Comments and forex-analytics from FBS Brokerage Company

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RBC: the pace of China's exports growth will slow down

 

According to the data, released today, China's exports added 20.4% in July on the annual basis after 17.9% increase in June.

 

Analysts at RBC Capital Markets note that the nation’s economy keeps benefiting from external demand. The specialists warned, however, that in the second half of the year the demand may weaken due to the problems in the United States and Europe. At the same time RBC doesn’t think that the situation will be as grief as it was in 2008.

 

Strategists at BNP Paribas share such opinion. The bank forecasts that China's exports growth will slow down to around 10% in the coming months.

 

Currency strategists at ANZ claim that, on the one hand, July trade surplus that exceeded the market’s expectations points at stronger inflationary pressures, so that the People’s Bank of China will be urged to tighten monetary policy to curb excessive liquidity. On the other hand, further tightening may affect the country’s GDP growth. As a result, the specialists think that the PBOC may watch how the things go during the next few months before it comes up with any actions. In their view, the central bank may speed up yuan’s appreciation to ease inflationary pressure in the near term.

 

Yuan rose to a 17-year maximum after yesterdays FOMC meeting and the talk that China’s central bank will allow the national currency to strengthen to curb inflation.

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BoE Inflation Report: forecasts are cut

 

According to the Bank of England’s quarterly inflation report released today, UK economic growth is likely to remain sluggish due to continuing squeeze on households’ real incomes. As a result, consumer prices growth rate is expected to be rather moderate: in the medium term the central bank sees inflation a little below the 2% target level.

 

The central bank believes that inflation would peak around 5% this year before falling to 1.8% during the next 2 years. The GDP growth pace forecast for 2011 was reduced from 2.5% (May estimate) to 2.0%.

 

British monetary authorities underline the necessity of keeping the policy very loose in 2011 and 2012 as the global economy is surviving difficult times.

 

The BoE notes that the euro zone debt crisis affects Britain's economic recovery, though these risks are hard to quantify, so they aren’t taken into account in its forecast. It’s also necessary to understand that the report was accomplished before the recent volatile moves of the market, so the forecasts don’t reflect the slump of equities and commodity prices seen so far. As a result, UK economy is even in worse shape than it’s presented in the report.

 

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UBS: monthly targets for USD/JPY

 

Technical analysts at UBS believe that during the next few months the greenback will be recovering from the current minimum versus Japanese yen close to the record low in the 76.25 area.

 

In their view, US currency will be helped by the risk of Japan’s currency interventions.

 

The specialists say that the pair USD/JPY will rise to 85.00 in a month and to 90.00 in 3 months.

 

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MIG Bank: bearish view on EUR/USD

 

The single currency recovered versus the greenback rising from Monday's minimum at 1.4130.

 

Never the less, technical analysts at MIG Bank believe that the bears are strong as euro’s advance has twice stumbled today at 1.4400. The bank underlines that this adds negative pressure to the one from the major triangle pattern out of which euro has failed to break.

 

The specialists have negative outlook for EUR/USD. In their view, the pair will fall to the levels below 1.4000 at the 200-DMA of 1.3942 and then to 1.3770 and 1.3410.

 

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BNY Mellon: EUR/CHF will resume its decline

 

The single currency managed to make yesterday the biggest advance versus Swiss franc since it was launched in 1999 – the pair EUR/CHF climbed from 1.0252 to the day’s maximum of 1.0929.

 

It happened as franc slumped after the Swiss National Bank’s Vice President Thomas Jordan claimed that there’s a possibility of franc’s temporary peg to euro.

 

Currency strategists at UBS think that such measures would require constant efforts on the SNB’s part to defend franc’s trading range as investors continue buying franc as a refuge. As a result, the central bank more obligations to intervene.

 

Analysts at Bank of New York Mellon believe that the SNB won’t be able to defeat the high demand for franc as for the safe haven and Swiss currency will resume strengthening the next week.

 

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HSBC: investors bet on euro’s collapse

 

Analysts at HSBC believe that the fact that investors are massively selling Italian and Spanish bonds means not only that they have negative view on the prospects of these nations, but that the market fears the single currency will collapse.

 

According to the economists, if euro breaks apart, some former European currencies such as the Deutschemark will gain, while the others like Italian lira will weaken.

 

To trade on this assumption means to sell Italian debt versus German one and that’s exactly what has been happening during the last few weeks, says HSBC.

 

The strategists say that Italy's fiscal management has been better than that in several other countries, so the market players bet not against Italy specifically, but against the euro.

 

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BoA Merrill Lynch: dollar will keep being steady

 

Analysts at Bank of America Merrill Lynch note that after the S&P cut US credit rating the greenback performed surprisingly well. In their view, dollar will keep being steady at rather strong positions.

 

The specialists say that investors are going to the nations where growth prospects look stronger. Never the less, the bank doubts that US currency will weaken even if the Federal Reserve goes down the path of quantitative easing over the next 6 months.

 

The economists claim that though in the past, when the U.S. economy has weakened, it's been negative for the greenback, if the slowdown spreads to the rest of the world and to the emerging markets in particular, the impact on US dollar will be quite positive. According to Bank of America, there’s a real possibility of the global economic slowdown.

 

As for the short term, however, the specialists favor British pound and Japanese yen. In their view, sterling is a good alternative for those who are nervous about US dollar or the single currency, while yen will be supported by strong fundamentals despite the risk of Bank of Japan’s interventions.

 

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BBH: trading recommendations on EUR/USD

 

Currency strategists at Brown Brothers Harriman advise traders to watch next week the economic data as well as the tensions in the euro zone peripheral nations and the signal from the equity market.

 

Euro area’s flash GDP for the second quarter is released on Tuesday, August 16, at 1:00 pm (GMT+4). Weaker Euro zone growth in an environment of slowing global activity, government austerity and a banking crisis would add pressure on the euro and global economic confidence.

 

French President Nicolas Sarkozy meets German Chancellor Angela Merkel meet the same day in Paris amid market turmoil that prompted France to speed up completion of its 2012 budget. The French government’s commitment to its deficit goals is “untouchable,” Sarkozy said. BBH expects that the meeting will provide an initiative in an attempt to stem the slide in French bank shares.

 

According to BBH, EUR/USD will remain in the recent range between $1.40 and 1.45. The specialists recommend selling euro as it rises to the top of this area until the European authorities do something more concrete to stem the crisis.

 

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Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

The horizontal Kijun-sen and Tenkan-sen (2) keep pound within the sideways trend: despite the fact that the last week the bears tested the Turning line (1), the prices closed above the Standard line (2).

 

The Preceding lines (3, 4) are also in the horizontal state. The bullish Ichimoku isn’t wide, though it’s still bullish and providing support for the pound.

 

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Daily GBP/USD

 

On the daily chart there were significant price moves –GBP/USD fell by more than 350 pips breaking through the Turning line (1) and Senkou Span B which is capping the descending part of the Ichimoku Cloud and sank after volatile trading on Tuesday. Then the pair has managed to find support, but it happened only when pound slipped to the lower border of Kumo – Senkou Span A – and the Standard line (2). Sterling recoiled up and began rising to the upper border of the Cloud.

 

This time the lines Tenkan-sen (1) and Senkou Span B will act as resistance for British currency.

 

It’s necessary to note that the Ichimoku Cloud which has recently turned upwards (4) keeps moving steadily sideways – the lines Senkou Span A and B are horizontal. In addition, so do both Tenkan-sen and Kijun-sen.

 

The Lagging Chinkou Span (3) has recoiled up from the price chart that may mean that the downside correction within the uptrend is over. As a result, sterling is likely to keep consolidating for some time and then resume its advance.

 

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Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

Yen keeps consolidating near the record minimums: on the one hand, the demand for Japanese currency as the safe haven remains high due to the continuing risk aversion and, on the other hand, the risk of further Bank of Japan’s interventions holds the pair USD/JPY from falling.

 

It’s necessary to note that the greenback doesn’t have much support, while resistance to it is provided by the horizontal Tenkan-sen (1) and Kijun-sen (2) as well as by the descending Ichimoku Cloud (3).

 

This week US currency may try to recover to the Turning line (1).

 

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Daily USD/JPY

 

The pair USD/JPY erased the advance which it made after the Bank of Japan’s intervention on Thursday, August 4. Last Monday the prices have opened with gap below Tenkan-sen (1) and then consolidated at the end of the week in the narrow range between 76.50 and 77.20.

 

The Ichimoku Cloud (3) narrowed, but keeps declining.

 

The Standard line has turned down (2), while the Turning line (1) is still horizontal – there’s a chance that the “dead cross” is revoked.

 

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Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

The situation at the franc’s chart has significantly improved. For the first time this year the pair USD/CHF managed to close above the Turning line (1) which is now acting as support.

 

For now the downtrend is continuing. The Ichimoku Cloud keeps declining that means that the bears still dominate the market. The majority of the lines of the chart are directed down (2, 3, 4), while only Tenkan-sen has a bit eased (1).

 

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Daily USD/CHF

 

On the daily chart the things have also got better. Franc’s rate is rising already for 4 days in a row.

 

The prices have managed to overcome the resistance provided both by the Turning line (1) and the Standard line (2) that begin playing the role of support, while Tenkan-sen and Kijun-sen have gone to meet each other.

 

Resistance for the rate is now provided only by the descending Ichimoku Cloud that is not very wide (3).

 

The forecast for American currency is generally favorable – it will be confirmed if the lagging Chinkou Span indicated with green color breaks up the price chart and Kijun and Tenkan form the “golden cross”.

 

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Analysts on franc’s potential peg to euro

 

According to the information from SonntagsZeitung newspaper, Switzerland’s government and the central bank are intensely discussing the possibility of targeting the national currency in order to constrain its appreciation. The paper reported that the Swiss National Bank may set such target very soon – the plan may be adopted on August 17. The nation’s monetary authorities declined to comment.

 

Analysts at BNP Paribas are rather skeptical of all the talk about franc’s potential peg to euro. In their view, if there won’t be any official signals of that by Wednesday, Swiss currency will keep strengthening. The specialists underline that the resent inflows in francs weren’t speculative, but represented the “real money” activity and, as a result, they will be very hard to reverse until there’s some fundamental solution to the euro area’s problems.

 

Strategists at Goldman Sachs say that suggesting the managed float to guide EUR/CHF higher in very narrow trading ranges would be more efficient than the peg. Swiss authorities may reach 2 goals at the same time by intervening and announcing that they would invest the proceeds in Spanish and Italian government bonds – stem franc’s appreciation and help reduce the risk premium on European debt.

 

Economists at Swissquote believe that what happens now is a form of verbal intervention and the market is overpricing the probability of a tangible foreign exchange target. In their view, the actual EUR/CHF peg seems unlikely, while the vaguely worded commitment to regulate the rates is possible. It’s also necessary to take into account that at current levels franc’s still regarded as overvalued, so before pegging it to euro the SNB would have to reduce significantly its rate and that will be rather expensive. In addition, the peg to work only the SNB shows unwavering commitment. However, history is littered with central banks that have been broken in the face of market pressure.

 

Analysts at Schneider Foreign Exchange claim that the SNB is “leaning against the hurricane”, reports Bloomberg. UBS notes that Swiss policymakers would have to be ready to spend several hundred billions of francs or more on interventions.

 

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Commerzbank: the pair USD/CHF may rise to 0.8189

 

Technical analysts at Commerzbank note that the positive divergence seen on the USD/CHF daily chart has triggered a strong recovery.

 

The specialists note that the greenback has managed to overcome resistance at 0.7562 and 0.7802. In their view, if US currency closes above the latter, it will actively test the 0.8000 zone.

 

According to the bank, the next target levels are at the 0.8079 (July 14 minimum) and 0.8189 (55-day MA).

 

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CFTC: dollar shorts are cut by more than half

 

Data from the Commodity Futures Trading Commission released on Friday showed that currency speculators slashed their bets against the greenback by more than half to the lowest level since January.

 

The value of the dollar's net short position dropped to $11.61 billion in the week ended August 9 from $24.80 billion a week earlier.

 

The market has become more bearish on euro, while the number of longs on Australian dollar also decreased.

 

Here’s the information on the positions on the major currencies. Data is taken from Reuters.

 

 

JAPANESE YEN (Contracts of 12,500,000 yen)

 

-6,835,268,552.15

 

8/09/11 week 8/02/11 week

 

Long 53,386 78,855

 

Short 11,237 20,022

 

Net 42,149 58,833

 

EURO (Contracts of 125,000 euros) 1,485,830,800.00

 

8/09/11 week 8/02/11 week

 

Long 49,029 58,313

 

Short 57,302 56,550

 

Net -8,273 1,763

 

POUND (Contracts of 62,500 pounds sterling)

 

-24,979,281.25

 

8/09/11 week 8/02/11 week

 

Long 41,290 43,266

 

Short 41,045 38,127

 

Net 245 5,139

 

SWISS FRANC (Contracts of 125,000 Swiss francs)

 

-805,474,806.20

 

8/09/11 week 8/02/11 week

 

Long 14,449 25,593

 

Short 9,794 13,252

 

Net 4,655 12,341

 

CANADIAN DOLLAR (Contracts of 100,000 Canadian dollars)

 

-2,418,775,510.20

 

8/09/11 week 8/02/11 week

 

Long 38,872 57,482

 

Short 15,168 16,445

 

Net 23,704 41,037

 

AUSTRALIAN DOLLAR (Contracts of 100,000 Aussie dollars)

 

-3,008,088,720.00

 

8/09/11 week 8/02/11 week

 

Long 40,840 91,352

 

Short 11,824 15,754

 

Net 29,016 75,598

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Mizuho: USD/JPY will fall to 75 yen

 

Technical analysts at Mizuho Corporate Bank believe that the greenback may drop below the postwar minimum versus Japanese yen to 75 yen.

 

The specialists note that on the Ichimoku chart Kijun-sen (the baseline) fell from 78.89 on August 12 to 78.34 today. In their view, Tenkan-sen (the conversion line) will start declining this week after Japan’s intervention brought US dollar to the 3-week maximum at 80.23 yen on August 4.

 

Mizuho says that the descending base and conversion lines will put the pair under negative pressure. According to the bank, US currency is already showing its weakness trading near the record lows in the 76.50/77.00 area.

 

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Danske Bank: comments on EUR/USD

 

Currency strategists at Danske Bank claim that the single currency remains under pressure due to the continuing euro zone’s debt crisis.

 

The specialists regard the recent EUR/USD decline as quite limited because the greenback suffered from US debt rating cut and Federal Reserve’s pledge to keep the borrowing costs close to zero until the middle of 2013.

 

According to the bank, in the short term the outlook for euro is bearish, while in the medium and longer term the pair has significant upside potential.

 

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Commerzbank: EUR/USD is facing resistance

 

Technical analysts at Commerzbank note that the single currency rose yesterday versus the greenback to the 4-month downtrend resistance line in the 1.4443 zone. In their view, this level and July peak at 1.4537 will cap EUR/USD on the upside.

 

The specialists note that the pair is going to remain under bearish pressure in the medium term as long as it’s trading below the 1.4697/1.4704 area representing June maximum and 78.6% Fibonacci retracement level of the 2011 decline.

 

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will survive strong decline versus euro

 

Demand for British pound that performed rather well so far as investors regarded it as a sort of safe haven amid European and US debt issues begins to fade.

 

Analysts at Schneider Foreign Exchange believe that by the end of the year sterling will fall by more than 8% versus the single currency to 96 pence per euro. In their view, euro zone’s growth prospects are better than Britain’s ones. Strategists at Barclays claim that pound will fall to 95 pence per euro in 3 months. Analysts at Wells Fargo note that the real yields in Britain are among the lowest equal to minus 1.72% compared with minus 0.27% in Germany, minus 1.3% in the US and 0.84% in Japan.

 

Analysts at Standard Life Investments, however, think that investors will be buying sterling as long as the euro area’s debt crisis persists and the Fed keeps interest rates at record lows. The specialists are neutral on pound’s dynamics versus its major counterparts.

 

Bloomberg survey:

 

- Forecasts for sterling against euro cut by 5.7% this year.

 

- Britain’s economy is projected to add 1.2% in 2011, while German economic growth is seen at 3.4% and in euro area as a whole – at 2%, while in the US – at 1.8%.

 

Data from the Office for National Statistics: in the first quarter investors sold net 48.9 billion pounds ($79.6 billion) in British stocks, bonds and money-market products.

 

The comments from the nation’s top officials are:

 

August 10 – the Bank of England’s Governor Mervyn King signaled that to boost growth the central bank may resume pumping liquidity into the economy.

 

August 11 – British Minister of Finance George Osborne claimed that UK economic recovery will take longer and be harder than thought earlier.

 

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BBH: EUR/CHF is consolidating in the short tern

 

The pair EUR/CHF rose on the speculation about the potential peg of Swiss franc to euro. The European currency climbed from the levels close to parity and approached 1.1500 – the supposed target of the peg.

 

Analysts at Brown Brothers Harriman believe that single currency will consolidate in the short term between 1.12 and 1.15 unless the Swiss National Bank or the equity markets push it higher. Among the factors positive for the pair there are unsterilized bond purchases, stronger US economic data together with S&P500 index breaking above 1100-1250.

 

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Goldman Sachs: QE3 in the US is very likely

 

Analysts at Goldman Sachs are sure that the third round of quantitative easing in the United States is coming later this year or at the beginning of 2012. The reason why the additional monetary stimulus is needed is the US economic growth slowdown and high unemployment rate.

 

The possibility of QE3 rose as on it last meeting that took place on August 9 the Federal Open Market Committee pledged to keep the interest rates at the record low at least until the middle of 2013 that means that US monetary authorities are ready to act employing more policy tools if the economic outlook keeps worsening.

 

According to Goldman, though not all members of the FOMC support the idea of the new QE – Presidents Fisher, Kocherlakota and Plosser spoke against loosening policy – that won’t stop the Fed’s Chairman Bernanke from pushing through the measures.

 

It’s necessary to note that though there are different forms of stimulus from the small steps such as a commitment to keep the balance sheet large, a gradual shift of the securities portfolio into longer maturities or a cut in the interest rate on excess reserves from 0.25% to 0% to very aggressive ones such as rate caps (a form of QE in which the Fed promises to buy as many securities as needed to hit a longer-term yield target), a price level or nominal GDP target, or interventions in non-government securities markets (for which funding from Congress would be needed). Goldman specialists say that from all the measures mentioned the conventional QE seems to be the most acceptable option.

 

To sum up, the economists expect quantitative easing to be resumed, but see several risks to such forecast: stronger economic performance, higher inflation and public backlash. As for the latter, the Fed may try to smooth the situation by proposing monthly numbers that not look as big as the $600 billion purchase over 8 months announced last year. In addition, the decision of continuing the program may be made on the monthly basis as well that would also improve the negative sentiment.

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Danske Bank: EUR/USD will rise in a year

 

Currency strategists at Danske Bank came up with concrete forecasts for the pair EUR/USD.

 

The specialists note that the United States face weaker than expected growth, long period of minimal interest rates, large current account deficit as well as the serious fiscal challenges and increased political risks.

 

As a result, in medium-term the bank is bearish on the greenback and thinks that in such conditions the single currency will be able to gain.

 

According to Danske Bank, euro will rise to $1.50 versus its American counterpart in a year. The previous forecast was at $1.36. The 3-month estimate though was reduced to $1.42 on the expectations of weak macro data during the next few months.

 

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Commerzbank: comments on GBP/USD

 

Technical analysts at Commerzbank note that if British pound managed to rise versus the greenback above the downtrend resistance line from May maximums in the $1.6444 zone, it will head up to $1.6539/47 (78.6% Fibonacci retracement of the decline from April peak and May high).

 

Never the less, pound still didn’t manage to overcome the mentioned resistance: the pair GBP/USD slid today from August high at $1.6475 posting the low at $1.6347.

 

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BarCap: Merkel and Sarkozy disappointed investors

 

Yesterday’s meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel didn’t bring much results.

 

The leaders of the biggest euro zone’s economies, which are expected to lead efforts to contain the debt crisis, spoke about the plan to form a euro-zone economic council, but didn’t voice support for the creation of the common euro-zone bonds at it may affect the region’s healthiest economies. The market regards the common bonds as the last chance to improve the situation.

 

Merkel and Sarkozy called for spending cuts and other long-term measures to bring down debt levels but offered no immediate solutions.

 

Analysts at Barclays Capital note that the markets were disappointed by the focus on long-term governance issues lack of the concrete steps at the time when it’s very important to encourage the economic growth.

 

In the second quarter German GDP growth pace slowed down to 0.1%, while the economists were looking forward to 0.5%. The economic growth pace of the entire euro area during the same period accounted only for 0.2%, while during the first 3 months of 2011 this indicator was equal to 0.8%.

 

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BNP Paribas: SNB failed to affect the market

 

The Swiss National Bank for the third time tried to weaken the national currency.

 

Switzerland’s central bank announced today that it will boost liquidity to the money market expanding banks’ sight deposits from 120 to 200 billion francs ($253 billion). The SNB also decided to repurchase outstanding SNB Bills and use foreign-exchange swap transactions.

 

Economists at Credit Suisse think that the SNB has other means of action, but for it just keeps pursuing this liquidity strategy.

 

Analysts at BNP Paribas note that the market was looking forward to interventions or a peg and got disappointed by the outcome. In their view, it will be very difficult for the Swiss monetary authorities to act against the market that’s seeking refuge in franc. The bank thinks that it would be near impossible for policy makers to peg the franc to the euro and commit to unlimited currency interventions as it would be too expensive and wouldn’t guarantee success.

 

UBS specialists think that the SNB’s move didn’t impress the market. Taking into account the lack of results after yesterday's Franco-German bilateral summit, the bank says that euro may drop back to 1.10 and even lower.

 

The pair EUR/CHF is still trading under 1.5000. Today it hit the low at 1.1221.

 

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Commerzbank: EUR/USD will go down again

 

In the morning the single currency hit the day’s minimum versus the greenback at $.4320. Then it found support and jumped above the 4-month downtrend resistance line at $1.4435.

 

Never the less, technical analysts at Commerzbank believe that euro’s advance will stall in the between the broken resistance and July 27 maximum at $1.4537 and the pair EUR/USD will return down to the 38.2% Fibonacci retracement at $1.4259.

 

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