crisis.

On Sunday eyes are on another important political event - elections in Greece are threatening to split the parliament and to hinder the well co-ordinated work of the government during the severe crisis. The economic risks and the unstability in the country are still high despite the fact that S&P has raised the Greece's credit rating recently.

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Goldman Sachs: UK vs. Spain

According to analysts at Goldman Sachs, Britain’s and Spain’s economies have a lot in common. Does it mean that their chances to resolve the crisis successfully are equal? Not really. Specialists expect the UK to “muddle through” while Spain will have to deal with the “long grind”.

Analysts point the countries faced similar problems due to the crisis: debt to GDP doubled, real GDP has not returned to its 2008 levels, the bursting of a property bubble, current account deficits and huge budget deficits.

However, Goldman Sachs’ report shows that their means and resources to come out of the crisis are different. Firstly, own currency and own monetary policy gives a significant advantage for the UK. The Bank of England is free to loosen monetary policy and to lower rates, while Spain is limited by euro zone’s monetary policy, equalizing economic interests of 17 different countries. Secondly, UK labor market is much more flexible than Spanish.

Moreover, situation in the housing market is also different in UK and Spain. Construction in Spain weighs much more than in UK: in Spain it reached close to 20% of GDP, meaning that millions of workers will have to be relocated to the other sectors, putting an additional pressure on the labor market. Furthermore, buildings under construction account to 6% of GDP in 2012 (in UK – 3%). Finally, in Spain a huge percent of properties remains vacant.

Dollar grows despite low NFP

The greenback strengthens versus its major counterparts on the back of U.S. labor market data reports.

The U.S. economy created 115K new jobs in April, missing expectations at +170K and slightly down from March +120K . However, the unemployment rate surprisingly fell to 8.1% in April from 8.2%.

Standard Chartered: It’s a weaker report overall. It’s not weak enough to make the market convinced that quantitative easing is coming soon. There’s not yet enough confidence of that, but it’s starting to raise a few more concerns.

BNP Paribas: The labor market is gradually improving, but it’s still weak. The data is not reassuring for the Fed, though it’s not catastrophic either.

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GBP/USD down throughout the week

The British pound declined 0.6% against the dollar this week after a five-day downward movement. The decline followed by two weeks of steady growth.

This week a bunch of negative data was released in Britain. The Halifax house price index in April dropped 2.4%, demonstrating the largest monthly decline since September 2010 (vs. forecasted 0.4% decline and a 2.2% growth in March). Manufacturing and services PMI declined in April, but still indicate the industry expansion (50.5 and 53.3 respectively), while construction PMI edged up to 55.8.

According to analysts at Charmer Charts, GBP/USD still remains under pressure with $1.6140 as a nearby objective.The upward correction is contained by $1.6220.

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ECB press conference: highlights

The European Central Bank’s meeting, held on Thursday, was one of the most expected events of the week for the currency market.

The ECB left the benchmark rate at a record 1% low. Some market marticipants, however, expected the rate cuts after ECB President Mario Draghi last week said the bank was changing the growth and inflation outlook.

According to Draghi, the economic activity stabilized at low levels in Q1 2012. The inflation in 2012 is likely to exceed the target 2% level due to commodities price and indirect taxes growth. Downside risks are still strong, but the ECB forecasts a slow economic rebound in 2012.

ECB President has partially dispelled investor’s hopes on a third round of the LTROs: according to him, the positive effect of the second LTRO is yet to come. Mario Draghi said the operations supported the financial sector to avoid a credit crunch and strongly improved the funding conditions for the banks.

Nomura: The ECB will wait to see how its lending to banks will feed into the real economy. Economic conditions need to deteriorate significantly in the weeks ahead before the ECB will consider loosening monetary policy further at the June meeting.

Commerzbank: There are significant downside risks to the ECB’s growth outlook. Draghi indirectly hinted at next month’s ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us.

Berenberg: The pain threshold of the ECB for more policy action is high and has not been reached. Deteriorating survey data may be revisited at the next meeting, leaving the door for policy action at the June meeting open very slightly.

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Photo: Getty images

AUD/USD drops further on RBA statement

The Australian dollar keeps weakening against its major counterparts because of the investor’s bets on further rate cuts increased.

According to the RBA Monetary Policy Statement, released on Friday, the RBA sees average growth of 3% in 2012, down from a February estimate of 3.5%. Consumer prices will rise 2.5% in the year to December, from a previous prediction of 3%. Underlying inflation is predicted to be at 2.25% from a previous 2.7%, the central bank said.

U.S. non-farm payrolls data, eagerly awaited today (13:30 GMT), may influence on the cross strongly. Economists forecast the number of employed people to grow by 176K in April compared with 120K increase in March.

BMO Capital: If the NFP report comes stronger than expected (higher than 176K), go short on AUD/USD. Reserve Bank of Australia lowered the key interest rate this week and, given the problems of the Australia’s economy, may cut them further. On the contrary, positive NFP figures will make the Fed unlikely to loosen monetary policy.

AUD/USD declined 1.8% this week and is currently trading in the $1.0262 area. Resistance for the pair lies at 1.0300, 1.0395, 1.0420, 1.0450, 1.0475 (local maximum), while support – at 1.0245, 1.0225 (local minimum) and 1.0200.

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Markets on the watch for NFP

According to the recent ADP Employer Services report, the number of employed people grew by 119K workers in April (the smallest increase in the last seven months). The figures fell below the estimated 170K growth and 201K gain in March.

CMC Markets: The release suggested that the surprisingly weak March U.S. non-farm payrolls weren't a one-off stutter and that the U.S. recovery may be losing momentum.

Factory, manufacturing and construction sectors reduced the number of jobs in April; however, the reduction was slightly offset by the increase of services sector jobs.

On Friday (13:30 GMT) non-farm payrolls release is scheduled. Investors are scratching heads: whether or not the figures will come in line with forecasted 176K. In March employment changed by 120K jobs. Negative NFP report will definitely revive talks about the further monetary policy easing.

The ISM Manufacturing PMI came out better than expected on Tuesday (54.8 vs. consensus-forecast 53.0 and 53.4 in March). However, ADP report makes rapid economy rebound look challengeable: U.S. labor market is obviously far from recovery.

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ECB: austerity vs. growth

What fate awaits the common currency and the euro zone? In quest of the answers, markets expect the ECB meeting (Wednesday, 13:30 GMT) with impatience. Moreover, today Spain holds its first 3- and 5-year bond auction since S&P cut the countries credit rating BBB+ last week.

The ECB has added more than 1 trillion of cheap euros into the banking system and cut interest rates to a record low of 1.0% in December to stimulate growth. Some analysts believe that the ECB funding operations, launched in December and at the end of February, supported the indebted periphery countries and prevented a global credit crunch.

However, according to recent economic releases, including the PMI’s, eight euro zone countries are now in recession, while others are struggling to grow. The discontent with the austerity measures in the region grows, making the current European leaders extremely unpopular.

Market participants understand the euro zone’s economy requires a supporting stimulus, but analysts split over the terms and the instruments of the policy easing.

Danske Bank: Recent economic data is mixed, but not so weak that it will trigger a rate cut. The ECB remains in ‘wait and see’ mode as it assesses the impact of the two 3-year LTROs.

There is a speculation that the ECB policymakers are planning to replace the “fiscal compact”, signed in March, by a so-called “growth compact”. However, according to analysts at Danske Bank, the renewed focus on growth does not necessarily mean the rate cut in June.

Societe Generale: It seems too early for another wave of easing, but that is where the risks are skewed. The outcome is continued downward pressure on EUR/USD. We still expect it to break below $1.30.

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SocGen: trading ahead of ECB meeting

Analysts at Societe Generale recommend going short on the euro against the dollar, entering the trade at $1.3250, targeting at $1.2900 and with a stop at $1.3400.

According to analysts, the common currency may edge up, but than drop to the lowest level since January. However, French and German elections and the ECB meeting may weigh on the cross.

Specialists do not expect anything special from the today’s ECB meeting, but the market is ready for surprises this week after the RBA unexpectedly cut the key interest rate on Tuesday. Europe definitely needs to do something to stimulate the economic growth, but it’s difficult to say when and what measures be used.

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Kiwi falls on unemployment figures

The New Zealand dollar weakened on Thursday after a report showed today the unemployment rate in the country unexpectedly rose.

The unemployment in the first quarter overcame the consensus forecast 6.3% and reached 6.7% after 6.4% in Q4. However, number of employed people increased by 0.4% compared with a 0.2% increase in the prior quarter. According to economists, the jobless rate surge was caused by a significant increase in number of people looking for a work.

UBS: Today’s unemployment report may contribute to lowering the RBNZ inflation outlook and may create scope to ease monetary policy.

The next RBNZ meeting is scheduled on June 14. On the previous meeting the bank tried to push the kiwi lower, giving hints on possible dovish actions.

NZD/USD dropped to $0.8062 (200-day MA) today, breaking the $0.8080 support (38.2% retracement from a Dec.2011-Jan.2012 growth). Strong support for the pair lies at $0.7965 (50% retracement) and at $0.7845 (61.8% retracement).

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Revived debt woes weigh on the euro

On Wednesday, May 2, market sells the common currency after data showed euro zone manufacturing shrank and unemployment rose in Germany, adding to concern that the new wave of the debt crisis has come.

Europe’s Final Manufacturing PMI fell to a 34-month low of 45.9 in April from 47.7 in March (a reading below 50 indicates contraction).

The number of unemployed people in Germany grew by 19K in April to 2.87 million compared with 9K forecasted and a 13K contraction in March. Seasonally adjusted unemployment rate remained unchanged at 6.8%.

However, U.S. ADP non-farm employment release also surprised the market on a downside: actual 119K of 175K forecasted. The real NFP figures, eagerly awaited by the market, will be released on Friday (consensus 176K vs. previous 120K).

Many analysts expect Mario Draghi to give a hint at a further QE at the ECB Press Conference held tomorrow. The central bank will keep its benchmark interest rate at a record 1%, according to Bloomberg survey. Moreover, market expects Spain to sell 3- and 5-year notes tomorrow.

Westpac Banking Corp: Draghi may begin to hint that the outlook for the European economy is clearly beginning to deteriorate again. Within the next couple of months, the possibility of further rate cuts from the ECB is rising.

GFT Forex: We have very bad purchasing-manager indexes and the first sign that Germany is cracking. The gangrene has spread from the periphery to the core. If Draghi hints that there will be more easing to come, the euro may be vulnerable and fall to the $1.30 level.

EUR/USD dropped to $1.3120 (lowest since April 23) on Wednesday due to euro zone’s statistics, but then bounced back to $1.3156 on disappointing U.S. employment data.

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Commerzbank: technical comments on USD/CHF

Analysts at Commerzbank expect the USD/CHF to drop to the 0.9000 area, ahead of 0.8948 (200-day MA). In their view, the downside pressure on the cross may be eliminated only if it breaks through the key resistance, lying at 0.9191.

“Slightly longer term, we view the price action this year as a consolidation, but it is possible that this will extend to 0.8834/the 55 week ma prior to the resumption of the bull move”, analysts say.

Swiss PMI, released today, came out below expectations, pointing at the industry contraction (46.9 in April vs. consensus forecast 51.6 and 51.1 in March).

On Tuesday 08:45 GMT USD/CHF is trading at 0.9124.

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Aspen Trading: recommendations on AUD/USD

The Australian dollar fell against the greenback after Reserve Bank of Australia unexpectedly cut its main cash rate by 50 bps to 3.75% yesterday.

Analysts at Aspen Trading Group are convinced that the downward pressure on the AUD/USD is set to continue. In their view, the Australia’s economy may require more rate cuts on the back of problems in the housing sector and low inflation figures. The U.S. dollar, on the contrary, is strong on yesterday’s positive Manufacturing PMI report (54.8 vs. consensus-forecast 53.0 and 53.4 in March) and seems to have bright prospects.

Strategists recommend entering the trade at $1.0330 with a stop at $1.0500 and a target of $1.0000.

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U.S. Manufacturing PMI beats forecasts

The U.S. ISM Manufacturing PMI came out better than expected (54.8 vs. consensus-forecast 53.0 and 53.4 in March), pushing the greenback higher against its major counterparts. Positive PMI figures confirm the rebound of biggest economy in the world, lowering fears of the new policy easing required to stimulate the economy.

However, construction spending in March dell 0.1% vs. a 0.5% growth expected. Later today three FOMC members will deliver speeches; on Friday non-farm payroll figures will be next to offer investors the clues on the prospects of the U.S. economy.

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Analysts: outlook for USD/CAD

According to the Royal Bank of Canada, the greenback may reach an eight-month low versus a Canadian dollar (C$0.9788) after dropping to a fresh low for this year. The pair has already slid below the C$0.9842 level (previous 2012 low).

RBC Capital Markets: The decline has resolved a multi-month trading range to the downside, exposing the August 31, 2011 low. This development confirms that bearish sentiment still remains prevalent for the dollar versus the loonie.

However, this week the USD/CAD bounced back to C$0.9890 area after the unexpected contraction of nation’s GDP.

TD Securities: Yesterday’s disappointing GDP figures might pause any intention by the BoC of rising the overnight rates. The market is consolidating ahead of another push higher towards C$0.9950.

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Comments on EUR/USD

EUR/USD is going up ahead of U.S. data releases. Market is expected to follow these indicators after yesterday’s weaker than expected data placed the U.S. economy’s recovery in doubt. Any sign of weakening is likely to increase talk of further monetary easing by the Federal Reserve.

However, many analysts don’t expect the interest cuts hike in the nearest future.

Merrill Lynch Wealth Management: With the economy still growing above 2%, calls for further quantitative easing (QE) will likely fall on deaf ears, at least for now.

The prospects of the cross still remain unclear; however, in a longer period most analysts expect EUR/USD to decline. Europe’s problems seem to be endless – perhaps, Spain is not the last country to face the fiscal problems.

EUR/USD is trading in the $1.3270 area (the highest since April 3), despite the woes connected with the euro zone. If the cross manages to close above the $1.3270 level, a rally toward the $1.3368 may be unfolding. A close back below that trend line would strengthen resistance and suggest more range-trade ahead.

Resistance for the pair lies at 1.3281 (Upper Bollinger), $1.3283 (high Feb.29), $1.3368 (high Apr.3) and 1.3385 (high Mar.27), while support – at $1.3159 (21-day MA), $1.3157 (low Apr.27) and $1.3115 (100-day MA).

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U.S.: events to watch

The greenback weakens against its major peers before the U.S. ISM Manufacturing PMI release. According to Bloomberg survey, manufacturing in the U.S. probably expanded at a slower pace in April than a month earlier (consensus-forecast 53.0 vs. 53.4 in March).

A further economic expansion of the U.S. economy may require faster growth both in manufacturing and service industries. However, unfavorable conditions in the global economy sap demand on U.S. production.

UniCredit Group: Manufacturing is slowing down a little bit, but it did have a pretty good first quarter, partly because of the car industry. The U.S. economy really needs to see a stronger goods-producing sector this year.

The Fed’s dovish hints after the U.S. Q1 GDP below expectations raise speculations on the further policy easing. Later today three FOMC members will deliver speeches; construction spending in March may rise for the first time in three months (0.5% gain forecasted after a 1.1% drop in February). On Friday non-farm payroll figures will be next to offer investors the clues on the prospects of the U.S. economy.

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Analysts: how to trade EUR/GBP?

The oversold EUR/GBP strengthened to the 0.8170 area after U.K. Manufacturing PMI came out below expectations. The indicator dropped from 51.9 (revised from 52.1) in March to 50.5 (consensus of 51.5).

Analysts point to resistances for the cross at 0.8170, 0.8215 and 0.8265 (high March 17). On the downside, support lies at 0.8145, 0.8125 and 0.8100.

Commerzbank: EUR/GBP is likely to stay below the strong support 0.8220 (low Jan.9)

Strategists at Danske Bank recommend selling the cross at current levels for 0.8067 objective and with a stop at 0.8228.

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Cable drops on PMI data

According to the data released today, U.K. Manufacturing PMI declined in April to 50.5 compared with the consensus forecast 51.4.

Everyone who follows the issue remembers how March data positively surprised the markets with 51.9 reading (the index is above 50, so the industry expands). Economists explain the slowdown with a sharp decline in export demand. The easing of new orders from the US and Asia is worrying as a potential risk to continued growth, as these have helped to balance out weaker demand in recent months.

USD/GBP has slipped to the 1.6200 level after demonstrating an impressive growth as of late. The next support for the cable lies at 1.6153 (low Apr.27) and 1.6082 (low Apr.25). On the upside, a break above 1.6298 (Upper Bollinger) would bring 1.6304 (high Apr.30) and then 1.6335 (high Aug.31).

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Aussie falls on RBA rate cuts

The Australian dollar fell against its major counterparts after Reserve Bank of Australia unexpectedly cut its main cash rate by 50 bps to 3.75%. Market expected the bank to be less dovish and to lower rates by 25 bps to 4.0%.

According to bank officials, for the next two years the inflation will be lower than forecasted earlier but still within RBA's target range of 2-3%. The housing market remains subdued (Q1 House Price Index fell -1.1% vs. 0.4% decline forecasted).

AMP Capital Investors: A 25 bps cut would be meaningless, whereas a 50 bps move will lead to decent reduction in borrowing costs. It probably needs a couple more cuts going forward; we will probably see cash rates down to 3.25% by the year end.

RBC Caital Markets: It leaves the door open for further easing. Growth was obviously lower than they expected and their inflation forecast will be marked lower on Friday.

In a year-over-year comparison Australian RBA Commodity Index decreased 4.2% in April, following a 2.7% rise in March. Manufacturing PMI in China, Australia’s important trade partner, has disappointed investors after falling to 53.3 vs. 53.6 expected.

AUD/USD fell to $1.0312 on today’s negative data. However, some analysts still believe the AUD dip presents a buying opportunity. Support for the cross lies at 1.0300 (strong psychological support) and 1.0246 (low April 24) levels, while resistance - at 1.0346 (21-day MA), 1.0357 (200-day MA) and 1.0445 (100-day MA).

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USD/CAD up after GDP

The Canadian dollar drops against the greenback after the unexpected contraction of nation’s GDP, weakening the expectations for the interest rate hike from current 1.0%.

Canada’s gross domestic product shrank by 0.2% in February vs. 0.2% growth expected and 0.1% growth in January. Moreover, Raw Materials Price Index (RMPI) declined 1.6% vs. 0.4% forecasted largely because of mineral fuels. Industrial Product Price Index (IPPI) edged up 0.2% in March, led by higher prices for petroleum and coal products.

Bank of Canada Deputy Governor Timothy Lane said on Monday it may become appropriate to withdraw some of the considerable monetary policy stimulus the bank is providing. Lane’s words are echoing the recent remarks of the BoC Governor Mark Carney.

The USD/CAD pair strengthened to C$0.9871. Resistance lies at $0.9880 (high Apr.25), $0.9928 (21-day MA) and $1.0012 (high Apr.17), while support - at 0.9800 (low Apr.27), 0.9766 (low Sep.19) and 0.9755 (low Sep.1).

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