Comments and forex-analytics from FBS Brokerage Company

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Goldman Sachs changed RBNZ rates forecast

 

Analysts at Goldman Sachs believe that the Reserve bank of New Zealand will keep official cash rate unchanged at 2.5% until March, while earlier the specialists thought that the central bank will raise the borrowing costs. The RBNZ meeting is scheduled on September 15.

 

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Commerzbank: sell EUR/USD

 

The single currency fell from last week’s maximum versus the greenback at $1.4550 set on Monday to the levels below $1.4200 today. The pair EUR/USD breached the short-term uptrend support line.

 

Technical analysts at Commerzbank advise investors to sell euro. In their view, the pair is on its way down to $1.4055/1.3997 (August minimum, 200-day MA and the 200-week MA).

 

According to the bank, the bears will make several attempts to break down. The specialists say that if the European currency closes the week below $1.3837, it will be poised down to $1.2000 in the longer term.

 

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BNZ: forecasts for NZD/USD

 

Analysts at BNZ believe that the fair value New Zealand’s dollar versus its US counterpart has declined by 4 cents during the past month to $0.6950/0.7050 as the risk appetite index fell from 46.4% to 36.2%. As the pair NZD/USD is currently trading in the $0.8400 area, it seems to be overvalued.

 

However, the economic data from New Zealand is encouraging and the demand for kiwi is high. That means that the currency has become less sensitive to the surges of risk aversion. As a result, the specialists expect the pair to enjoy solid support.

 

According to the bank, NZD/USD will climb to $0.8700 by the end of the year. Support for the pair lies at $0.8110, while resistance is at $0.8570 in the short-term.

 

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BMO Capital Markets: GBP/USD forecast for 2011-2012

 

British pound has been trading within a downside channel versus the greenback: it fell August 19 the maximum at $1.6618 to the levels in the $1.6100 zone.

 

Currency strategists at BMO Capital Markets believe that GBP/USD will keep declining during the next quarters.

 

The specialists think that sterling will trade in the $1.6200 region during the third quarter and then hit $1.5800 by the end of the year. According to BMO, in the first 3 months of 2012 the pair will reach its lowest point at $1.5500 and then start rising to $1.5700 in the second quarter, $1.6100 in the third and $1.6400 in the final quarter of the next year.

 

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UBS: EUR/CHF will keep declining

 

The single currency dropped versus its Swiss counterpart from last week’s maximum of 1.1975 reached on Monday to Friday’s minimum of 1.1000.

 

Currency strategists at UBS point out that euro’s decline was accelerated by concerns about the euro zone’s debt crisis and disappointing US labor market data. In their view, worries about the new slump of EUR/CHF are increasing as can be seen from rising option implied volatilities in the EUR/CHF exchange rate.

 

The bank warns that the pair may lose more during the next few weeks unless the Swiss National Bank tries to stabilize the rate of its national currency.

 

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J.P.Morgan: trade ob ECB meeting

 

The European Central Bank meeting is taking place on Thursday. The ECB will announce its benchmark rate at 3:45 pm (GMT+4).

 

Strategists at J.P.Morgan Asset Management advise investors to be very attentive to the language of the ECB President Jean-Claude Trichet.

 

If Trichet’s comments sound less dovish than the market hopes, that may give euro a lift versus the greenback. The specialists recommend selling EUR/USD on its advance in the $1.45 with target at $1.41 and stop at $1.47.

 

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TD Securities, BarCap: RBA didn’t cut rates

 

The Reserve Bank of Australia decided to leave the benchmark interest rate unchanged at 4.75%.

 

The RBA Governor Glenn Stevens said that the domestic outlook is strong enough and the nation is still benefiting from a mining boom, though the situation at the global financial markets remains extremely uncertain, so it’s not appropriate either to increase or reduce the borrowing costs. It’s necessary to note that the central bank still regards inflation as a problem and sees it rising above the target level.

 

Analysts at TD Securities believe that the next move of the RBA will be to the upside though the market is pricing in the rate cuts. The specialists make such assumption due to the solid prospects of Australia’s main trading partners, primarily China.

 

Strategists at Barclays Capital share this point of view. According to them, Australia’s strength is coming from high domestic demand and as commodity prices.

 

Economists at NAB think that the RBA may stay on hold until the middle of 2012 when they expect the economy to start growing at above trend rates.

 

The pair AUD/USD hit the minimal level in more than a week at $1.0489 on the concerns about the European debt crisis and its negative impact on the world’s economy.

 

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UBS about the euro zone's future

 

Analysts at UBS believe that the current structure of the European Monetary Union and its current membership aren’t suitable for the common currency. The specialists claim that either one or the other will have to change.

 

According to the bank, the most likely outcome is the slow movement towards the some kind of fiscal integration in Europe. The break-up of the currency bloc would be more costly and quite unlikely, UBS says.

 

The economists note that countries can’t be expelled, but sovereign states could choose to leave the euro area, though the consequences of such step in various discussions seem to be underestimated.

 

If one of the stronger core nations such as Germany quitted, that would lead to the corporate default, recapitalization of the banking system and collapse of international trade and cost 6,000-8,000 euro for every German in the first year (20-25% of GDP) and 3,500-4,500 euro per person per year thereafter.

 

UBS also warns that the union break-up may threaten to cause some form of authoritarian or military government or a civil war.

 

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BBH, Socgen: negative outlook for euro

 

Analysts at Brown Brothers Harriman note that the lack of action from the euro zone’s authorities begins erasing the line between a banking crisis and a euro crisis. In their view, political protectionism amid solvency problems of the peripheral nations ruin euro's defenses by undermining the proposed extension of the EFSF (European Financial Stability Fund) and the ECB's government bond purchases and increasing the risk of a disorderly default in Greece.

 

The recent strengthening of EUR/USD was due to the expectations of policy containment of global risks, but European political tensions and the discouraging US labor market data released on Friday deprived the European currency of this kind of support.

 

If Europe's credibility crisis enters a state of no confidence to both economic governance and political unity, it would be very hard for euro to hold above $1.40. BBH is sure that euro will ultimately fall to the 200-day MA at $1.4013.

 

Currency strategists at Societe Generale note that the single currency looks very vulnerable without the support of the hawkish European Central Bank. In their view, if EUR/USD drops below $1.3900, it would be poised down to $1.3000.

 

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SNB fixed floor for EUR/CHF: comments

 

The Swiss National Bank set a minimum exchange rate target for EUR/CHF at 1.20 as strong franc has negative impact on the nation’s economy. The SNB pledged to buy foreign currency in unlimited quantities to keep the pair above the target level.

 

The single currency bounced versus Swiss franc by about 9% from the levels in the 1.1000 area to 1.2186 before easing to 1.2030/40.

 

The analysts burst out with comments on this development.

 

NAB: EUR/CHF should stay above 1.25 to rule out the deflationary threat. Euro may rise to 1.25/1.30 during the next month.

 

Societe Generale: SNB’s move will encourage demand for French and German government bonds helping to stabilize the situation in both Switzerland and Europe.

 

Capital Economics: SNB had no choice but to act as Switzerland’s exports are in danger.

 

Morgan Stanley: this time the SNB may succeed in reducing demand for franc. It was a hard decision for the central bank to step into the market as its previous interventions led to huge losses.

 

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Key events for the euro area this week

 

Tuesday. The finance ministers of Germany, the Netherlands and Finland are meeting to discuss collateral for loans to Greece. Earlier Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held as security for new loans to Athens.

 

Wednesday. Germany's constitutional court will rule on the legality of euro zone bailouts. The court's judgment will settle whether Chancellor Angela Merkel's government breached the German people's property rights in agreeing to the initial bailout of Greece in 2010, whether the nation’s authorities should have asked the parliament before taking part in the bailouts of Ireland and Portugal and whether the European Central Bank's purchases of government bonds are legal. The possibility that the court rules the aid for euro zone partners as unconstitutional is low, but it may force German government to seek for the Bundestag’s approval of future loan packages. That would slow down the process of combating the euro area’s debt crisis.

 

Thursday. There’s the European Central Bank’s meeting. The ECB is expected to signal the pause in its rate tightening cycle. The Minimum Bid Rate is announced at 3:45 pm (GMT+4).

 

Friday/Saturday. Finance ministers and central bankers of G7 nations are meeting in Marseille, France. If no solution comes, the market will suffer greatly.

 

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Commerzbank: comments on EUR/CHF and USD/CHF

 

Technical analysts at Commerzbank believe that the longer-term outlook for EUR/CHF remains positive: the pair is on its way up to 1.2346/1.2400 (December 2010 and March 2011 minimums and June 2011 peak). Then euro will advance to the 55-week at 1.2668 and then to this year's maximum at 1.3245. In their view, the recent decline of the single currency from August 29 maximum at 1.1971 to minimums in the 1.1000 was only a correction.

 

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Chart. Daily EUR/CHF

 

 

As for the pair USD/CHF, for the outlook to become bullish the greenback has to break above the 50% Fibonacci retracement from December 2010 maximums at 0.8567 and June maximums at 0.8575. US dollar will be supported at 0.8375, 0.8250/40 and the top of the previous trading channel at 0.8200.

 

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Citigroup: EUR/USD may fall to $1.35

 

Analysts at Citigroup believe that the single currency may fall to the 7-month minimum versus the greenback at $1.35.

 

The specialists note that investors seek refuge in German government bonds that makes their yields slide. The spread between 2-, 5- and 10-year German bond yields and the similar US debt yields fell to the lowest level since February. During the same period the pair EUR/USD has lost 1.8% but the pace of its decline lagged behind that of the drop in bond spreads. As a result, the bank expects that the market concerns about the euro zone’s debt crisis will soon begin to be more reflected in the currency’s rate.

 

Citigroup points out that euro closed last week at $1.4205, below the $1.4327 that signals downward reversal.

 

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Wells Fargo lowered Swiss franc's forecast

 

Analysts at Wells Fargo revised downwards their forecasts for Swiss franc after the Swiss National Bank yesterday pegged franc to euro.

 

The specialists think that this time Switzerland’s monetary authorities will succeed in stemming franc’s gains – their previous attempt to weaken the national currency led to $21 billion loss last year. At the same time, the economists don’t believe that franc has much room for depreciation as the market remains in the risk-off state.

 

Wells Fargo increased its 3- and 6-month projection for EUR/CHF from 1.06 to the SNB target level of 1.20. In their view, in 9 months franc will ease to 1.22 per euro.

 

Strategists at Schneider Foreign Exchange say that SNB’s move was surprising, but now when the central bank has to some extent decreased the safe-haven flows to franc, investors may turn to other currencies such as Norwegian krone.

 

However, analysts at Lloyds note that though the near-term outlook for franc has changed to the downside, in the longer term the SNB is likely to fail to hold EUR/CHF above 1.20 as the situation in the euro zone may significantly deteriorate.

 

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ANZ: comments on NZD/USD

 

New Zealand’s dollar is correcting upwards versus the greenback after its recent decline from August 31 maximum at 0.8572 to yesterday’s minimum in the 0.8200 zone.

 

Among the drives for NZD/USD the analysts at ANZ cite strong performance of Asian equity markets and better-than-expected Australian GDP figures. In their view, resistance for the pair lies at 0.8320, while support is found at 0.8240.

 

The MSCI Asia Pacific Index of shares rose by 2.2%. Australia’s economy added 1.2% in the second quarter (q/q) after declining by 0.9% in the first 3 months of 2011, while the economists surveyed by Bloomberg News were looking forward to only 1% increase.

 

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Commerzbank: comments on EUR/USD

 

Technical analysts at Commerzbank are bearish on EUR/USD. In their view, yesterday’s spike high to 1.4284 didn’t change the negative prospects of the single currency in the near-term.

 

The specialists expect the pair to fall to the 2010-2011 uptrend line at $1.3939 noting that the DMI (directional movement indicator) has confirmed the sell signal.

 

At the same time, the bank sees a lot of divergence on the hourly chart and warns that euro may correct upwards today rising to $1.4193.

 

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USD/JPY: fundamental analysis, intervention prospects

 

Swiss franc and Japanese yen have so far reached the record maximums. Yesterday the Swiss National Bank set the floor for EUR/CHF at 1.20 and many investors now expect the Bank of Japan to take the similar measures in order to weaken yen.

 

The new Japanese finance minister Jun Azumi said that he will try to convince other G7 nations that strong yen poses a threat to the world's third-biggest economy. Strategists at Credit Suisse think that it might be easier for Japan to defend its position after the SNB’s move.

 

At the same time, analysts at JPMorgan Securities say that Japanese economy is currently on the rebound and corporate and exporters are doing better than expected. In their view, there’s no national emergency and this fact may hold Japan’s monetary authorities from currency interventions and additional easing.

 

In addition, while the currency peg was reasonable for the euro area as 70% of Swiss exports go to the European Union, it doesn’t fit Japan as less than 20% of its trade is done with the United States so Japan isn’t likely to follow SNB’s example.

 

It’s also necessary to note that the BOJ will have more difficulties in stemming the appreciation of the national currency as the size and liquidity of the Japanese government bonds market is actually a lot bigger than that of the Swiss National Bank's one, so they are more attractive for investors, especially domestic.

 

UBS specialists claim that Japanese government will be more preoccupied with reconstruction problems after March earthquake and tsunami than with forex issues.

 

BOJ meeting

 

The BOJ left today its key rate unchanged at the minimal levels below 0.1%, but didn’t announce more easing measures. Last month the Bank of Japan expanded its asset purchase program from 40 to 50 trillion yen. The central bank expects the national economy to return to a moderate recovery path from the second half of the current fiscal year.

 

Strategists at Mizuho Securities claim that the BOJ may ease its policy at its next meeting on October 6-7 or conducts an emergency meeting and it will happen even sooner. The easing move may be catalyzed by FOMC meeting on September 20-21, weak Tankan business sentiment survey and rising demand for yen.

 

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UBS increased GBP/USD forecast

 

Analysts at UBS increased 3-month forecast for British pound’s rate versus the greenback from $1.6200 to $1.6500 keeping the 6-month estimate at $1.6800 and the 12-month projection at $1.7500.

 

The specialists claim that, on the one hand, pound is attractive in comparison with the single currency and the greenback due to the debt problems of the euro area and the United States, but on the other hand, it may be affected by the effects of another round of quantitative easing by the Bank of England.

 

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BMO: BOJ intervention scenarios

 

Analysts at BMO Capital Markets note that despite the fact that yen has been seen as a safe haven, the pair USD/JPY has stayed above 76.50 during the entire August except drop to the record minimum of 75.94 on August 19.

 

The specialists think that the reason why US dollar has been able to consolidate is the clandestine intervention of Japan’s monetary authorities.

 

The strategists see 3 possible scenarios of further BOJ actions and give the following trading recommendations:

 

- If this covert policy ends under the new Japanese government, sell USD/JPY.

 

- If this covert policy continues, sell Japanese yen and buy Swiss francs.

 

- If the BOJ begins an overt policy to buy US dollars like in 2004, buy USD/JPY.

 

The specialists believe that Japan will be forced to step in the forex market openly, so the third so they are looking forward to the realization of the third scenario.

 

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Mizuho: USD/JPY downtrend will resume

 

Technical analysts at Mizuho Corporate Bank believe that the greenback’s longer-term downtrend versus Japanese yen will resume.

 

The specialists underline that triangle consolidation in May and June led to the decline of USD/JPY and think that so will do another triangle formed in August. In addition, all elements of the weekly Ichimoku Cloud give bearish signals.

 

According to the bank, the pair is poised down to 74.50 and 73.50.

 

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Unicredit: euro zone needs more austerity

 

Analysts at Unicredit say that the current euro zone crisis will force European leaders to ponder over whether the single currency is worth keeping. In their view, the debt problems are the test for the currency bloc.

 

The specialists think that the indebted nations have to conduct more sizeable budget cuts in order to free up more resources. In particular, Unicredit claims that Italy has more potential to bring down its budget deficit by putting more assets on the market for privatization.

 

According to the bank, the policymakers have to show more visionary and strong approach. The economists underline that it’s not up to the European Central Bank to support the problem nations by buying their sovereign debt.

 

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Obama and Bernanke are to speak today

 

US President Barack Obama will address a joint session of Congress on proposals to speed job creation that may inject more than $300 billion into the economy next year.

 

Almost half the stimulus may come from tax cuts, including an extension of a 2-percentage-point reduction in the payroll tax paid by workers due to expire December 31 and a new decrease in the portion of the tax paid by employers.

 

In August US job growth stagnated, while the unemployment remained high at 9.1%.

 

As a result, it has become less likely that Federal Reserve will also engage in easing its policy. Analysts at BNZ remind that the Fed’s Chairman Ban Bernanke was calling for fiscal measures to help the nation’s economic growth, so once such steps are taken the need for the central bank to take further action will reduce. That, in its turn, would be positive for the greenback.

 

Bernanke will speak today at 5:30 pm GMT and Obama makes a speech at 11:00 pm GMT.

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Nomura lowered EUR/USD forecast

 

Currency strategists at Nomura revised down their forecasts for the single currency versus the greenback in the fourth quarter from $1.40 to $1.30. The bank left the 3 quarter target unchanged at $1.40.

 

The reason for EUR/USD estimate’s reduction is the deteriorating debt situation in the euro zone. Even though the specialists think that Greece will avoid disorderly default, size constraints on the European Financial Stability Fund (EFSF) will add fuel to the flames. As a result, Nomura expects euro to stay under pressure.

 

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Goldman Sachs: more BoE’s QE in November

 

British pound rose today versus the greenback and the single currency as the Bank of England left the borrowing costs unchanged at 0.5% and didn’t extend the 200-billion-pound asset-purchase program.

 

Asset purchases or quantitative easing increased the monetary supply and weakens the national currency, so the decision not to boost the program was sterling-positive.

 

The pair GBP/USD rose from almost 2-month minimum at $1.5911 to the levels above $1.6000.

 

In Monetary Policy Committee last month only Adam Posen called for additional QE, while Spencer Dale and Martin Weale stopped voting for the rate hike.

 

Economists at Goldman Sachs believe that British central bank will resume bond purchases in November. In their view, the amount of QE will be 100 billion pounds during 2 quarters.

 

Recent economic data

 

National Institute of Economic and Social Research: UK economic growth slowed from 0.6% in 3 months through July to 0.2% in 3 months through August.

 

Inflation rate: 4.4% (July), more than twice above the BoE target.

 

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UBS lowered Switzerland’s growth forecast

 

Analysts at UBS lowered Switzerland’s economic growth forecast from 2.7% to 2% in 2011 and from 2.2% to 1.3% in 2012.

 

The reason of the downward revision is strong Swiss franc that is affecting the nation’s exports.

 

The specialists note that all in all they remain optimistic due to Switzerland’s advantages: sound private household finances and firm public sector.

 

According to the bank, the Swiss national bank will keep conducting loose monetary policy at least until the end of 2012.

 

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