Comments and forex-analytics from FBS Brokerage Company

[FBS.com Official]

BlackRock doesn't recommend buying AUD/USD

 

Analysts at BlackRock, the world's largest asset manager that’s in charge of about $3.65 trillion in assets in its stock, bond and hedge funds, think that after Australian currency has gained 28% versus US dollar during the past year that’s the most than other greenback’s major counterparts it doesn’t have much potential to keep appreciating.

 

The specialists point out that to buy Aussie one has to be very optimistic about global economy that’s rather difficult in the current circumstances.

 

The pair AUD/USD used to be supported by the increasing interest rate differential between Australia and other developed nations and high demand from China for the nation’s commodities. However, Chinese manufacturing growth fell to the minimum since February 2009, while the pace of services industries’ expansion declined to lowest level in 4 months. In addition, according to the data released today, Australian retail sales declined today.

 

Aussie dropped from $1.0789 on July 1, the maximum since May 11, to trade in the $1.0720 area.

 

Economists surveyed by Bloomberg News expect Australian currency to weaken to $1.04 by the end of 2011.

 

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[FBS.com Official]

RBA lest the rate unchanged: analysts’ comments

 

As it was expected, the Reserve Bank of Australia decided to keep the rates unchanged at 4.75%.

 

Analysts at Barclays Capital expect the central bank to downgrade its growth and inflation forecasts in August. Though the RBA said it expects the economic recovery to boost output in coming months, it projects growth in 2011 to be less strong than previously thought.

 

The pair AUD/USD declined from $1.0746 to $1.0665. Strategists at Western Union Business Solutions Corporate Dealing place support at $1.0650 and resistance at $1.0730.

 

Economists at J.P. Morgan pointed out, however, that the RBA is still concerned about inflation that will keep increasing. In their view, the central bank will hike rates once again in the coming months – in August and November.

 

Analysts at Nomura think that the RBA will consider the option of the rate hike if the second quarter CPI figures are really high. According to the specialists, both headline and underlying inflation would have to show above 0.8% on-quarter growth. In the first quarter Australian consumer prices added 1.6%, while the core CPI increased by 0.9%.

 

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[FBS.com Official]

BNP Paribas, Rabobank about pound’s future

 

Analysts at BNP Paribas believe that British pound will gain versus the greenback in the second half of the year as the interest rate differential between the United States and Britain widens in favor of the latter as the Federal Reserve is likely to stay on hold. However, the Fed may start tightening monetary policy next year, so that GBP/USD’s uptrend will likely reverse. According to the specialists sterling may return down to $1.50 in 2012.

 

Currency strategists at Rabobank, on the other hand, expect sterling to be weak during the summer months. Among the reasons for such assumption the specialists cite the poor state of UK economy and the potential further quantitative easing by the Bank of England. In their view, it will depend on EUR/USD dynamics whether pound will get under pressure more versus euro or the greenback.

 

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[FBS.com Official]

Martin Jacomb: Greece needs to quit the euro area

 

Martin Jacomb, the former member of the Bank of England’s Board of directors, gave rather interesting comments about the future of the euro area. His entire interview can be found in Financial Times.

 

The economists underline that though the European policymakers are trying to rescue Greece in order to preserve euro and prevent another banking crisis, they won’t succeed this way. According to Jacomb, it’s vital to restore competitiveness of the region’s poorest countries and in order to do that they have to elaborate a totally different approach.

 

The specialist thinks that Greece can’t get out of the crisis and normalize its debt situation remaining in the euro area as the adoption of euro itself made its economy uncompetitive. In his view, the only way to regain competitiveness for a nation is to devaluate its currency to achieve the reduction of labor costs and living standards.

 

So, Jacomb’s conclusion is that abandoning euro is the least painful course of action for both Greece and the EU.

[FBS.com Official]

Commerzbank: comments on USD/CHF

 

Technical analysts at Commerzbank advise investors to buy the greenback versus Swiss franc in the 0.8415/0.8370 zone stopping below 0.8330.

 

The specialists say the pair USD/CHF will face strong resistance at 0.8528 and 0.8554 – the minimum of the beginning of May and the maximum of the end of May respectively.

 

According to the bank, if US dollar manages to close above the latter, it will be able to rise above 0.86.

 

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[FBS.com Official]

Barclays Capital, Commerzbank: comments on GBP/USD

 

Technical analysts at Barclays Capital think that British pound will be capped by the $1.6150 level trading versus the greenback. In their view, GBP/USD will return down to the minimums in the $1.5970 area. However, if sterling unexpectedly breaks above $1.6150, trading will become more volatile and the pair will get chance to climb to $1.6250.

 

Strategists at Commerzbank believe that the advance of British currency will be limited by resistance at $1.6144. If pound closes the day below $1.5957, it will be poised further down. On the other hand, if sterling closes above $1.6144, it will get chance to rise to $1.6230/65. The bank’s general outlook for GBP/USD is bearish as long as it’s staying below $1.6320.

 

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[FBS.com Official]

UBS: EUR/CHF depends on the demand for the greenback

 

Currency strategists at UBS claim that the recent upward correction of the single currency versus Swiss franc may be explained by the improved investors' sentiment about Greece's future after the nation’s parliament approved austerity measures last week and the euro zone’s finance ministers agreed to provide the country with the fifths tranche of financing. Never the less, the specialists think that uncertainly concerning the situation in the euro area will persist capping the attempts of the pair EUR/CHF to strengthen.

 

It’s necessary to note that the pair is driven more by the market’s confidence in the greenback which will be influenced by the upcoming earnings season. The specialists say that euro will be able to break its medium-term downtrend versus franc only if financial results of US companies are encouraging enough. In such case confidence in the greenback will increase triggering capital reallocations out of Switzerland.

 

According to UBS, such outcome is unlikely unless domestic conditions improve more considerably and the Fed becomes more hawkish, so the bank remains bearish on EUR/CHF. As a result, the analysts recommend selling euro on the current maximums.

 

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[FBS.com Official]

Pound versus euro: key factors

 

Analysts at MSN Money wonder why the single currency that logically has to be undermined by the euro area’s severe debt problems has outperformed British pound this year.

 

Firstly, the specialists note that all currencies of developed nations currently don’t look much attractive for investors. Even though the European economies are suffering, the market believes that the currency union will survive even if Greece quits as euro will remain the currency of economically strong Germany.

 

Secondly, it’s about the hawkish approach of the European Central Bank. The ECB is much more wary of inflation than other advanced nations’ central banks, the Bank of England included.

 

Sterling, however, lacks such drivers. UK economic growth is weaker than expected, while inflation’s rapidly rising. British consumers are affected by rising costs and stagnant wages, so they have little disposable income to spend, retail sales are low – too bad for the consumer-centered economy. The Bank of England doesn’t intend to raise the borrowing costs anytime soon to curb the prices as it will have negative impact on the already weak economy.

 

So, euro has flourishing Germany and the ECB hiking rates while sterling relies on struggling economy and loose monetary policy.

 

It’s also necessary to note that pound isn’t a reserve currency, while euro is. Just under a third of the global currency reserves held by governments and central banks are denominated in euro and only 4% is in sterling.

 

The euro area may not survive the crisis in its current state. On the one hand, it may dissolve or the number of its members may at least reduce, but on the other hand, the region may turn to a more closely-knit political union that would encourage further demand for euro from those who tend to diversify from dollars.

 

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On-line analytics from FBS always is available on: http://www.fbs.com/analytics/news_markets

[FBS.com Official]

US Non-Farm Payrolls forecasts

 

Economists surveyed by Bloomberg News believe that US Non-Farm Payrolls increased in June by 100,000 after gaining 54,000 in May that was the minimal rise in 8 months.

 

Such advance, however, won’t be enough to reduce the unemployment rate that is expected to remain at 9.1%. In order to achieve sustainable decline in the joblessness rate, payrolls have to climb by roughly 200,000 a month. The monthly average in the first quarter was only at 166,000.

 

In June the pace of the payrolls growth is likely to be slower than that as the companies tend to limit costs trying to hold their ground in the time of general economic weakness – last month Ben Bernanke called US economic recovery “frustratingly slow”. The Federal Reserve’s Chairman says that the central bank projects that the unemployment rate will continue declining but at a very low pace.

 

The situation on the labor market has been during the last few years far from optimistic – since Barak Obama became president in January 2009 unemployment has increased by almost a percentage point, while the economy has lost 2.5 million jobs.

[FBS.com Official]

BNP Paribas bets on euro’s advance in 2011

 

Analysts at BNP Paribas note that different monetary policy approaches of the Federal Reserve and the European Central Bank are widening the yield spread between the US and the euro area in favor of the latter. As a result, the single currency is strengthening versus the greenback despite the European debt issues.

 

The specialists believe that the pair EUR/USD that is currently trading above $1.40 may get higher as the EU authorities will hopefully agree to help Greece out of the crisis and the Fed and the ECB keep conducting divergent policies.

 

Then, in 2012, when US central bank is thought to begin monetary tightening, euro may weaken.

 

However, according to the bank, it’s necessary to note that the European currency is not as strong as one may judge from the exchange rate. In real effective terms, euro is in line with its long-term average. It would be more accurate to talk of the dollar being weak than the euro being strong as the greenback’s real effective exchange rate is indeed well below its long-term average.

 

BNP Paribas expects to see EUR/USD in the $1.4500 area during the third quarter. Then the pair will rise to $1.4800 by the end of the year. Bank’s forecasts for the next year are at $1.4500 for the second quarter, $1.4000 – for the third and $1.3500 – for the fourth.

 

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[FBS.com Official]

Commerzbank: comments on USD/CHF

 

The greenback’s advance versus Swiss franc from the record minimum at 0.8274 hit on June 30 was capped by 0.8525 close to the key resistance 0.8555 (minimum of the beginning of May and May 31 maximum) above which the bearish pressure on the pair would ease.

 

Technical analysts at Commerzbank believe that US currency manage to recover to 0.8593/.8630 (Fibonacci retracement level, 55-day MA) and 0.8850 (38.2% retracement of the 2011 decline).

 

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[FBS.com Official]

J.P.Morgan: trading advices concerning ECB meeting

 

The market is sure that the European Central Bank will raise its benchmark rate on Thursday, July 7. It’s also pretty clear that the Bank of England will keep the borrowing costs unchanged at its meeting on the same day.

 

The surprises are unlikely. Never the less, analysts at J.P. Morgan think that it’s still possible to trade on this event. In their view, it’s necessary to concentrate attention on the tone of the central banks’ statements.

 

The specialists expect the ECB President Jean-Claude Trichet to sound hawkish, while the Bank of England is likely to remain dovish. The natural conclusion from such assumption is the recommendation to buy EUR/GBP. J.P. Morgan advises to open longs at 0.8960 stopping below 0.8870 and targeting 0.9200.

 

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[FBS.com Official]

EUR/USD dropped after Portugal's downgrade

 

Moody’s Investors Service reduced today Portugal’s long-term government bond ratings from Baa1 to Ba2. As the reason of the downgrade the specialists cited the growing risk that Portugal will require a second bailout before it can return to the private market.

 

Strategists at Bank of New York Mellon claim that uncertainty is currently higher than long time before. The specialists expect trading to be volatile. In their view, it’s impossible to project now at what level euro’s rate will be in a year as the prospects of the euro zone’s surviving the crisis remain dim.

 

Portuguese 10-year government bond yield bounced to the record maximum of 12.30%. Irish, Italian, Spanish and Greek yields also climbed on the fears of further ratings cuts.

 

Analysts at Royal Bank of Scotland are surprised that the news about Portugal’s downgrade provoked such big decline of the single currency versus the greenback. The bank thinks that the downgrades of other peripheral nations’ debt will inevitably come.

 

Strategists at Societe Generale give several reasons of such strong sell-off. Firstly, the market was long on EUR/USD. Secondly, the bond markets drove the pair by correlation. Thirdly, the greenback is seen as a better safe haven than Swiss franc in short-term perspective (though not in the longer term taking into account US debt ceiling negotiations).

 

The pair EUR/USD fell on the negative news from $0.4466 to $1.4325. Analysts at Commerzbank claim that if euro gets below $1.4325, it will be poised down to support at $1.4140 and then to the 200-week MA at $1.4021.

 

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[FBS.com Official]

Barclays Capital cut forecasts for GBP versus USD and EUR

 

Analysts at Barclays Capital, world's second-largest currency-dealing bank after Deutsche Bank, changed their outlook for British pound versus the greenback to bearish.

 

The specialists now think that GBP/USD will trade in a year at $1.60, while earlier they expected to see the pair in July 2012 at $1.76. One-month forecasts were decreased from $1.66 to $1.59, 3-month – from $1.72 to $1.58, 6-month – from $1.74 to $1.59.

 

The forecast for EUR/GBP was raised from 0.82 to 0.90. Euro will rise to 0.93 in a month and to 0.95 in 3 months.

 

The projections for sterling were moved down after the bank lowered the estimate of UK economic growth in the second half of 2011 and pushed its expectations of Bank of England rate hike from November 2011 to May 2012.

 

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[FBS.com Official]

BoA Merrill Lynch: PBOC raised rates

 

The People’s Bank of China raised today benchmark deposit and lending rates by 25 basis points and to 3.5% and 6.56% respectively. This is the third increase since the beginning of 2011.

 

Analysts at Bank of America Merrill Lynch don’t think that the PBOC will lift up the borrowing costs until the next year. In 2012 the specialists expect 2 hikes of 25 basis points each.

 

The bank believes that Chinese monetary authorities decided to tighten policy projecting inflation spike in June. According to Bank of America, real deposit rates in China remain negative as in May China’s CPI added 5.5% showing the fastest pace of increase since July 2008. As the bank savings of Chinese residents are steadily eroded by inflation they invest their money into the real estate driving up housing prices and fuelling concerns about a nationwide property bubble.

 

The nation may still need to use proactive fiscal policies to offset some of the negative impact of the latest rate move.

 

Such move of China’s central bank is likely to raise concerns that monetary tightening will trigger a slowdown in the world’s second-biggest economy.

[FBS.com Official]

Citigroup advises to sell EUR/CAD

 

The market is short on Canadian dollar. The reasons of such negative sentiment about loonie may be various: investors may be worried about US economic weakness that may affect Canada’s economy or about Canadian growth itself.

 

Euro’s story is different. The bullish players look forward to more ECB rate hikes in 2011. However, the euro zone’s problems are still unsolved: there’s high pressure from the rating agencies that are issuing warnings about Greece and Portugal. In addition, many economists think that the recent agreement on Greece did nothing but put off more drastic measures needed to overcome the crisis.

 

Analysts at Citigroup think that the euro area’s issues are likely to intensify, while there may be some unexpectedly positive data from Canada, for example, from US employment report that is released on Friday. In such case Canadian currency will benefit not only from its ties to the United States, but also from the improved risk sentiment.

 

According to Citigroup, it’s necessary to sell EUR/CAD at 1.3850 stopping at 1.4160 and targeting 1.3050. The strategists advise to hold position for about 2 months.

[FBS.com Official]

Commerzbank: EUR/USD on its way down to $1.3900

 

The single currency slumped yesterday versus the greenback breaking below the support provided by the Ichimoku Cloud.

 

Technical analysts at Commerzbank claim that the pair EUR/USD is now poised down to support line at $1.4145 and then to the 200-week MA at $1.4021, the recent minimum at $1.3968 and finally to the 200-day MA at $1.3900.

 

According to the bank, strong resistance for euro is found at Wednesday's maximum in the 1.4465 area.

 

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[FBS.com Official]

UBS: US dollar still remains the world’s main reserve currency for now

 

Analysts at UBS believe that although many of the largest market participants such as Asian central banks tend to diversify their assets from holding US dollars, the greenback will for some time more remain the major reserve currency.

 

According to the COFER (Composition of Foreign Exchange Reserves) report released by the IMF, in the first quarter of 2011 reserves denominated in US dollars decreased by 0.8%, while the holdings in euro trimmed by 5.1%. The single currency was sold probably because of the concerns about the situation in the peripheral euro zone nations, while dollar got under pressure due to the fears about the extension of quantitative easing.

 

UBS underlines that other currencies such as commodity ones tend to attract increasing demand as the reserve ones.

 

As for the longer term, US currency risks to lose its status. The bank asked the participants of its annual reserve management seminar what would be the most important reserve currency in 25 years. The majority of respondents think it will be not one, but a portfolio of currencies, 5% of the interviewed said it would be euro, while less than 30% think that dollar will manage to keep the lead.

 

The bank notes that if the reserve managers add fiscal performance on the list of criteria for investment selection that currently includes yields and liquidity, emerging markets’ currencies will be able to compete with the ones of advanced nations.

[FBS.com Official]

Commerzbank: SNB will raise rates in September

 

Analysts at Commerzbank think that Swiss National Bank will raise the borrowing costs in September for the first time this year.

 

In their view, the nation’s central bank faces a rather hard task of balancing uncertainty about the euro zone periphery with inflationary concerns in Switzerland.

 

The specialists claim that strong national currency will likely make the SNS hesitate about hiking rates. However, according to the data released today, Swiss CPI added 0.6% in June from the levels of the previous year after gaining 0.4% in May. Even though inflation growth may be regarded as moderate, there’s an uptrend here. The bank forecasts that in the second half of the year inflation will overcome 1%.

 

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[FBS.com Official]

RBS: Aussie gained on positive employment data

 

Australian dollar gained for the second day versus the greenback helped by the encouraging labor market data. The number of people employed in Australia rose in June by 23,400 after declining by 500 in May and 28,300 fall in April. Economists were looking forward to an increase of only 15,000. The unemployment rate remained at 4.9%.

Analysts at Royal Bank of Scotland claim that good situation at Australian labor market increases the chances that the Reserve bank of Australia will raise the interest rates this year.

 

According to Bloomberg, futures traders estimate the possibility of RBA rate cut to 4.5% by December by 34%, while yesterday this figure was equal to 42%.

 

Strategists at Nomura underline that the prospects of RBA rate hike depend on Australia’s second quarter CPI data that is released at the end of July.

The pair AUD/USD rose today from $1.0685 to $1.0760. Resistance for Aussie is found at the 7-week maximum of $1.0790 that has so far been tested 2 times. Support level is situated at the 55-day MA in the $1.0670 area.

 

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[FBS.com Official]

BBH: ECB will keep raising rates

 

Analysts at Brown Brothers Harriman think that after the European Central Bank has lifted up its benchmark interest rate today by 25 basis points to 1.5%, it will once again tighten its monetary policy in the fourth quarter of 2011.

 

In their view, debt problems of the peripheral nations won’t derail the process of rate normalization. The specialists think that ECB’s hawkish approach is justified as the policy is still loose, while the amount of spare capacities keeps declining at faster speed than expected.

[FBS.com Official]

UBS, BBH: comments on EUR/CHF

 

Analysts at UBS note that the European debt crisis will keep being the main driver of the single currency, Swiss franc and investors’ risk sentiment in the medium term.

 

In their view, the outlook for the pair EUR/CHF during the summer months seems to be neutral. The specialists don’t expect any sustained upward correction of euro. According to UBS, risks for the pair remain asymmetric: while upside risk is limited, the downside one looks rather significant.

 

Strategists at Brown Brothers Harriman point out that after Moody’s yesterday downgraded Portugal the market’s concerns about the spreading of the debt crisis.

 

The pair EUR/CHF declined due to amid renewed tensions in the periphery debt market that’s expressed by the surge of periphery yields and CDS prices.

[FBS.com Official]

ANZ: EUR/USD may fall to $1.3903

 

Analysts at ANZ Banking Group claim that if the single currency falls versus the greenback getting below the 100-day MA at $1.4273, it may slump firstly, to June 16 minimum at $1.4074 and then to $1.3903 (50% Fibonacci retracement of this year’s advance from $1.2867 to $1.4940) that is the 3 1/2-month minimum.

 

The specialists claim that the euro has formed consolidation pattern since May 23 to July 4 between the uptrend line connecting the minimums of May 23, June 16 and June 27 and the downtrend line linking the maximums of June 7 and July 4. In their view, the pair EUR/USD currently risks to survive another decline of the similar magnitude as at the beginning of May.

 

Yesterday the European currency hit the lowest level since June 27 at $1.4220 before returning to the levels above $1.4300.

 

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[FBS.com Official]

BNP Paribas: USD/JPY up head of NFP report

 

There are, finally, some improvements on the USD/JPY chart. Japanese yen’s declining versus the greenback as the market looks forward to optimistic figures of US Non-Farm Payrolls report.

 

Economists surveyed by Bloomberg News think that NFP rose by 105,000 in June after adding 54,000 in May. The unemployment rate is expected to remain at 9.1%.

 

Analysts at BNP Paribas note that the greenback may benefit from NFP data released today at 12:30 GMT if the number of jobs added in June shows either a massive upside surprise or a big disappointment for the market. Otherwise it’s going to be neutral to positive for risk.

 

The pair USD/JPY went up from last week minimums at 80.25 breaking yesterday above resistance in the 81.00/15 area. The next resistance levels are situated at the 100-day MA of 81.60 and the 200-day MA at 82.09. Support levels are found in the 81.10/00 and 80.80/77 zones.

 

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[FBS.com Official]

NAB: buy Aussie on the dips

 

Analysts at National Australia Bank claim that if Australian dollar falls back to the $1.0400 region trading versus its US counterpart, investors should use it as possibility to buy Aussie.

 

The specialists are optimistic about the world’s economic outlook. In their view, the soft patch in growth will be over by September. In their view, China will go through soft landing, Greece will go further somehow and there will be no recession in the United States – that will secure the ground for Australia's commodity prices supporting Aussie.

 

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