Comments and forex-analytics from FBS Brokerage Company

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UniCredit: Spanish auction was successful

 

Analysts at UniCredit and Rabobank claim that today’s Spanish bond auction was successful enough. The country managed to sell 3.37 billion euro of 2021 and 2024 bonds.

 

Bid-to-cover ratios were above 2 in both maturities, while the yields were slightly lower than secondary market levels.

 

Never the less, Spain’s borrowing costs remain high due to the negative impact of the speculation about potential Greek debt restructuring that fuels concerns about the crisis contagion.

 

The yield on 10-year Greek bonds reached yesterday the record maximum of 14.66%. The yield on the same Spanish securities eased a bit to5.45%.

 

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Barclays Capital: comments on EUR/JPY

 

Analysts at Barclays Capital claim that in order to confirm the reversal of the downtrend from April maximum at 123.32 versus Japanese yen the single currency has to close the day above 120.15.

 

The specialists believe that the outlook for the pair EUR/JPY will remain bullish as long as it’s trading above the support area of 115.70/114.70.

 

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Scotia Capital: dollar still has potential for decline

 

Currency strategists at Scotia Capital note that there are a lot of US dollar bears at the market. The greenback is losing both versus the commodity currencies (Australian dollar reached 29-year maximum above 1.7000) and the safe havens (see the pair USD/CHF that renewed the absolute minimum at 0.8850).

 

The specialists say that the purchasing power parity analysis shows that some major currencies are significantly overbought: Aussie, for instance, is overvalued by 34%, Swiss franc – by 28%, euro – by 22% and the Canadian dollar – by 21%. According to Scotia Capital, this data should with no doubt be taken into account.

 

The analysts note, however, that currencies can trade at overvalued levels during some time, especially taking into account the Fed’s loose monetary policy and Standard & Poor's negative outlook for US debt.

 

As for the short term trade, the relative strength index (RSI) shows that no major currency is overvalued, so investors may keep selling dollar looking for its counterparts to set new highs.

 

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Sumitomo: long-term forecast for USD/JPY

 

Analysts at Sumitomo Life Insurance believe that the pair USD/JPY will once again drop below 80 yen in the first quarter of the next year. In their view, currency interventions didn’t put an end to yen’s strengthening.

 

At the same time, the specialists underline that this move will be the final round of the currency’s appreciation. Sumitomo forecasts that during the next few years the greenback will be able to climb to 120 yen. American currency will get support from the US economic rebound and Federal Reserve's policy normalization that, in its turn, will widen the gap between Japanese and US interest rates.

 

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Commerzbank: EUR/USD on its way to 1.5145/50

 

The single currency advanced from the week’s minimums in the 1.4150 area overcoming the key resistance in the 1.4535 area (1995 maximum) and getting above 1.4600.

 

Technical analysts at Commerzbank believe that the pair EUR/USD is on its way to 1.5145/50. If euro manages to close the week above 1.4535, the positive outlook for the currency will be confirmed.

 

Resistance for EUR/USD is provided by the upper border of the 2-month uptrend channel at 1.4660.

 

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Aussie renewed maximums versus the greenback

 

Australian dollar rose to the record maximum versus the greenback above $0.7000. There were many factors that had positive impact on the currency.

 

Firstly, investors’ risk appetite was encouraged by US the advance of stocks. Then the interest rate advantage is still in favor of Australia: the RBA benchmark rate is at 4.75%, while the Fed and the BOJ keep the borrowing costs at the record low, close to zero.

 

In addition, according to the data released today, Australian producer prices added 1.2% (q/q) the first quarter in comparison with the last 3 months of 2010 when they rose only by 0.1%.

 

The country’s Foreign Minister Kevin Rudd claimed yesterday that Australia won’t “manipulate” the national currency ruling out the intervention prospects.

 

The pair AUD/USD gained 16% during the past year due to the high revenues from coal and iron ore exports to China, hurting though such spheres as tourism, manufacturing and education.

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RBC: assumptions on Greek debt restructuring

 

Analysts at Royal Bank of Canada claim that Greek debt restructuring would most likely consist of maturity extensions and the coupon payments’ reductions. In their view, the primary goal of this process will be to reduce redemptions in 2013-2016 to less than 10 billion euro a year.

 

In order to accomplish that the country will need the agreement of the International Monetary Fund, the European Union and European Central Bank that hold around 28% of outstanding Greek debt.

 

According to RBC, the unilateral forced restructuring by Greek authorities or a negotiated restructuring with significant reductions in principal repayments would be too tough for Greek and European banking systems. The bank specialists believe that Greece’s authorities have to incite the national bank to agree to restructure their debts in return for recapitalization, possibly with the funds provided by the EU.

 

Greece’s 2-year bond yields rose above 20%, while the 10-year yields approached 15%, reports Bloomberg.

 

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Rabobank: market underestimates debt risk in US and Japan

 

Strategists at Rabobank International believe that the financial markets underestimate the degree of the sovereign-debt crises risk in the United States and Japan.

 

Bloomberg cites the Rabobank’s sovereign vulnerability index in comparison with the ranking based on the credit-default swaps:

 

CDS Spread Ranking Rabobank Index

 

Greece 1 1

 

Japan 7 2

 

Portugal 3 3

 

Ireland 2 4

 

U.S. 11 5

 

Italy 6 6

 

Spain 4 7

 

Belgium 5 8

 

France 9 9

 

U.K. 12 10

 

Austria 8 11

 

Netherlands 10 12

 

Australia 12 13

 

Germany 13 14

 

Finland 15 15

 

Denmark 17 16

 

Switzerland 14 17

 

Sweden 18 18

 

It’s easy to see that Rabobank regards Japan as the second most vulnerable economy after Greece that’s not surprising taking into account the fact that the country’s external debt accounts for more that 200% of its GDP. The market, however, puts the Asian nation only at the seventh place as the second position is occupied by Ireland which is followed by other euro zone members – Portugal, Spain and Belgium.

 

According to the bank, large structural deficit of the United States makes it riskier than Spain and Italy. The analysts think investors should be less concerned about the situation in Europe.

 

It’s necessary to note that Rabobank index is based on eight indicators: interest-growth differential, cyclically-adjusted primary budget balance, interest payments, and weighted average years to maturity, net public debt, external debt, current account balance and World Bank governance indicator.

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Commerzbank: negative outlook for USD/CHF

 

US dollar tried to recover versus Swiss franc in the first part of the week but failed in the 0.9000 resistance area. Then the pair USD/CHF renewed the record minimum falling below the previous absolute low at 0.8884 hit on March 16 to 0.8810.

 

Technical analysts at Commerzbank say that the pair’s rate fell due to the broad weakness of American currency. In their view, the greenback is likely to fall to the base of the 5-month downtrend channel at 0.8730.

 

According to the bank, any attempts of the bulls to improve the current state of things will be limited by 0.9017 and 0.9167 (2-month downtrend). As long as USD/CHF is trading below these levels, the outlook for it will remain negative.

 

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Roubini: comments about US debt and deficit

 

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, says that US current fiscal balance can be restored easily and fast enough, as federal, state, and local revenues as a percentage of GDP are still relatively low. As a result, the effect of fiscal tightening would be quite impressive.

 

To deal with the accumulated deficits that form the public debt will be, however, much more difficult and require strong political will, so America will be able to start serious fiscal reforms only after the 2013 elections.

 

Commenting on the S&P’s recent outlook downgrade for the Unites States, the economist claimed that it’s not easy to agitate such bond market as the American one because the nation is still regarded as the safest investment destination in the world. According to Roubini, unlike other indebted countries, the United States benefits from risk aversion, even at the domestic market, through a stronger dollar and lower bond yields.

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Westpac: US dollar will keep declining

 

Currency strategists at Westpac claim that there are enough reasons for the greenback to be weak versus other major currencies.

 

In their view, US dollar’s rate is so low because the Federal Reserve is keeping the borrowing costs at the record minimum of 0-0.25% while other world’s central banks tend to hike the interest rates.

 

The specialists say that although the news that Standard & Poor’s put US credit rating on negative watch didn’t derail the nation’s bond market, American currency was broadly weakened. The Dollar Index, which tracks the greenback against 6 major US trading partners, fell to 73.735, the weakest level since August 2008. US dollar fell to record minimum against Aussie and multiyear lows versus at least five other currencies.

 

Westpac forecasts that dollar will drop to $1.50 per euro, 80 yen and the low-90s Canadian cents.

 

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Mizuho, Okasan expect USD/JPY to move down

 

Analysts at Mizuho Corporate Bank expect the greenback to lose grounds to Japanese yen as soon as the next week. In their view, the market will once again start talking about the potential intervention of Japan’s Ministry of Finance.

 

The specialists say that US dollar bulls will be disappointed after the FOMC meeting scheduled on Tuesday-Wednesday. Taking into account rather modest US recent economic data it’s possible to assume that the Fed’s Chairman Ban Bernanke may sound rather dovish, so US monetary authorities will likely refrain from tightening during the rest of the year. So, the pair USD/JPY may fall to 80.00, believes Mizuho.

 

Strategists at Okasan Securities believe that USD/JPY may fall below 81.00 in the near term as many investors may get rid of their long positions on USD ahead of the Easter weekend as there's some risk that China will let yuan appreciate against the greenback in order to stem rising inflation. According to Okasan Securities, weaker USD/CNY will put US dollar under pressure against versus currencies.

 

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Morgan Stanley: nations will keep diversifying reserves from USD

 

Analysts at Morgan Stanley note that although Standard &Poor's worsened the outlook for US sovereign debt rating, it hasn’t so far affected the greenback’s dynamic. In the longer term, however, S&P's move will encourage the world’s nations to diversify their foreign exchange reserves away from dollars.

 

The specialists underline that that any concrete action of rating agencies may trigger faster reallocation away from the US currency.

 

In the near-term the market’s attention will be focused on the next week's FOMC meeting, though it’s useless to wait for the hints on of when the policy tightening is finally going to start.

 

The bank also says that dollar will remain a funding currency until the Fed begins quitting its extraordinarily loose monetary policy.

 

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BNY Mellon about potential Greece’s debt restructuring

 

Analysts at BNY Mellon believe that Greece will soon restructure its debt. In their view, it may happen over the next few weeks.

 

However, the specialists think that this event won’t hit the market as strongly as it’s widely thought now. BNY Mellon believes that the restructuring will consist of the extension of debt maturities accompanied by the reduction in interest rates, so for the country’s creditors all will be going in the least painful way.

 

As a result, the bank claims that euro has even chance to benefit, though if it’s not clear whether the restructuring is really able to solve Greece's financial problems.

 

The results of the latest Reuters poll on the matter show that the majority of surveyed economists expect that Greece would have to restructure its debt during the next 2 years.

 

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Forecasts on British economy, BoE rates and sterling

 

According to the prediction of economists surveyed by Bloomberg News, UK GDP rose by 0.5% in the first 3 month of 2011 after contracting by the same amount in the final quarter of the last year. The data will be released on April 27.

 

Minutes of this month’s Bank of England meeting showed that British policymakers think that the country’s economy is still in a very vulnerable state, so that the rate hike would harm consumer confidence. As a result, analysts at Societe Generale, Barclays Capital, Nomura International, National Australia Bank and Citigroup pushed back forecasts for the first rate increase this year.

 

The pair GBP/USD, however, rose today helped by the encouraging figures published yesterday. Retail sales added 0.2% in March while the analysts were looking forward to 0.5% decline, while the budget deficit turned out to be 18.6 billion pounds versus 20 billion-pound forecast.

 

Strategists at Commerzbank said that the Bank of England will anyway outpace the Fed in raising rates. In the end BoE is expected to lift up the borrowing costs sooner or later, but this year, while the Fed will hike not earlier that in the beginning of 2012. So, the bank thinks that sterling is going to strengthen against the greenback.

 

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Societe Generale: EUR/USD will continue gaining

 

Technical analysts at Societe Generale claim that as the greenback let euro strengthen and consolidate above the resistance at $1.45, US currency may fall to $1.51.

 

According to the specialists, resistance levels for the pair EUR/USD are now found at $1.47 and $1.4830 as euro is poised up to 2009 maximum at $1.5145.

 

US currency is weakening for the fourth day in a row. Yesterday it hit 16-month low at $1.4648 per euro. The bank notes that dollar’s downtrend has begun in June 2010 when it started easing from the maximum of $1.1876.

 

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PBOC may let yuan significantly appreciate

 

Wang Yong, a professor at the Chinese central bank’s training center, claims that in order to stem inflation the People’s Bank of China has to widen yuan’s daily trading band, reports Bloomberg.

 

Faster yuan appreciation is a direct and effective way of curbing imported inflation, which tend s to determine the upward dynamics of consumer price. The specialist also said that Chinese government should strengthen supervision of capital flows as yuan gains may also attract hot money boosting liquidity and increasing inflation pressure.

 

Such opinion corresponds to the recent comments of China’s authorities – Premier Wen Jiabao prices and deputy central bank governor Hu Xiaolian – who have both underlined so far that more yuan flexibility would help to fight inflation.

 

The Chinese currency is currently allowed to deviate from a daily reference rate set by the People’s Bank of China by 0.5%. Today’s mid-point for the pair USD/CHY was established at the record minimum of 6.5156.

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Deutsche Bank: Greece won’t leave the euro area for a long time

 

The single currency lost 3.45% versus the greenback during the final 2 days of last week, though even after this slump euro remained 2011 best performer (up 9.7% since January 12 when German Chancellor Angela Merkel pledged to do everything to support the currency).

 

The pair EUR/USD hit $1.4315 on May 6 after reaching the strongest since December 2009 at $1.4940 on May 4.

 

Euro dropped as the ECB signaled that it isn’t in a hurry to raise the rates and Der Spiegel magazine claimed that Greece may leave the euro area.

 

The yield spread between 10-year Greek bonds and the similar German securities expanded from 2.73 percentage points in January 2010 to 12.33 percentage points. The yields on 2-year Greek bonds have exceeded 25%.

 

The European authorities try to convince the market in their eagerness to keep the region together. On May 6 there was an unannounced meeting on which it was decided to ease the terms of the 110 billion-euro ($158 billion) bailout Greece received last year. EU officials think the country will need additional aid as its funding costs are increasing.

 

Currency strategists at Deutsche Bank think that Greece would first try to restructure its debt before thinking about leaving the euro zone. The specialists note that it’s too early to say that the nation may abandon the European currency.

 

Analysts at HSBC Holdings believe that euro may have appreciated too rapidly this year and is now at risk as the Federal Reserve is going to end its $600 billion quantitative easing program in June. In their view, EUR/USD may slide to $1.40.

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Commerzbank: comments on EUR/USD and GBP/USD

 

Technical analysts at Commerzbank note that on Friday the pair EUR/USD has broken through the key support in the 1.4450/34 area. In their view, euro may fall to the November 2010 maximum at 1.4283 and April 18 minimum at 1.4145. On the upside, the specialists see the resistance for the single currency at 1.4572.

 

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Will dollar get growth stimulus after the end of QE2?

 

Many analysts believe that US currency will get a lot of positive momentum when the Fed’s quantitative easing ands in June. It’s more difficult to foresee, however, how long dollar will enjoy the support.

 

Westpac has been selling the greenback versus riskier currencies and took some profits last week on the Dollar Index. The bank’s analysts note that Treasury yields are still very low that keeps USD under negative pressure.

 

The specialists believe that the market will be extremely nervous when the QE2 expires. In their view, the event will help US dollar only if it will be accompanied by the strong US economic data.

 

Marc Faber, publisher of the Gloom, Boom & Doom report, is almost sure there will be the third round of the quantitative easing. According to his forecast, the United States will be running trillion dollar budget deficits for the next 10 years. As it’s not possible to finance all of this through bond issuance, the Fed will have to at least partially monetize the debt to keep interest rates low.

[FBS.com Official]

UBS, RBC: Australia and China posted trade surplus

 

According to the data released today, China's trade surplus surged from $139 million in March to $11.4 billion in April while the economists were looking forward only to $1.0 billion figure. Economists at UBS Securities expect China show annual trade surplus of $140-$150 billion in 2011. According to UBS, the nation will post monthly trade surpluses for the rest of this year.

 

Analysts at Royal Bank of Canada believe that after this data release US pressure on China for yuan’s appreciation will strengthen. At the same time, Chinese authorities may agree to allow stronger national currency in order to fight inflation. The specialists think that yuan may rise to 6.40 yuan per dollar by the middle of the year and to 6.20 by the end of 2011.

 

Chinese data has the negative impact on Australia’s currency as the possibility of the rate hike in China increased making investors sell Aussie, notes TD Securities. The analysts advise to focus attention on China’s inflation figures due tomorrow.

 

Australia also posted growth of trade surplus that advanced to A$1.74 billion in March from February’s deficit of A$-0.09 billion, while the economists were looking forward only to A$500 million surplus.

 

Australian dollar was supported versus its US counterpart on the news at the beginning of the trading day, though RBC Capital Markets strategists think that the pair AUD/USD will be curbed ahead of Thursday's employment data and the technical picture that’s not encouraging for Aussie. In their view, the employment data should be rather high to make Australia’s currency resume the uptrend.

[FBS.com Official]

Barclays Capital: Greece’s future seems uncertain

 

Analysts at Barclays Capital claim that the single currency remains affected by the uncertainty connected with how the European authorities are going to act in order to help Greece solve its debt problems. Although the EU officials met over the weekend to discuss the matter there is no official information delivered to the public.

 

Yesterday Standard & Poor's reduced the country’s debt rating from BB- to B. It was Greece’s fourth downgrade by this agency since April 2010. Credit-default swaps on Greek debt bounced to the record maximum of 1,369 yesterday that means that probability of the nation’s default within 5 years is estimated at 69%.

 

The markets speculate about the potential Greek debt restructuring and such outcome is now seen as quite probable. European Central Bank Governing Council member Ewald Nowotny said that Greece was thought to be able to refinance itself via the market next year and now there are more and more signals that it wouldn’t be able to do that.

 

As a result, the single currency may correct downwards. The pair EUR/USD has already dropped to the 6-week minimum at $1.4254.

 

In such circumstances Greece is selling today 182-day Treasury bills of 1.25 billion euro ($1.79 billion).

[FBS.com Official]

Deutsche Bank: Euro’s decline may continue

 

Analysts at Deutsche Bank say that the improving labor market is very important for the United States. In their view, if American economy outperforms the German one, the pair EUR/USD will get under negative pressure.

 

US employment data on Friday was released on Friday was very encouraging: Non-Farm Payrolls increased in April by 244,000 that helped US dollar climb to 6-week maximum. Many analysts think that the greenback is able to strengthen versus euro.

 

Strategists at J.P.Morgan Asset Management say that the recent comments of the ECB president Jean-Claude Trichet made investors’ hopes for the central bank’s June rate hike shrink. The specialists think that the ballyhoo over Der Spiegel’s report that Greece was considering quitting the euro zone could lead to further weakness of euro.

 

Strategists at BMO Capital advise investors to sell the single currency at $1.4510 stopping at $1.4655 with target at $1.4210.

[FBS.com Official]

Commerzbank: comments on EUR/USD

 

Last week the single currency broke down below the 5-month uptrend line and is trying to find support at the 55-day MA at 1.4233.

 

Technical analysts at Commerzbank think that this support won’t be able to hold the bears. In their view, the pair EUR/USD will fall to 1.4145/55 representing 38.2% retracement of this year’s advance and April 18 minimum.

 

The specialists think that if euro tries to move up it will face resistance at 1.4440 and 1.4600. In their view, euro will fail to overcome the latter for now.

 

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BoE may lower its economic growth forecasts

 

Trading the pair GBP/USD one has to pay great attention to the inflation report released tomorrow by the Bank of England.

 

Pound’s rate has decreased today even though the figures published today showed the growth in retail sales and house prices. GBP/USD went down from maximums in the 1.6750 area at the beginning of May to the levels close in the 1.6360 zone.

 

It’s thought that British central bank may cut its forecasts for the nation’s economic growth. In such case, the possibility of the BoE rate hike diminishes. On May 5 the Bank of England decided to leave its key interest rate at the record minimum of 0.5%.

 

Analysts at Bank of Tokyo say that UK economic data is mixed. In their view, sterling will get weaker in the near future. Strategists at Lloyds Bank Corporate Markets also regard the British currency as vulnerable against the majority of its counterparts.

 

Confederation of British Industry yesterday lowered its estimate for the UK GDP growth in 2011 from 1.8% (February estimate) to 1.7%.