Comments and forex-analytics from FBS Brokerage Company

[FBS.com Official]

UBS expects EUR/USD to decline

 

Currency strategists at UBS expect the single currency to decline versus the greenback.

 

In their view, the dynamics of the pair EUR/USD after ECB’s President Jean-Claude Trichet’s hinted on Thursday at the coming rate hike shows that the potential of policy differentials as euro’s driving force is fading away.

 

According to the bank, July will characterize by the increased macroeconomic uncertainty in the euro area and the end of the Federal Reserve’s QE2. As a result, risky assets, equities and commodities will decline, while US dollar will be encouraged to strengthen.

 

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[FBS.com Official]

Nomura: yen will weaken versus US dollar by the end of June

 

Analysts at Nomura claim that the greenback may strengthen to 82.5 yen by the end of the second quarter.

 

The specialists think that the demand for the Japanese currency may decrease in the coming months. Such assumption is base on the fact that in May there was a significant increase in outward portfolio investment via investment trusts.

 

In addition, although the nuclear power plants will be gradually restarted in the second half of 2011, there risk that shutdowns will last longer remains. Nomura believes that if the Asian nation doesn’t manage to restart nuclear generators under regular maintenance fuel imports may bounce by 500 billion yen ($6.3 billion) per quarter.

 

Nomura also advises to sell yen versus British pound.

 

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[FBS.com Official]

Commerzbank: negative outlook for EUR/CHF

 

Technical analysts at Commerzbank claim that the single currency is close to support at 1.20 versus Swiss franc.

 

In their view, the pair EUR/CHF may drop to the 3-year downtrend channel at 1.1950. The bank thinks that this level will be able to hold the first attack of the bears, though doubts that it will be able to initiate euro’s upward reversal.

 

The longer term targets are set at 1.1790 and 1.1600.

 

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[FBS.com Official]

ZKB, BNP Paribas about the possibility of SNB intervention

 

Economists at ZKB believe that strong franc won’t make the Swiss National Bank intervene at the currency market as Switzerland’s economy still isn’t strong enough, while the SNB’s currency reserves are already too high. The specialists note that the nation’s getting used to the strong national currency, though Swiss exports will stay under negative pressure in the second half of the year.

 

Strategists at BNP Paribas also don’t regard the possibility of SNB intervention as strong. According to them, as the tensions between EU governments and the ECB remain, EUR/CHF may go down below 1.20.

 

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[FBS.com Official]

Citigroup: code language from the central bankers

 

Last week the market’s attention was focused on the central bankers with both Ben Bernanke and Jean-Claude Trichet speaking.

 

Investors were waiting for some key words from the ECB: as the central bank’s President said “strong vigilance” about inflation euro immediately spiked. When Trichet uses the expression “very close monitoring” euro moves quite a bit.

 

Analysts at Westpac note that as investors got used to coded messages from central banks, so it the tension escalates, the market would react violently in both cases: if the ECB’s head mentioned “strong vigilance” and if he didn’t.

 

Strategists J.P. Morgan say that central bankers may just want to animate the dry data. Analysts at Citigroup, however, don’t agree with such opinion thinking that their actions are quite deliberate. In their view, 30 years ago the goal of monetary authorities was to surprise the markets while now the central banks, on the contrary, try to prepare investors for future developments in order to eliminate potential shocks.

 

Sophisticated investors know exactly what “strong vigilance” meant, but individual traders may have plenty of difficulties trying to interpret the “code language” correctly. As a result, Citigroup notes that it’s much easier for retail investors to trade on such factors as high probability of ECB July rate hike based on the market’s expectations. However, on Thursday after forming a spike euro has sharply fallen. An individual trader who needs some time to understand what’s happening may be crushed in such situation.

[FBS.com Official]

Sakakibara expects USD/JPY to fall to 75 yen

 

Eisuke Sakakibara former Japan’s top currency official known as “Mr. Yen” believes that Japanese yen may strengthen to 75 versus the greenback.

 

As the reasons for such forecast the specialist cites US economic slowdown and the risk of its credit rating downgrade. Ratings agencies Moody’s Investors Service and Standard & Poor’s have so far put US credit rating under review and the United States may lose its top rating unless it makes progress in solving its debt issues. Sakakibara says American lawmakers are likely to agree eventually on raising the debt ceiling in time (that’s before the deadline on August 2), so the credit ratings cut won’t be big and won’t hurt much the demand for Treasuries.

 

The economist underlines that dollar will manage to remain the world’s primary reserve currency though it stay under pressure as the Fed will keen conducting extremely loose monetary policy.

 

According to Sakakibara, USD/JPY trading range will shift to 75-80 yen. The expert thinks that dollar-negative factors will outweigh the risk of the “unprecedented recession” in Japan after the strongest in the nation’s history earthquake and tsunami on March 11.

 

Sakakibara notes that Japan’s currency intervention is unlikely as the country won’t probably be able to get support from G7 as it was in March when the developed countries agreed to help weaken Japanese currency as its moves were too volatile and it had reached postwar maximum at 76.25 yen per dollar. The former official thinks that Japan’s economy won’t be affected much by the appreciation of the national currency as it will help the nation cope with rising commodity prices.

 

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[FBS.com Official]

Commerzbank expects EUR/USD to decline

 

The single currency went up from Monday’s minimum in the 1.4300 area but failed at 1.4500 returning back below 1.4400.

 

Technical analysts at Commerzbank believe that euro is on its way down to support in the 1.4010/1.3968 zone. In their view, EUR/USD trend is neutral/negative after euro last week didn’t manage to overcome 78.6% retracement resistance at 1.4732.

 

According to the bank, resistance is found at 1.4540/65, 1.4732 and at May maximum of 1.4940.

 

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[FBS.com Official]

HSBC, Standard Chartered: outlook for Chinese yuan

 

Analysts at HSBC claim that it’s very difficult to determine whether Chinese currency is under- or overvalued. The specialists note that yuan rose versus the greenback by 6.4% in real terms since June 2010, but declined slightly on a REER basis. In their view, yuan can still strengthen a bit more. The uncertainty about its fair value will keep the pair USD/CNY from any sharp moves.

 

Strategists at Standard Chartered believe that China’s tightening cycle may be close to an end as the inflation seems to have peaked. According to the bank, the People’s Bank of China will keep the rates unchanged in the second half of this year and in the first half of 2012. Later, however, the analysts expect inflation to increase once again, so there will be more rate hikes in the second half of the next year.

 

The economists believe that USD/CNY daily trading band will soon widen as Chinese monetary authorities will show their intent to make the exchange rate more stable. Standard Chartered notes that yuan is likely to keep appreciating. In their view, it will gain 4.0% since end-2Q 2011 to end-2012.

[FBS.com Official]

JPMorgan Chase, Nomura expect euro to rebound

 

Analysts at JPMorgan Chase and Nomura expect the single currency to rebound even despite the escalation of concerns about Greece’s future.

 

According to JPMorgan, euro will show better results this year than dollar and yen even if the European policy makers put off agreeing on a resolution to the debt crisis as long as the situation seems to be more or less stable. The specialists believe that the market will calm down next week as the currency bloc’s leaders most probably won’t decide to do something drastic such as forcing private investors to share Greece’s debt burden by prolonging maturities. In their view, the pair EUR/JPY may climb to 120 yen this year. The bank also forecasts the pair EUR/USD to reach $1.48 by the end of December.

 

Economists at Nomura think that the expectation of the ECB rate hikes will ease negative pressure on euro and euro’s not likely to fall into downtrend. The bank claims that the recent decline of the European currency reflects the increase in fiscal premium in the euro zone’s countries. Nomura’s forecast for euro is $1.45 and 127 yen at the end of this year.

 

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[FBS.com Official]

UBS: comments on USD/CHF

 

The greenback went up versus Swiss franc from Tuesday’s minimum at 0.8350, but was stopped by resistance at 0.8575. As the risk aversion strengthened, the pair USD/CHF went down to support at 0.8465.

 

Resistance for US dollar is found at 0.8545 (June 16 maximum), 0.8595 (intra-day resistance) and 0.8665 (May 27 maximum). Support levels lie at 0.8465 (June 16 minimum), 0.8350 (June 14 minimum) and 0.8325 (June 7 minimum).

 

Technical analysts at UBS, claim that the trend for USD/CHF will remain neutral as long as the pair is trading between 0.8443 and 0.8457. If dollar falls below 0.8443, the bearish trend will resume and dollar will be poises down to 0.8348. If US currency rises above 0.8547, it’ll be able to strengthen to 0.8639.

 

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[FBS.com Official]

Citigroup: euro will remain under pressure

 

Analysts at Citigroup think that if the European Union and the International Monetary Fund agree to provide Greece with another tranche of financial aid that includes 8.7 billion euro ($12.4 billion) from EU and 3.3 billion euro from the IMF in July, euro’s rebound will be modest and short-lived.

 

The specialists think that the single currency will remain under pressure of uncertainty generated by the process. In their view, euro still faces challenges in the near term.

 

European finance ministers will meet on June 19 after they failed to reach an accord on the next loan disbursement an emergency session two days ago.

 

The pair EUR/USD recovered rising above $1.24 after touching yesterday the minimal levels since May 26 at $1.4073.

 

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[FBS.com Official]

Alan Greenspan: Greece will likely default

 

The former Federal Reserve chairman Alan Greenspan is almost sure that Greece will default. In his view, the chances of such outcome are “so high that you almost have to say there’s no way out”, reports Bloomberg.

 

Greenspan says that the possibility that European politicians will manage to cope with the crisis is very low. Greek government bonds fell, while the yield on the 2-year notes reached the record maximum of more than 30%. The nation’s authorities didn’t manage to convince the population in the necessity of more austerity measures.

 

If Greece becomes unable to repay its debts, US economy will face the high risk of recession. If Greece doesn’t default, the possibility of the US economic contraction will be low. According to Greenspan, American recovery is stemmed as businesses are concerned about the long-term outlook. The economist warns that US debt issue is becoming “horrendously dangerous” and US lawmakers probably don’t have another year or two to solve it.

[FBS.com Official]

Sarkozy and Merkel announced “breakthrough” in Greek issue

 

French President Nicolas Sarkozy and German Chancellor Angela Merkel announced after today’s meeting that there’s a “breakthrough” in solving Greece’s debt crisis: the leaders of 2 largest euro zone’s economies agreed on a new rescue package for Greece.

 

Germany that was earlier demanding private bondholders pay a substantial share of any new bailout is going to work on the compromise deal with ECB. Analysts at RBS note that such comments helped to improve the investor’s risk sentiment.

 

The market’s reaction was optimistic: single currency went up versus all of its main competitors on the news.

 

The pair EUR/USD added 120 pips reaching 1.4290. Resistance for euro is found at 1.4300 (June 13 minimum), 1.4370/75 (20-day MA) and 1.4430/50 (June 13 maximums). Support levels lie at 1.4200/20 (previous maximums), 1.4125 (day minimum) and 1.4070 (June 16 minimum).

 

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[FBS.com Official]

Greece: shift in the government

 

Greek Prime Minister George Papandreou replaced his finance minister with his main socialist party rival hoping to push through the unpopular austerity plan.

 

Analysts at UBS characterize the new comer Evangelos Venizelos who previously occupied the position of defense minister as politically powerful. In their view, Venizelos will be able to conduct fiscal consolidation even though he wasn’t engaged in financial matters before.

 

Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and markets, was moved to the environment ministry in a crisis-driven reshuffle.

 

At first Greek market was positive on the news: Athens stock market index gained 2%. Bond markets, however, remain unnerved the by concerns that the nation never managed to repay its debt that has reached 340 billion euro or 150% of the nation’s GDP. Just before today’s announcement the yield on 10-year Greek government bonds reached the record maximum of 18.9%.

[FBS.com Official]

Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

Last week the pair GBP/USD was trading in a volatile way: there was the bearish candle with very long upper shadow and significant lower one formed on the price chart, so that it’s possible to say that the confrontation between bulls and bears was tough.

 

Tenkan-sen still acts as resistance, while Kijun-sen is playing the role of support.

 

The “golden cross” made by Tenkan (1) and Kijun (2) above Kumo remains in place. The rising Ichimoku Cloud keeps being rather wide (3) indicating that the bulls haven’t given up their positions.

 

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Daily GBP/USD

 

The outlook for GBP/USD based on the daily chart has deteriorated – Tenkan-sen and Kijun-sen that formed the “golden cross” the week before last have crossed once again, this time for the “dead cross” (1).

 

The situation is unstable – this can be observed as the Ichimoku Cloud (3) remains extremely thin – neither bulls, nor bears are able to take over the market.

 

The prices went down below the trend line and the momentum is bearish. At the same time, the Standard line is moving horizontally and Friday’s “hammer” figure means that he pair is trying to form a base at the current levels, so we see the potential for the rate’s consolidation and the bulls strengthening their positions.

 

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[FBS.com Official]

Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

On the weekly chart resistance for the pair is still generated by both the turning line (1) and the Standard line (2). Tenkan-sen keep going down to Kijun-sen. In addition, the greenback remains under pressure of the bearish Ichimoku Cloud (3).

 

At the same time, there’s some hope for the rate’s consolidation: the inverted “hammer” may indicate that the bulls may move the market up from these levels. It’s necessary to wait for bullish confirmation.

 

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Daily USD/JPY

 

As it was expected, the “dead cross” (5) formed by Tenkan-sen and Kijun-sen below Kumo a week ago and the wide Ichimoku Cloud didn’t let the bulls get higher. The prices met strong resistance of the Standard line (1) and breached the Standard line (2).

 

At the same time all lines of the Indicator have become horizontal that allows us to assume that the bulls will probably manage to regain some of the lost grounds.

 

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[FBS.com Official]

Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

The satiation at the USD/CHF chart doesn’t change much. On the weekly chart one can still see the classic downtrend. The longer-term outlook is so bearish that it would be very difficult for the pair to overcome the downtrend.

 

During the last 2 weeks the bulls managed to move a little bit higher but there’s nothing that could indicate that this advance was more than correction.

 

The bearish Cloud remains rather wide. Kijun-sen and Senkou Span B (2 and 3) are directed horizontally, while Tenkan-sen and Senkou Span A (1 and 4) keep declining.

 

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Daily USD/CHF

 

On the daily chart it’s possible to see that US currency is gradually moving up. The prices managed to overcome resistance provided by the Turning line (1) that is now acting as support.

 

The bears still dominate the market and will soon try to erase the upward correction.

 

It’s also necessary to note that Tenkan-sen and Kijun-sen still keep in place the “dead cross” (5) formed below the descending Cloud (both borders of Kumo are moving down – 3, 4).

 

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[FBS.com Official]

Nordea and Westpac recommend selling euro

 

The turmoil in Greece keeps escalating. The nation’s Prime Minister George Papandreou initiated yesterday a 3-day debate a confidence motion in his government.

 

In order to get the fifth loan under last year’s 110 billion-euro bailout Greek Parliament has to approve 78 billion-euro ($111 billion) package of budget cuts. However, the opposition parties aren’t inclined to let this happen. Euro-area finance ministers urge Greece to pass laws to cut the deficit and sell state assets left open whether the country will get the full 12 billion euro promised for next month

 

Currency strategists at Nordea Bank claim that the single currency is under pressure due to the uncertainty about Greece’s future and the concerns about global economic growth. In their view, the pair EUR/USD may drop to $1.40 by the end of the week.

 

Analysts at Westpac advise to sell euro on its advances above $1.43. The specialists doubt that Greek policymakers will manage to push through all austerity measures EU and IMF demand from them.

 

The median forecast of analysts surveyed by Bloomberg News is that euro will fall to $1.40 by December.

 

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[FBS.com Official]

Deutsche Bank: negative outlook for EUR/USD

 

Analysts at Deutsche Bank think that the European currency has already reached this year’s maximum versus the greenback at 1.4940.

 

The specialists believe that the pair EUR/USD be steady declining during a year from now. In their view, euro will slide to 1.3500 by the end of the third quarter, to 1.3000 by the end of 2011 and to 1.27 in 12 months.

 

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[FBS.com Official]

Citigroup expects EUR/CHF to decline

 

Analysts at Citigroup expect the single currency to fall to 1.17 versus Swiss franc even though they believe that CHF is overvalued against euro in the longer term.

 

The specialists are surprised by good performance of Switzerland’s economy taking into account the strength of its national currency. In their view, franc may be driven by the capital flight both from Middle East and North Africa and euro area’s periphery. In addition, it’s also necessary to remember about the continuing problem with CHF-denominated mortgages in Hungary.

 

As a result, Citi sees the high risk of EUR/CHF decline in the short term, especially in case of high risk aversion.

 

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[FBS.com Official]

MIG Bank: comments on USD/JPY

 

Analysts at MIG Bank still expect that the greenback will be able strengthen versus Japanese yen starting new bullish cycle.

 

For the pair USD/JPY to do this, it has to close above 82.00 and then rise above the post earthquake maximum of 83.30.

 

According to the bank, support for US currency is situated at 80.00 and 79.80 (Fibonacci level).

 

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[FBS.com Official]

Westpac Bank: comments about NZD/USD

 

New Zealand’s dollar declined today versus its US counterpart on the rising risk aversion caused by the concerns about Greece.

 

Analysts at Westpac Bank expect the pair NZD/USD to trade between $0.8000 and $0.8200 this week. In their view, the pair will eventually break range the bottom of this range, not the top.

 

Apart from the European issues, the markets also watch the FOMC’s meeting that will finish on Wednesday and Ben Bernanke’s press conference the same day. The bank thinks that the Fed may simply underline that the monetary policy will remain loose without specifying the details.

 

NZD/USD went down from today’s maximum at $0.8120 to the levels in the $0.8050 area. Support for the currency is now seen around $0.8040, while resistance starts at $0.8200.

 

Kiwi is much more influenced by global financial problems than by the domestic ones. When they are resolved, albeit temporarily, New Zealand’s dollar will once again resume the uptrend.

 

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[FBS.com Official]

Commerzbank: GBP/USD within downtrend

 

British pound went down from Friday’s maximums in the 1.6200 area found support in the 1.6110 zone managing to recover to 1.6185.

 

Technical analysts at Commerzbank regard this move of the pair GBP/USD as correction. In their view, sterling will find resistance at 1.6225. The specialists think that pound won’t be able to rise above 1.6370. There’s also a barrier at 6-week resistance line of 1.6420.

 

According to the bank, the trend for the pair is negative and it’s poised down towards the 55-week MA at 1.5831.

 

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[FBS.com Official]

BBH: Greece’s default is inevitable

 

Analysts at Brown Brothers Harriman, the oldest and largest private bank in the United States, claim that if the single currency drops below 1.42 versus the greenback, it will be poised down to 1.40 completing the retracement of the advance made in the second half of May.

 

According to the specialists, the second bailout for Greece may come in time to prevent the global crisis, but probably too late for Greece.

 

The bank thinks that there’s no chance the nation will be able to avoid default. The strategists say that the question is when it will happen and how well euro zone and G7 finance ministers will manage to constrain the negative consequences of this event.

 

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[FBS.com Official]

Morgan Stanley: dollar will rebound in the second half of 2011

 

Analysts at Morgan Stanley expect US dollar to rebound during the second half of the year as Asian central banks from China to India raise interest rates to curb inflation, damping economic growth and demand for the region’s assets.

 

The specialists underline that liquidity conditions start to change at a macro level and the global investment environment is becoming less favorable. As a result, investors’ demand for US dollar will strengthen.

 

According to Morgan Stanley, Swiss franc will also benefit from this process, while Japanese yen will get support in the short term, though in the longer perspective it will suffer from the consequences of March earthquake.

 

Another positive factor for US currency is the end of the Federal Reserve’s QE2 program. In addition, less demand for assets in the Asian nations will reduce selling pressure on dollar linked to the carry trade that involved selling dollars to buy the currencies of Norway, Australia, Canada and New Zealand.

 

The Federal Reserve’s U.S. Trade-Weighted Major Currency Dollar Index lost 12% this year hitting the all-time minimum of 68.2405 on May 2. The People’s Bank of China lifted up reserve requirement ratio last week to a record 21.5% for the biggest lenders. The Reserve Bank of India raised interest rates 10 times since the start of 2010.