fallenDC

NZD: technical picture

NZD/USD tested yesterday an important resistance of 0.8200 (2008 maximums, resistance line connecting 2011 and 2012 maximums). Yesterday’s daily candle looks very bearish.

NZD has support at 0.8100 (late June maximums), 0.8040 (August minimums) and 0.8000 (around here daily MAs intersect).

New Zealand released trade balance data: the nation’s trade surplus narrowed from 287M revised in June to 15M in July. Note, however, that with all the talk about potential easing from the major central banks, so it will very difficult for the bears to push the pair lower.

Analysts at NAB say: “As speculation regarding further quantitative easing from the Fed is renewed we see the NZD/USD finding eventual support and backing. Despite the volatility associate with the currency and the upcoming events, over the medium term we see the NZD/USD supported by relative growth and interest rate differentials, and maintain a year-end target of 0.8200.”

Commerzbank keeps insisting on the close coming downward reversal underlining that there’s resistance at 0.8223 (recent maximum) and 0.8260 (March resistance).

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Chart. Daily NZD/USD

There’s the scope for some consolidation in the short term. The situation at H4 doesn’t look bad, kiwi isn’t overbought.

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Chart. H4 NZD/USD

EUR/USD: news from the battlefield

EUR/USD is trading about 50 pips below 6-week maximum at $1.2589 reached yesterday.

Sumitomo Mitsui: “Various potential pitfalls for the euro are coming up, so people want to sell when it rises. They sell and then buy back, sell and then buy back. There has been a continuation of that. The moves that have taken place are nothing more than position unwinding. Such unwinding may persist in the near term given a recent accumulation of short euro positions.”

Commerzbank: EUR/USD has already practically reached the targets $1.2597 (78.6% Fib) and $1.2600 by printing a daily maximum around $1.2590. The medium term downtrend will eventually resume. We’ll understand that this is happening when euro drops below $1.2342 (Tuesday’s minimum). We’ll stop speaking about correction and will admit euro’s strengthening when the single currency overcomes resistance of $1.2705/48.

Rise above $1.2590 may trigger further advance of EUR/USD to $1.2626 (June 7 maximum) and $1.2668 (June 11 maximum). Decline below yesterday’s minimums at $1.2523 would confirm continuation of the bearish trend, towards next downward target at $1.2410.

Watch USA durable goods at 12:30 GMT.

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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, $1.2500, $1.2510, $1.2550;

GBP/USD: $1.5700;

USD/JPY: 78.50, 79.55. 79.75'

AUD/USD: $1.0290, $1.0300.

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August 24: forex news

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As it has become usual during the recent days EUR/USD was in a very narrow range during the Asian session. Yesterday EUR renewed 6-week maximum at $1.2589. Greek Prime Minister Samaras visits German Chancellor Angela Merkel in Berlin. On Thursday Merkel said that her country and France will coordinate on their approach to keep pressure on Greece to overhaul its economy.

JPY strengthened versus the majority of its counterparts this week as demand for safe havens increased due to declines in Asian stocks and weakening global economic data. The MSCI Asia Pacific Index of shares is down by 1.1%. S&P 500 slid by 0.8% in New York yesterday, while the Stoxx Europe 600 Index fell by 0.6%. USD/JPY is back down from Monday’s high of 79.65 to the levels below 78.60. BOJ Gov Shirakawa speaks today at 7:45 GMT.

AUD depreciated this week as RBA’s Stevens said today that he did not intervene to the currency market, but pointed out that Aussie was higher than he expected. Stevens also claimed that Australian mining boom has another year or 2 left before it peaks. AUD/USD is testing support at $1.0420.

UK Q2 revised GDP is due at 8:30 today. Analysts expect an upward revision from -0.7% to -0.5% q/q. GBP/USD is down from 3-month high of $1.5912 reached yesterday. Also pay attention to US core durable goods orders (12:30 GMT).

Have a nice Friday!

CIBC: outlook for forex majors

Analysts at CIBC World Markets note that during August there has been some cautious optimism with respect to the global growth outlook and notes this has prompted a rally in risk assets and currencies.

At the same time, CIBC thinks that the greenback may strengthen as the demand for its main alternatives – EUR and GBP – will be undermined by recessions in the euro area and in the UK. Moreover, any disappointing news about Chinese economic growth may increase pressure on commodity currencies and support USD as safe haven. American currency will be also helped by any delays of the Fed’s further QE. Such delays may happen as US economic performance has so far improved and US economy continues to growth at a moderate pace.

According to CIBC, both CAD and AUD are trading at unsustainable levels. The analysts expect CAD to fluctuate around parity versus USD in coming quarters: the catalysts for a further rally in the Canadian dollar are difficult to identify, as interest rates are unlikely to move higher and there is modest global demand for Canadian exports, though Canada retains top credit rating. AUD remains the most overvalued major currency, its strength doesn’t correspond Australian economic fundamentals.

As for EUR, CIBC think that it will be vulnerable until the ECB to show greater resolve and the euro region returns to growth. CIBC expects JPY to keep trading at the elevated levels. There is another round of global risk aversion before the end of this year CIBC sees scope for a reversal in US treasury-Japanese government bond spreads, so capping upside gains in the USD/JPY.

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Image from whitneycarter.wordpress.com

MIG Bank: EUR/GBP will decline

Analysts at MIG Bank claim that as long as EUR/GBP is trading below 0.7963 (August 6 maximum), its upward move will be regarded as correction. In their view, the pair will return to the old trading range between 0.6500 and 0.7000 within which it was trading in 2003-2007. The specialists recommend selling euro around 0.7960 targeting 0.7760/0.7400 (July minimums/2008 minimums).

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Weekly. EUR/GBP

USD/JPY: back below 200-day MA

USD/JPY dropped yesterday by more than 70 pips breaching 200- and 50-day MAs. The pair’s now trying to return above the previous resistance of 78.60 (the top of the sideways channel with existed in the first half of the month.

Credit Agricole: Since there is limited scope for the dollar to fall further (the risk of Japan’s intervention), dip-buying should keep the greenback in a 78.00/79.80 range over the next week.

Sumitomo Mitsui: “When the Fed eases its policy, the dollar could fall below 78 yen. But I don't expect the dollar to fall substantially below 78 yen before any actual easing by the Fed.”

Commerzbank: Medium term bullish view on USD/JPY as long as it’s staying above 77.90 (August 1 minimum). The target is 80.00 on the upside, 77.64 (June minimum) on the downside.

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Chart. Daily USD/JPY

The Fed: what's next? The bets

So, the Fed!

The minutes of the FOMC most recent meeting released yesterday showed many policy makers favor additional accommodative measures to be taken “fairly soon” to stimulate growth unless the US economic recovery strengthens. Such news made US dollar weaken versus the majority of its main counterparts.

The next FOMC meeting takes place on September 12-13. Also note that Fed's annual symposium at Jackson Hole will take place on August 30-September 1. The Fed keeps its benchmark rate near zero since December 2008 and pledged to do so until the end of 2014. The central bank has conducted 2 rounds of asset purchases totaling $2.3 trillion in 2008-2011.

BNP Paribas: “The minutes were quite dovish and are consistent with our economists’ view that QE3 is more likely than not in September.”

Wells Fargo: “They’re closer to doing QE3 than I would have guessed. It may not be September. It could be October.”

Capital Economics: “The probability of Fed action coming in mid-September now seems to be higher. One or two of us economists thought the slightly better data in recent weeks might have put the Fed off, but I wouldn’t have thought so reading these minutes.”

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Photo from fxtimes.com

Still, there are deep disagreements within the Fed on the costs and benefits of bond-buying programs. The minutes showed Fed officials decided not to act right away because they wanted to gather more data on the economy and evaluate how earlier measures were working. Since the Fed last met at the beginning of August, US economic data has improved pushing S&P 500 almost to a 4-year high, though the labor market remains a concern.

Mizuho: “The minutes were surprisingly dovish. With US easing expectations rekindled, the dollar could stay under pressure for a while, at least until Jackson Hole. The Fed will probably refrain from taking drastic easing action due to the upcoming US presidential elections... while keeping a vigilant stance against downside risks in the US economy.”

Credit Agricole: Another round of QE is “inconceivable” in the light of recent rises in commodities prices, signs of stability in the European debt crisis and recent improvement in U.S. economic indicators. Additional measures, if any, would be limited to those such as extending the current policy guidance of keeping short-term interest rates near zero at least through 2014.

GBP/USD: an impressive advance

On Thursday GBP/USD tested the levels above $1.5900 (61.8% Fibo retracement from the May decline). This week the pair demonstrates impressive growth, climbing more than two big figures since Monday, when it was trading below $1.5700.

Sterling was pushed up by easing hints from the US (dovish FOMC meeting minutes) and China (weaker HSBC PMI). Tomorrow we expect the release of the revised Q2 UK GDP. The market expects UK Q2 GDP to be revised upwards from -0.7% to -0.5% q/q.

After such advance British currency is clearly overbought (see the RSI at H4 chart), so some correction’s on its way. The general outlook for the pair will remain positive as long as it’s trading above 200-day MA at $1.5715. Once above $1.5930, the pair will be on its way to $1.6000.

From a technical point of view, next resistance for GBP/USD lies at $1.5930 (February 8 maximum), $1.6000 (March 27 maximum, psychological level). On a downside, next support lies at $1.5785 (50% retracement), $1.5750 (50-day MA), $1.5715 (200-day MA), $1.5660 and $1.5620.

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Chart. Daily GBP/USD

AUD/USD: technical picture

AUD/USD trades around $1.0500, on the upside for the fourth day in a row. On the H4 chart Aussie’s consolidating in the $1.0535/0420 band. The general uptrend since June is still intact.

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Chart. H4 AUD/USD

Although US dollar was weakened by the talks of more easing from the Fed, AUD/USD doesn’t hurry to renew the recent highs around $1.0600: there’s a strong resistance there coming from the line which connects 2011 and 2012 maximums. For now the pair still has some scope for the sideways moves. According to analysts at NAB, AUD/USD is likely to trade above $1.0500 in a near-term as the greenback will remain under pressure at least until Jackson Hole.

Note that there are plenty of resistance levels on the upside (see the chart). Once $1.0420 support is breached, we’d look for a decline to another critical level of $1.0280 (200-day MA). Strategists at RBC are bearish on AUD/USD despite the fact the pair performed well over the past year and expect the RBA to lower rates by 0.75% in the next 12 months – the action which would weaken Aussie.

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Chart. Daily AUD/USD

August 23: forex news

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On Wednesday the main market event was the release of the Fed meeting minutes. Many Fed policymakers think additional stimulus probably will be needed soon unless the economy shows signs of a rebound. On the back of this data EUR/USD reached a 6-week high at $1.2552. Today’s session may bring plenty of potentially negative data for the single currency: German final GDP, German and French PMIs and EU flash PMI (7:00-8:00 GMT). In the US initial jobs claims will be printed at 12:30 GMT and new home sales – at 14:00 GMT. A meeting between Merkel and Hollande scheduled for today could offer enough news to move the pair either way.

High-yielding currencies such as AUD and NZD also rocketed on Fed’s news, offsetting previous losses they suffered ahead of today’s PMI releases in Europe. However, there growth was limited after HSBC China PMI printed the lowest level of 2012 at 47.8, down from 49.3 in July. AUD/USD, therefore, reached $1.0544, but then slid to the levels around $1.0500. NZD/USD jumped to $0.8184 on easing prospects, but then slipped to the $0.8160 area. USD/CAD trades around 0.9890.

GBP/USD rose to $1.5907 after a three-day growth. The pair will be strongly influenced by the EU data. USD/JPY trades around 78.55 yen after a drop to 78.30 on the Fed (lowest since August 13).

EUR/JPY: technical update

EUR/JPY is rising since the end of July when it hit the minimal levels since 2000 around 94.10 yen. The pair has entered the descending daily Ichimoku Cloud for the first time since it broke below the cloud in early May. On the downside, the Cloud’s bottom will provide support for the single currency.

Euro’s currently testing the 98.65 level (61.8% Fibo retracement of the decline from June 21 maximum). If EUR/JPY gets higher, it will get chance to revisit 101.60 yen.

At the same time, EUR/JPY still remains within longer-term downtrend and at some point it’s likely to return to the 94.00 zone. Analysts at MIG Bank recommend looking for “signs of weakness closer to the resistance at 101.63 to initiate a short position”.

We concede a correction towards 98.00 (50% Fib. retracement and the lower boundary of the Ichimoku cloud). What’s more, on the H4 chart RSI indicator is close to 70.

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Chart. Daily EUR/JPY

TD Securities: FOMC minutes won’t say much

Analysts at TD Securities think that the FOMC meeting minutes won’t clarify in any way what are the Fed’s plans concerning monetary policy.

“For starters, if one is looking for signals, the Fed does not rely on the minutes to signal policy shifts. That is what speeches, testimonies, and other public venues are used for." At the same time, there may be some comments about other policy tools: "After all, that is the topic of the Jackson Hole speech and was clearly the topic at the August meeting”.

So, the specialists advise traders to temper expectations as the great revelation today is unlikely.

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Fed Chairman Ben Bernanke in command of the FOMC - centralbanking.com

Commerzbank: bears on NZD/USD

According to analysts at Commerzbank, NZD/USD might have ended a minor corrective move higher at $0.8145 (August 21 maximum) and is now declining towards $0.8037 (August minimum).

In their view, the uptrend channel support line, connecting June and July minimums, remains in focus. A break below would lead to $0.7808 (July minimum) and then to 0.7458 (June minimum). Resistance is seen at $0.8146 (August 21 maximum) and $0.8220 (August highs).

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Chart. Daily NZD/USD

GBP/USD broke above $1.5800

GBP/USD finally broke above the $1.5762/80 resistance area. Yesterday the pair didn’t manage to close above the $1.5800 level, but today reached $1.5816 and remains above the 50% Fib. retracement of a May decline.

If today’s US data releases (FOMC meeting minutes and existing home sales) will give any hint about QE3, GBP/USD is likely to close the day above $1.5800. If not, support is seen at $1.5745 (100-day MA), $1.5730 (upper boundary of the daily Ichimoku cloud), $1.5715 (200-day MA) and at $1.5700. On a weekly chart the pair entered the Ichimoku cloud, the upper boundary lies at $1.0600.

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Chart. Daily GBP/USD

EUR/USD: news from the battlefield

EUR/USD is consolidating after reaching the 7-week high at $1.2487 yesterday.

Commerzbank: The outlook for EUR/USD is bullish as long as it’s trading above Tuesday’s minimum at $1.2342. Euro may rise to $1.2500 and probably to $1.2600 before the medium term downtrend resumes its course. Medium term bearish outlook is while “the 1.2705/48 resistance area caps on a weekly New York closing basis”.

There is the talk of options barrier at $1.2500. Barrier option is a type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. Once the price gets to option barrier both buyers and sellers liven up making the trade more unpredictable. Support/resistance levels are shown on the chart.

BBH: “The euro has risen not on action but on expectations about what the ECB could do, but it remains to be seen if these expectations are followed up with action. We don't know how long these expectations can keep pushing up the euro, and in the meantime, it remains vulnerable to any bad news.”

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Chart. H4 EUR/USD

AUD/USD: slowed uptrend

On Wednesday AUD/USD touched $1.0430 and trades below the yesterday’s minimum. The pair broke below the strong support at $1.0435 as the BHP Billiton, Anglo-Australian multinational mining company, posted a 35% fall in H2 profits. AUD/USD remains close to the lower boundary of the upward channel, existing since June.

It’s interesting to note that this time the downward correction within the upward channel is flat in comparison to previous steep waves of correction and reminds of a “rounded top” pattern. In our view, a daily close below $1.0410 (August 17 minimum) will pave the ground for a further decline, potentially to $1.0290 (200-day MA). If Aussie breaches this support, this would be a strong bearish signal. On the upside strong resistance lies at $1.0475 (beginning of a May decline) and at $1.0500.

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Chart. Daily AUD/USD

Westpac: loonie may keep strengthening

Although some experts expect USD/CAD reverse upwards, analysts at Westpac have are bullish on loonie.

The specialists point out that Canadian economic data released so far is mixed: GDP increased in June, but so did the trade deficit and the July unemployment rate. Even so, the Bank of Canada has “maintained its hawkish rhetoric” and it’s “potential plus for the Canadian dollar.”

In addition, Westpac thinks that CAD was draw support from investor positioning. Net long loonie positions rose at the beginning of August, but they are “still only a third of the long positions in May,” so there are plenty of investors who could pile into the currency if they see signs that loonie strength is coming.

According to Westpac, if market conditions keep improving, “prospects for higher Canadian policy rates should support the loonie’s broad outperformance. Long-speculative positioning is relatively light, which should also be a positive for the currency.”

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Image from canada.com

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: $1.2300, $1.2450, $1.2460, $1.2500, $1.2525;

GBP/USD, $1.5620, $1.5785, $1.5800;

USD/JPY: 79.15, 79.50, 79.65;

AUD/USD: $1.0450, $1.0500;

EUR/GBP: 0.7780;

AUD/NZD: 1.3010.

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August 22: forex news

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Demand for the high-yielding currencies is low as the risk aversion increased. The Australian and New Zealand dollars weaken following the Asian stocks ahead of tomorrow PMI releases in Europe and China. Reports are predicted to show continued contraction in German and French manufacturing. The flash euro-area manufacturing PMI is to indicate contraction for a 13 consecutive month. A report on Chinese manufacturing from HSBC is also due. What’s more, AUD and NZD are under pressure ahead of the housing market data (14:00 GMT) and the Fed meeting minutes (18:00 GMT) as the expectations for QE3 are likely to drop.

AUD/USD slid to $1.0435 levels, while NZD/USD – below $0.8100. USD/CAD bounced back from an almost four-month low after touching 0.9840 yesterday.

EUR/USD put on the brakes after adding more than 100 pips on Tuesday. The pair’s trading a bit on the downside consolidating after reaching $1.2487 yesterday. Again there’s no major macroeconomic EUR-related data today. Germany will sell up to 5 billion euro in 2-year notes at 06:00 GMT. Yesterday’s Spanish auction was successful enough and the nation’s 10-year yields declined for the 10th day in a row to 6.2%. Also note that more volatility this week may come from the meeting of European leaders. Today Greek Prime Minister Antonis Samaras meets Jean-Claude Juncker, the head of the Euro Group.

GBP/USD has conquered new highs around $1.5800 yesterday. USD/JPY kept descending from more than a month maximum at 79.65 to the support of 200-day MA. USD/CHF dropped to August minimum of 0.9620.

Commerzbank: EUR has a good reason to weaken

Analysts at Commerzbank claim that the single currency is set to weaken. Here’s their reasoning.

According to the bank, the dynamics of EUR/USD used to be in reverse correlation with German credit default swap spreads*, seen as a proxy for German bunds’ safe-haven status. However, in the last months this relation “has totally collapsed”. The 5-year German CDS spread has dropped from above 1% in late June to little more than 0.5% today on safe-haven flows. If the previous inverse correlation had held, this should have been reflected in a firmer euro. However, the currency has slid from $1.26 at the end of June to $1.2450 today.

According to Commerzbank, that’s because a new driver has emerged – the ECB with its rate cut in early July. As a result, the bank concludes that the more aggressive and “unconventional” the ECB turns out to be on September 6, its next meeting, the more we have to fear that the negative effects might dominate: “So in the end, the euro is stuck between two risks: more political crisis-fighting activity, which will reduce German bunds’ safe-haven status and weaken EUR/USD this way; or more ECB action, which might be EUR-negative, too. We therefore remain bearish on EUR/USD and still expect an exchange rate level around $1.20 by the end of this year, and some level below $1.15 by the end of 2013.”

* CDS is insurance against default on a bond or bond-like security. The the price of the CDS reflects the market expectation that the issuer will default. The price of a credit default swap is referred to as its “spread”. For example, right now a Citigroup CDS has a spread of 255.5 bp, or 2.555%. That means that, to insure $100 of Citigroup debt, you have to pay $2.555 per year.

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Source: Bloomberg

Credit Suisse: bearish on EUR/GBP

According to specialists at Credit Suisse, EUR/GBP may drop to 0.7695 (October 2008 minimum), if it breaks below the support at 0.7755 (July minimum). Specialists remain bearish on the euro, even if prices remain in a tight range near-term.

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Chart. Weekly EUR/GBP

MIG Bank: trading USD/CAD

As we've expected, the pair USD/CAD is on its way down to 0.9800 as last week it breached support of 0.9900.

Analysts at MIG Bank claim that the pair is at the last stage of decline from 1.0447. In their view, the 0.9800 level represents strong support. The bank recommends setting buy limit at 0.9835 targeting 0.9970/1.0085/1.0232 and stopping at 0.9700.

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Chart. Daily USD/CAD

Commerzbank: comments on GBP/USD

According to Commerzbank analysts, GBP/USD growth remains limited by the $1.5762/80 resistance area. If the pair manages to break above these levels, a rise towards $1.5805 (April minimums) and $1.5904 (61.8% Fib. retracement of a May decline) will become possible.

However, as long as the daily close above the $1.5762/80 area is not made, a drop to $1.5575 (August 10 minimum) is on the cards. Next support lies at $1.5490 (August minimum).

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Chart. Daily GBP/USD

USD/JPY: technical levels

On Monday USD/JPY recoiled down from the 100-day MA at 79.60. At the moment the pair’s trading below this level, but still supported by the 200-day MA at 79.22.

Further support lies at 79.06 (5-day MA), 78.90 (50% Fibonacci retracement of the recent advance) and 78.60 (the top of the previous range), 78.30, 78.15. As long as support at 78.60 holds, we’d look for the chance to buy the pair.

Bank of America: “US dollar may be poised for more gains versus Japan’s currency if it breaks the top of the weekly Ichimoku Cloud at 80.55/60. A weekly close through here would reinstate the cyclical turn in trend view from USD/JPY bearish to bullish.”

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Chart. Daily USD/JPY