Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

BarCap: ECB will looosen its monetary policy

 

Currency strategists at Barclays Capital believe that the European Central Bank will ease its monetary policy today through both conventional and unconventional steps.

 

In their view, the ECB has several options, such as offering additional long-term refinancing operations, including 6 or 12 months' maturity, continuing of Italian and Spanish debt purchases, resume the covered bond purchase program, widening the interest rate corridor and reducing the benchmark interest rate.

 

Barclays thinks that the central bank will employ all of the measures mentioned above. According to the specialists, the ECB will widen the interest rate corridor – the difference between deposit rate and refinancing rate – from 25 to 100 basis points and cut the borrowing costs from 1.50% to 1.25%.

 

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[fallenDC]

Reuters poll: expectations on USD/JPY

 

The poll conducted by Reuters among more than 60 banks and currency analysts showed that the specialists expect the pair USD/JPY to stay in the 77.00 area during the next 3 months, then rise to 78.00 yen in 6 months and to 80.00 in September 2012.

 

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[fallenDC]

Sakakibara: yen will strengthen versus euro and US dollar

 

The market thinks that Japan could intervene to boost EUR/JPY and support national exporters with Europe’s consent if it pledged to lend the amounts of euro bought in the process of intervention to the European Financial Stability Facility through buying EFSF bonds.

 

Eisuke Sakakibara, the former Japanese vice finance minister known as “Mr. Yen” for his ability to influence yen’s rate through both verbal and actual market interventions, believes that the United States and the euro area want to have weaker currencies in order to stimulate their economies.

 

Sakakibara says that Japanese economy undermined by the devastating earthquake in March is recovering while the American and European ones are under threat of recession. As a result, in his opinion, European authorities would criticize any Japanese currency-market intervention meant to encourage euro. Sakakibara points out that yen’s appreciation versus the single currency is based on the economic fundamentals, so any unilateral steps of Japanese monetary authorities will be useless as they change the situation only for a very short period of time.

 

According to the economist, the pair EUR/JPY that hit on Tuesday 10-year minimum at 100.74 yen will move down to the levels between 90 and 100 yen. As for the pair USD/JPY, Sakakibara expects it to drop below 75 yen and then below 70 yen in the coming weeks.

 

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[fallenDC]

The BoE increased asset purchases. Analysts’ comments

 

The Bank of England has surprisingly increased the amount of asset purchases by 75 billion to 275 billion pounds. The analysts burst out with comments on this point.

 

BNP Paribas: there will be more QE in the coming months.

 

Deutsche Bank: pound will drop to $1.50 and will stay under pressure until the Federal Reserve hints at QE3.

 

Commerzbank: the size of QE2 shows that the BoE is really concerned with the nation’s economic situation. The specialists say that sterling’ slump won’t be as big as it was when the first round was introduced. The bank doesn’t see any inflationary risks. Commerzbank recommends being short on GBP/USD and expecting EUR/GBP to strengthen to 0.88.

 

Morgan Stanley: bearish outlook for British currency as the market was expecting QE2 not earlier than in November. GBP/USD is on its way down to $1.5175/1.5125.

 

Capital Economics: the threat of recession in Britain is bigger than the one of inflation. The analysts doubt that the measure will manage to improve economic outlook.

 

Danske Bank: the increase in the amount of purchases it bigger that the bank projected. The pair EUR/GBP is on its way up to 0.8750.

 

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[fallenDC]

Commerzbank: franc’s strengthening versus the greenback

 

Swiss franc is declining versus its American counterpart on the talk that the Swiss National Bank may conduct more measures aimed at depreciation of the national currency.

 

The SNB reported that its currency reserves rose from 253.4 billion francs in August to 282.4 billion francs ($306 billion) at the end of September. Last month the central bank pegged franc to euro and pledged to buy unlimited amounts of foreign currencies in order to keep the pair EUR/CHF above $1.20. Many investors now think that the SNB may raise this threshold, notes Commerzbank.

 

It’s necessary to note that the interventions increase the money supply strengthening inflation pressure. Switzerland’s consumer prices added 0.3% in September on the monthly basis after declining by 0.3% in August. The annual CPI growth was 0.5% versus the forecast of 0.3% and 0.2% advance in August.

 

The pair USD/CHF rose from the record minimum at 0.7064 hit on August 9 to the levels above 0.9200. Resistance for the pair is situated at 0.9370 (March 2010 maximum) and 0.9400 (50% retracement of the decline from 2010 to 2011). Support levels are found at 0.9220 (daily minimum), 0.9185 (September 22 minimum) and 0.9145 (October 4 minimum).

 

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[fallenDC]

ECB announced the measures to support euro area banks

 

The European Central Bank announced new liquidity measures yesterday – 12- and 13-month loans in October and December, giving banks access to unlimited cash through January 2013, and the resumption of 40-billion euro covered bonds purchases aimed to encourage lending.

 

Strategists at UBS say that the measures should bolster the prospects of renewed net inflows to the euro zone. The specialists also point out that the ECB President Jean-Claude Trichet didn’t hint at a rate cut, so both the single currency and stocks will get support.

 

In addition, the European Commission is pushing for a coordinated capital injection into banks, while German chancellor Angela Merkel claimed that Germany would not hesitate to recapitalize banks. On Sunday, October 9, Merkel is meeting French President Nicolas Sarkozy. The process of EFSF bill ratification is continuing: there are only 2 member nations left – Slovakia and Malta – who still haven’t made the decision.

 

The pair EUR/USD rose from the 8-month minimum at $1.3145 hit on October 4 to the levels above $1.3400. Analysts at Brown Brothers Harriman believe that euro will be able to climb to $1.36/1.37, but then the demand for it weakens again and it will start falling again to end 2011 at $1.29.

 

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[fallenDC]

The market’s looking forward to NFP release

 

The main piece of data for today is the US September Non-Farm Payrolls figure released at 12:30 GMT.

 

Economists surveyed by Bloomberg News believe that the number of jobs increased last month by 55,000. The unemployment rate is expected to stay at 9.1% for the third month in a row. In August the number of employed remained unchanged versus the forecast of 68,000 increase.

 

The current situation of uncertainly about the global economic prospects and the concerns about European and US debt ruins American consumer and business confidence that, in its turn, affects spending and hiring. Analysts at Goldman Sachs estimate the chance of recession in the United States during the next year by 40%.

 

Specialists at TD Securities say that for the jobless rate to decline by 1 percentage point over a year payrolls should rise by 200,000 a month. During the 18-month recession that ended in June 2009 the nation’s economy lost 8.75 million jobs – only 1.9 million of them was recovered through August. US President Barack Obama proposed a $447-billion plan in September aimed to maintain growth and pushing down the unemployment rate next year.

 

As the market thinks that the number of jobs added last month in the US won’t be enough to curb unemployment, the mood is far from optimistic that supports demand for the greenback as the safe haven.

[fallenDC]

Reuters’ poll: GBP/JPY prospects

 

British pound declined versus Japanese yen from 2011 maximums in the 140.00 area to the levels below 117.00.

 

The survey conducted by Reuters among more than 60 banks and currency analysts shows that the specialists expect GBP/JPY to bottom out at the current levels and then start rising.

 

According to their median estimate, the pair will be gradually moving up during the next 12 months to trade 118.60 in a month and then reach 123.20 in 6 months and 128.6 in September 2012.

 

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[fallenDC]

RBS: Aussie may return to the parity versus the greenback

 

Currency strategists at RBS note that though commodity currencies have been weakening so far (Australian, New Zealand’s and Canadian dollars all lost 8-10% in the third quarter) the situation is likely to change.

 

The specialists who have developed “economic surprise index” believe that the markets’ sentiment in the fourth quarter is going to improve as the flood of the negative news will abate, even though the Europe will keep facing serious debt issues.

 

In their view, the worst for AUD, NZD and CAD might be over, though they don’t completely rule out the risk that these currencies retest their Q3 minimums.

 

Aussie seems to be especially attractive as Australia has the biggest interest rates that lure investors with yield and if the Reserve Bank of Australia doesn’t cut the borrowing costs, the nation’s currency would get additional driver.

 

According to RBS, the pair AUD/USD will return to the parity versus the greenback by the end of 2011. As for the single currency, the strategists see further depreciation, but don’t expect the currency union to collapse.

 

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[fallenDC]

Merkel and Sarkozy promised to recapitalize European banks

 

German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to come up with a plan of recapitalizing European banks at the G20 summit that will take place on November 3. According to the IMF, the region’s banks need 200 billion euro of capital.

 

It becomes more and more evident that the crisis reached the core euro zone nations: French-Belgian bank group Dexia fell victim of the liquidity squeeze. Belgian government announced that it would pay 4 billion euro ($5.4 billion) to take over the local consumer-lending unit, while the rest the group will be financed by the state guarantees worth 90 billion euro ($120 billion).

 

As for Greece, Merkel and Sarkozy underlined that they are waiting for the verdict of Troika experts – the EU, the IMF and the ECB – to determine the next step to keep the indebted nation in the currency bloc.

 

The single currency climbed today versus the greenback from the minimum at $1.3377 to the levels above $1.3550.

 

Analysts at Commerzbank note that the market’s negative reaction on Spain’s and Italy’s downgrades by Fitch on Friday was exaggerated. In their view, that explains today’s strengthening of euro. Strategists at Citi think that EUR/USD won’t be able to sustain gains as the European authorities have actually done nothing new and investors will soon return to the gloomy mood due to the absence of the details of Merkel-Sarkozy’s plan.

 

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[fallenDC]

Societe Generale advises to sell EUR/CAD

 

Analysts at Societe Generale note that better-than-expected US September Non-Farm Payrolls reading allows hoping for US economic recovery. According to the data released on Friday American employers added 103,000 jobs last month versus the forecast of 55,000, while Canada’s payrolls increased by 60,900 exceeding the projection of 15,200.

 

The specialists believe that US economy is likely to get stronger in the final quarter of the year. In their view, to benefit from such expectations one should sell the single currency versus Canadian dollar. The United States is Canada’s main trading partner, so its growth will be positive for loonie, while euro will likely stay under pressure due to the looming debt problems.

 

Societe Generale recommends opening shorts on EUR/CAD at 1.3900 stopping above 1.4100 and targeting 1.3100.

[fallenDC]

Wells Fargo: loonie will rebound the next year

 

Canadian dollar fell to the 1-year minimum this month – the pair USD/CAD reached on October 4 maximum at 1.0657. Loonie weakened on the concerns about the world’s economic slowdown.

 

Analysts at Wells Fargo claim, however, that once global volatility subsides, Canada’s currency will have good chances for rebound. The Bank of Canada is still less likely to cut rates in the coming months than many other central banks. The BOC could even begin tightening policy by middle of 2012.

 

As a result, though the near-term outlook for loonie is bearish, it’s likely to recover the next year. According to the bank, in 2012 the pair USD/CAD will return below the parity on a sustained basis.

 

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Edited October 12, 2011 by fallenDC

[fallenDC]

EUR/USD: fundamental factors

 

The single currency approached the 3-week maximum versus the greenback as it’s testing the levels in the $1.3700 area.

 

It happened as the risk sentiment improved after Chinese state-run fund announced that it had started buying the shares of the nation’s biggest banks (Industrial & Commercial Bank of China (1398), China Construction Bank, Agricultural Bank of China and Bank of China). The fund intends to continue such practices without unveiling any details about the amount of investments.

 

Analysts at Nomura note that Chinese government regards the equities of the domestic banks as cheap and its demand will encourage the entire Asian stock market. The specialists claim that the market in the risk-on mode, so one should stay away from the refuges such as US dollar and Japanese yen and move to the higher-yielding ones. The MSCI Asia Pacific index of shares added 2.1%.

 

Yesterday the leaders of Germany and France pledged to come up with a plan to recapitalize the region’s banks by the G20 Meeting on November 3. At the same time, strategists at RBS doubt that European authorities manage to resolve all key issues by the end of the month.

 

The negative factor is that Slovakia’s coalition hasn’t managed yet to come to agreement on the nation’s participation in EFSF. Slovakia is the only member of the currency union that hasn’t ratified the measure (Malta did so yesterday). Today the nation’s lawmakers vote again. Analysts at National Australia Bank warn that euro may slump in case Slovakia’s parliament votes against ratification.

 

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[fallenDC]

Analysts about EUR/USD future

 

Many leading currency experts believe that the Federal Reserve will launch the third round of quantitative easing in order to encourage the national economy and that the greenback will stop strengthening.

 

Analysts at JPMorgan Chase reduced their average forecasts for the greenback in the fourth quarter from $1.3387 to $1.34 per euro and from 77.06 to 76.6 yen. In their view, the Fed may begin discussing QE3 by the end of 2011 and begin asset purchases at the beginning of the next year. The specialists expect EUR/USD to end the year at $1.38 and the USD/JPY – at 75 yen.

 

Strategists at Westpac think that the bears won’t be able to push EUR/USD below $1.30. In their view, the pair will trade at $1.31 at the year-end.

 

All in all forecasters surveyed by Bloomberg project euro to appreciate to $1.40 by the end of 2012. Never the less, there still are those who prefer US currency.

 

Economists at Credit Agricole think that the risk of recession is exaggerated. In their view, in the medium term the greenback would benefit from the fact that US economy is in the better condition than the other major economies. According to the bank, EUR/USD will end the year at $1.33 and then drop to $1.26 by the end of 2012.

 

Analysts at Wells Fargo say dollar will end the year at $1.32 per euro pointing out that they are more optimistic on dollar’s future than on euro’s prospects.

 

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[fallenDC]

Trichet warns of systemic crisis

 

European Central Bank President Jean-Claude Trichet claimed that the euro zone financial crisis has become systemic and called for decisive political action.

 

«The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond,» claimed Trichet cited by Reuters.

[fallenDC]

Mizuho: pound’s under pressure due to the weak data

 

UK economic data surprised to the downside: manufacturing contracted in August for the third month in a row declining by 0.3% versus the expected contraction of 0.1% confirming that Britain’s economic recovery’s under threat. In the second quarter the nation’s GDP expended only by 0.1% (q/q).

 

Last week the Bank of England raised the ceiling for bond purchases from 200 to 275 billion pounds billion pounds. According to the British Chambers of Commerce, additional monetary easing may not be enough to prevent recession, so there’s the need for more radical measures.

 

The pair GBP/USD dropped from 1-week minimum at $1.5688 to the levels in the $1.5630 area. If pound closes below 1.5500, it will slide to the key support at $1.5330.

 

Analysts at Mizuho Corporate Bank believe that by the end of 2011 sterling will fall below $1.50 versus the greenback and lower than 0.85 per euro.

 

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[fallenDC]

Troika authorized sixth bailout tranche for Greece

 

The so-called Troika – the European Union, the International Monetary Fund and the European Central Bank – sanctioned providing Greece with the sixth tranche of the bailout package at the beginning of November. Now it depends on the approval of the Eurogroup and the IMF.

 

According to Troika’s statement, the indebted nation keeps making progress in such areas as fiscal consolidation, privatization, the banking system and structural reforms.

 

Never the less, Greek economic outlook is considered to be pessimistic: the recession will be deeper than it was seen in June and Greek economy will start recovering only in 2013.

 

Greece won’t be able to meet its deficit target this year, partly because its GDP keeps contracting. Inspectors claim that the nation will probably have to conduct additional measures.

 

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[fallenDC]

Slovakia didn’t ratify the EFSF

 

Slovakia didn’t ratify the EFSF bill yesterday. The ruling coalition didn’t manage to gather enough votes from the Slovak parliament in favor of the measure: there were only 55 votes in favor, while the necessary majority is 76.

 

The other 16 member nations have already approved the bill, while the EFSF expansion has to be ratified unanimously.

 

Prime Minister Iveta Radicova was trying to persuade the lawmakers that the whole euro area is now in danger, so it’s necessary to unify efforts. As Radikova associated the EFSF vote with the vote of confidence to the government, the coalition collapsed. Still the Prime Minister who is leaving her post proposed a compromise that may allow the parties to reach agreement at the second vote that will take place in a few days.

 

Richard Sulik, leader of the dissident Freedom and Solidarity party, said that it would be better to allow Greece default rather than waste enormous amounts of money for loans that may never pay back. Sulik said that Slovakia’s participation in the bailout deal isn’t in proportion with its small economy and showed his intention to fight for changing that.

 

Never the less, some experts say that as the debt crisis is continuously deepening the plan might not offer enough support for indebted nations, especially taking into account the fact that the fate of such big economies as Spain and Italy may soon come at stake.

[fallenDC]

Societe General: comments on EUR/USD

 

Technical analysts at Societe General claim that despite the negative event background the single currency keeps gaining versus the greenback.

 

In their view, the pair EUR/USD may rise to $1.3795 and even to $1.3850. The outlook for euro is positive as long as it’s trading above support at $1.3435.

 

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[fallenDC]

Senate rejected Obama’s job plan

 

More news from the policymakers: US Senate blocked Barack Obama’s $447-billion plan aimed to promote jobs creation. 2 Democrats joined the Republican minority criticizing stimulus measures for being costly and inefficient and voted against the bill.

 

The legislation includes the reduction of the payroll taxes for workers and employers and provides new funding for roads, bridges and other infrastructure. Parts of the plan may still be pushed through if Obama finds enough support for specific provisions.

 

US political parties can’t agree on the measures that could have to decrease the unemployment that stays at 9.1%. Republicans are in favor of permanent tax cuts and deregulation, while the President and congressional Democrats propose more federal spending and short-term tax reductions.

 

The inability of American lawmakers to reach agreement on the key economic and financial issues increased the uncertainty on the global financial markets making investors worry about the recovery prospects of the world’s biggest economy.

[fallenDC]

Deutsche Bank about yen as a refuge

 

Currency strategists at Deutsche Bank note that Japanese currency has depreciated during the last few weeks.

 

The pair USD/JPY kept trading sideways, but it seems that investors are no longer tempted to leave everything for yen assets: there have been foreign equity outflows, and foreign bond buying by the Japanese which weren’t of much help to yen so far.

 

The more important thing is that the declining current account surplus and low interest rates bring the situation in Japan closer to what’s seen in other developed nations.

 

The bank points out that the number of short positions on yen has increased. In their view, that presents an opportunity to resume buying yen and selling US dollar.

 

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[fallenDC]

BNY Mellon: euro's prospects have improved

 

The single currency rose to the 3-week maximums versus its US counterpart in the $1.3820 area.

 

The markets are waiting for the European Commission President Jose Barroso to make proposals about the recapitalization of the regional banks, on Greece and the participation of private sector in the bailout and the EFSF. Barroso is expected to announce its plan speaking to the European Parliament at 3 p.m., as Bloomberg cites the information from the unnamed official.

 

There was also some positive data released in the euro area: industrial production unexpectedly rose in August adding 1.2% from July level and showing the biggest increase since November 2010.

 

In addition, the inspectors of Troika indicated yesterday that Greece will get an 8 billion-euro ($11 billion) loan at the beginning of November. More details here http://www.fbs.com/analytics/news_markets/view/8908

 

Analysts at Bank of New York Mellon note that the level of uncertainty has subsided. Even despite the internal political tensions – Slovakia failed to ratify the EFSF extension (see http://www.fbs.com/analytics/news_markets/view/8911) – the prospects of euro area have improved in comparison with what was seen a week ago.

 

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[fallenDC]

Greece: budget deficit in figures

 

During the period from January to September Greece’s central government budget deficit (without local authorities and social security spending) increased by 15% in comparison with the first 9 months of last year rising from 16.65 to 19.16 billion euro.

 

Greece’s debt load is expected to reach 173% of GDP in 2012 as its economy will shrink for the fifths year in a row.

 

Greece’s Cabinet approved a 2012 draft budget on Sunday which sees the next a deficit of 6.8% of GDP (versus the previous estimate of 6.5% of GDO) and 8.5% shortfall this year (versus earlier projection of 7.6% of GDP).

 

There are significant chances that the second bailout for Greece agreed on July 21 will be renegotiated. Greece is missing its budget deficit targets and the bigger the budget gap requires more financing, so the amount of loan (109 billion euro) has to be increased.

[fallenDC]

Bank of Montreal: USD/CAD may fall to parity

 

Canadian dollar strengthened versus the greenback making the biggest advance in 2 months as the markets seem to be optimistic on the plan of the European authorities to recapitalize banks.

 

The pair USD/CAD declined from 1-year maximum at 1.0657 set on October 4 to the levels below 1.0200.

 

Analysts at Bank of Montreal claim that loonie may reach parity versus its US counterpart.

 

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[fallenDC]

Wells Fargo: forecasts for EUR/USD

 

Technical analysts at Wells Fargo are neutral/positive on the single currency in the short-term. In their view, among the positive factors there are significant short positions on euro and favorable readings of the technical indicators, such as the momentum ones.

 

In the longer perspective, however, EUR/USD remains within downtrend due to the euro zone’s economic growth slowdown and potential ECB’s easing.

 

The strategists expect the pair to drop to $1.3300 in 3 months, to $1.3000 in 6 months, to $1.2900 in 9 months and to hit the $1.2600 level in September 2012.

 

According to the bank, resistance for the pair is situated at $1.3936 (September 15 maximum), $1.4061 (200-day MA) and $1.4247. Support levels are found at $1.3566, $1.3145 (October minimum) and $1.2874 (January minimum).

 

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