Comments and forex-analytics from FBS Brokerage Company

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Nomura: euro will rise to $1.40

 

Despite the deepening crisis in the euro area strategists at Nomura Securities see some light for the single currency. In their view, in the short term euro may strengthen versus the greenback.

 

The specialists underline that the central banks will likely buy euro to rebalance their portfolios for the end of the quarter. Nomura says that Greece may soon receive financial aid.

 

In addition, the Federal Reserve is expected to sound dovish on its meeting that is taking place next week on September 20-21 – dollar-negative factor.

 

According to Nomura, EUR/USD will reach $1.40 in the near term. However, the analysts are still bearish on the pair in the medium term – in the fourth quarter they see it drop to $1.30. As a result, the economists advise traders to use euro’s advance to sell it.

 

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European policymakers offered no plan

 

The single currency opened with a bearish gap versus the greenback as the debt situation in the euro area remains very tough. The markets are extremely disappointed as the European finance ministers didn’t offer any solution of the debt crisis during the Ecofin summit in Poland.

 

US Treasury Secretary Timothy Geithner who attended the meeting proposed to increase the size of The European Financial Stability facility (EFSF) with the ECB funds, but German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann rejected this suggestion.

 

Today Greek Finance Minister Evangelos Venizelos meets the EU and the IMF officials to decide whether the nation can meet the conditions of the rescue loans and is eligible for the next tranche of the bailout payment in October and for a second rescue package.

 

It’s also necessary to note that Angela Merkel’s Christian Democrats were only second in Berlin state election – the sign that Merkel’s intention to save euro at any cost providing financial help for the troubled periphery nations is becoming more and more unpopular.

 

The pair EUR/USD lost 1% sliding from Friday’s close at $1.3795 to the levels below $1.3700.

 

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Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

Last week the bears have won once again: pound declined approaching the middle of the Ichimoku Cloud.

 

The lines Tenkan-sen (1) and Kijun-sen (2) have quitted neutral state deviating down. That means that the prices are likely to aim to the lower border of Kumo.

 

The bullish Cloud (3) itself is narrowing – the bulls keep losing powers.

 

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Daily GBP/USD

 

On the daily chart the picture seems to be more bearish. All attempts of the bulls to push sterling higher were in vain. The Turning line (1), the Standard line (2) and Kumo are providing solid resistance for the pair GBP/USD.

 

All lines of the Indicator are directed down (1, 2, 3 and 4). The descending Ichimoku Cloud is widening as Senkou Span A (3) is moving only downwards.

 

As a result, technical analysis points out that the pound may keep depreciating.

 

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Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

The situation on the weekly USD/JPY chart remains almost the same. The prices keep consolidating between 76 and 78 yen. High demand for yen keeps contrasting with the risk of the Bank of Japan’s interventions.

 

The greenback still lacks support, while resistance is provided by the declining Tenkan-sen (1) and the horizontal Kijun-sen (2) as well as by the descending Ichimoku Cloud (3, 4). The Turning line (1) and the Standard line (2) keep the strong “dead cross” in place (5).

 

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Daily USD/JPY

 

Last week the prices have once again dropped below the Standard line (1) and the Turning line (2) which now act as support for the greenback.

 

Kijun-sen (1) and Tenkan-sen (2) formed the “golden cross” (5), though the signal was rather weak as the intersection took place below the Ichimoku Cloud (3, 4).

 

At the same time, all lines of the Indicator turned horizontal (1, 2, 3 and 4) pointing at the continuing consolidation. US dollar may be able to rebound a bit, though it won’t manage to rise above Tenkan-sen (2).

 

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Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

On the weekly chart USD/CHF will keep consolidating in the 0.8700/0.8900 area after the powerful advance made after Switzerland’s central bank had pegged the national currency to euro the weak earlier.

 

Tenkan-sen (1) and Kijun-sen (2) have leveled up in the horizontal state providing support for the greenback. Resistance is generated only by Kumo (3, 4).

 

The Ichimoku Cloud is narrowing – Senkou Span A (3) is directed sideways, while Senkou Span B is moving down (3) to meet it.

 

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Daily USD/CHF

 

The pair keeps moving within the uptrend.

 

Tenkan-sen (2) and Kijun-sen (1) have gone sharply up supporting the prices.

 

The bullish Ichimoku Cloud is rapidly widening as Senkou Span A (4) has jerked up, while Senkou Span B remains in the horizontal mode (3).

 

The rate’s consolidation seen last week may take some more time, but the general technical picture is positive.

 

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Jyske Bank: sell GBP/USD

 

British pound declined from last week’s maximum at $1.5870/85 to the 8-month minimums in the $1.5685 area.

 

Currency strategists at Jyske Bank are bearish on GBP/USD. The specialists advise investors to sell sterling taking profit at $1.5415 and placing stops at $1.6012.

 

According to the bank, pound is vulnerable due to the speculation that British budget deficit increased to 12 billion pounds in August after July’s almost 2-billion surplus. In such case, the UK will likely lose its credit rating.

 

The data on Public Sector Net Borrowing are published on Friday at 12:30 pm (GMT+4).

 

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UBS, Nomura: dollar’s gaining ahead of the Fed

 

US dollar strengthened versus euro, pound and commodity currencies ahead of the Federal Open Market Committee’s 2-day meeting that begins tomorrow.

 

Analysts at Wells Fargo, Barclays Capital and Goldman Sachs think that the FOMC may decide to replace some of the short-term Treasury securities in the Fed’s $1.65 trillion portfolio with the long-term debt in order to lower the nation’s rates. Such options in referred to among traders as «Operation Twist».

 

The dollar-positive factor is that the market doesn’t expect more quantitative easing. Other drivers of the greenback are renewed demand for safe havens and the elevated stock market volatility.

 

Analysts at UBS are positive on US currency in the medium term. Analysts at Nomura claim that the US monetary authorities are fulfilling their pledges and supporting the markets. In their view, the greenback will be more attractive than the single currency due to the continuing euro zone’s debt crisis.

 

However, though QE is unlikely, there’s some risk that the Fed expand its balance sheet on the negative economic data.

 

According to the data from the Commodity Futures Trading Commission (CFTC), the number of net short positions in euro has risen to 54,459 contracts during the week that ended on September 13.

 

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UBS: technical comments on USD/CHF

 

Technical analysts at UBS note that the greenback has risen from last week’s minimum at 0.8645 hit on September 15 to the levels above 0.8854. In their view, the pair USD/CHF can now climb to September 12 maximum at 0.8928 and then to April 20 maximum at 0.9012. The specialists claim that support in the near term is found at 0.8645.

 

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Commerzbank: bearish EUR/USD forecast

 

Technical analysts at Commerzbank note that the single currency found itself under severe negative pressure versus the greenback yesterday.

 

The specialists underline that EUR/USD has so far closed below the major support represented by the 2010-2011 uptrend, the 55-week MA, the July minimum, the 200-week MA and the 200-day MA.

 

In their view, the pair is poised down to $1.3428/10 (February minimum and 50% retracement of the advance made in 2010-2011) and then to $1.2860 (2010 minimum).

 

As for the longer term, the bank keeps its target at $1.2000.

 

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Forecast Pte expects GBP/USD to decline

 

Technical analysts at Forecast Pte claim that British pound may fall versus the greenback to more than 8-month minimum at $1.5489, last seen on January 10.

 

This level represents 50% Fibonacci retracement of sterling’s advance from May 20, 2010, minimum at $1.4231 to the maximum of April 28, 2011, at $1.6747.

 

The specialists are bearish on GBP/USD as the pair has breached its 200-day MA. The MACD (moving average convergence/divergence) is still negative (at -0.0158, below the signal line at -0.012) that’s also a bearish signal.

 

According to the strategists, resistance is found at September 13 maximum of $1.5870. In their view, the downtrend is strong and any attempts of the bulls to push pound higher would result in nothing more than a correction.

 

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S&P cut Italian credit rating

 

The concerns about the euro zone’s future have strengthened as Standard & Poor’s lowered Italy’s credit rating from A+ to A.

 

The agency said that the nation having the second biggest debt burden in Europe after Greece will face a lot of obstacles in trying to reduce it. Among these difficulties the agency cited weakening economic growth, precarious position of Italian government and rising borrowing costs. S&P lowered Italian average annual economic growth forecast for 2011-2014 from 1.3% to 0.7%.

 

This month Silvio Berlusconi’s government has passed a 54 billion-euro ($74 billion) austerity package aiming to balance the budget in 2013. That allowed the ECB to buy Italian debt easing down the pressure on the nation.

 

The yield on Italy’s 10-year bonds rose to 5.619% that is 385 basis points more than similar German debt. Rising borrowing costs make it extremely hard for the country to sell more debt – Italy needs to sell more than 50 billion euro of bonds this year. There are 3 auctions set for next week starting on September 27.

 

Another major rating firm, Moody’s Investors Service, will decide next month whether to cut ratings on Italy and Spain.

 

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BoA, Citigroup: Fed's decisions won’t affect the greenback

 

The Federal Reserve’s 2-day meeting begins today. Tomorrow at 10:15 pm (GMT+4) the FOMC releases its statement and the Federal Funds Rate.

 

Investors expect American monetary authorities to announce Operation Twist – increasing the duration of the central bank’s bond portfolio in order to lower the long-term interest rates.

 

Analysts at Bank of America Merrill Lynch think that the news won’t make any significant impact on the greenback’s rate as they are already largely priced in by the market. The specialists underline that since such option as Operation Twist was mentioned in August the dollar index has added 4.2%, so its implementation will lead to neutral effect.

 

Currency strategists at Citigroup share this opinion. The bank leaves room for some short-term effects, but thinks that the market’s attention will be focused on the euro zone’s debt crisis and even on the concerns about Asian economic growth.

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Barclays Capital: survey on euro’s prospects

 

Analysts at Barclays Capital conducted survey among more than 500 institutional investors on the prospects of the single currency.

 

The majority of respondents (56%) believe that the European Central Bank will undertake large-scale buying of sovereign debt from troubled countries like Italy and Spain. Some of the interviewed think that the currency bloc will ultimately turn into the fiscal union. Barclays note that many investors think that some form of quantitative easing is likely in Europe.

 

However, almost 25% of the surveyed expect the euro area to break up. In the bank's second-quarter survey, only 1% expected sovereign-debt restructuring in many countries, leading to a euro-zone breakup in 2012. The number of respondents expecting some adverse spillover onto emerging markets almost doubled to 30% compared with the previous quarter.

 

Nearly 70% of foreign-exchange investors surveyed think that the markets will be focused on euro zone's issues in the next 3 months. 60% of equities investors regard the European banking crisis as the biggest risk to global stock markets. The pair EUR/USD is now seen trading below $1.35 during the next half a year.

 

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MIG Bank: bearish view on USD/CHF

 

The greenback rose versus Swiss franc from last week’s minimum at 0.8645 hit on September 15 but its advance was limited by the resistance around 0.8875.

 

Technical analysts at MIG Bank think that USD/CHF may return down to 0.8645 and then drop to 0.8400 and 0.8250. In their view, the pair remains vulnerable to the potential declines as long as it’s trading below 0.8929.

 

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Switzerland: GDP forecast’s reduced

 

Switzerland’s government lowered its economic-growth forecasts for 2011 and 2012 from 2.1% and 1.5% to 1.9% and 0.9% respectively. Export growth estimate was trimmed from 4.6% this year and 3% the next to 3.2% and 0.7% respectively.

 

The reason for this downward revision is the fact Swiss franc’s rate is still excessively strong even after the Swiss National Bank has set the ceiling for the nation currency’s rate versus euro. According to the data released today, the nation’s exports fell in August by 7%.

 

The nation’s authorities say that isolated quarters of economic contraction are possible, though deep recession seems to be unlikely.

 

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Commerzbank: USD/CHF is gaining on the SNB talk

 

The greenback went up versus Swiss franc from the day’s minimum at 0.8692 getting above 0.8940 on the speculation that the Swiss National Bank has imposed a tighter peg for the national currency. There’s talk that the SNB has removed the EUR/CHF target up to 1.25 per euro. The central bank didn’t confirm the information, but franc is experiencing general weakness.

 

Technical analysts at Commerzbank note that USD/CHF has broken up important resistance at 0.8850/0.8950 (double Fibonacci retracement, 200-day MA and May minimum). In their view, US dollar is on its way up to 0.9103 (55-week MA) and 0.9340/0.9400 (March maximums and double Fibonacci retracement).

 

According to the bank, support for the pair is found at 0.8640/0.8462 (23.6%/38.2% retracement of dollar’s advance in September).

 

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BarCap: ECB will cut rates in October

 

The International Monetary Fund claimed that the European Central Bank should lower its benchmark interest rate from the current 1.5% level if the euro zone’s economic growth remains at risk.

 

Analysts at Barclays Capital expect the ECB to reduce the borrowing costs by 25 basis points the next month to 1.25% and to widen the interest rate “corridor” back to +/-100 basis points which would make the deposit facility decrease by 50 basis points to 0.25%. Taking into account the excess bank reserves, that would let the EONIA (overnight) rate to trade significantly lower.

 

According to the bank, things remain like that until there’s need for policy normalization. The specialists believe that it may happen in the second half of 2013.

 

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Westpac: commodity currencies are seen declining

 

Analysts at Westpac note that the ongoing euro zone’s debt crisis is seriously hurting investors’ risk sentiment bringing their attention to Greece and Italy. In their view, the risky currencies currently seem to be very vulnerable.

 

The specialists recommend selling commodity currencies. In particular, the bank prefers shorts on Australian dollar versus its US counterpart targeting 1.0000 and stopping above 1.0335.

 

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Credit Agricole: pound’s declining after MPC minutes

 

British pound fell to the 8-month minimum versus the greenback at $1.5612.

 

It happened after the Bank of England’s Monetary Policy Committee’s September meeting minutes showed that the policymakers are regarding the possibility of embarking on additional monetary stimulus.

 

The MPC members point out that UK GDP growth in the second half of 2011 may be significantly weaker than it was thought last month.

 

Analysts at Commerzbank note that the central bank has made it clear that if the situation worsens, it’s going to ease it policy. In their view, Britain’s economic prospects are very uncertain and the nation is vulnerable to substantial downside risks.

 

The officials voted 8-1 to maintain the current size of the asset purchase program and were unanimous in keeping the benchmark rate at the record minimum of 0.5%.

 

Currency strategists at Credit Agricole claim that sterling will go down to test $1.55. In their view, the currency will remain under pressure during the next few weeks as the as market shifts expectations for a UK QE2 to the November meeting.

 

Analysts at Morgan Stanley keep being bearish on GBP/USD expecting the pair to fall to $1.53 by the end of the year and to $1.51 at the beginning of the next year.

 

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IMF lowered economic forecasts

 

The International Monetary Fund lowered US economic growth forecast for 2011 and 2012 from 2.5% and 2.7% (June’s estimate) to 1.5% and 1.8%. The outlook for the euro area was reduced from 2% this year and 1.7% the next to 1.6% and 1.1% respectively. The world’s GDP will increase by 4% as in 2011, as in 2012 versus 4.3% and 4.5% advance seen earlier.

 

According to the organization, global economy is entering a “dangerous new phase” and the policymakers are to act decisively reducing deficits in order to improve prospects and reduce risks.

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Bank of Canada isn’t concerned about inflation

 

According to the data released today, annual Canadian CPI growth speeded up from 2.7% in July to 3.1% in August, while the economists were looking forward to only 2.9% increase.

 

Bank of Canada Governor Mark Carney said yesterday that the central bank may keep the borrowing costs low until full output is restored. According to Carney, Canada’s recovery will be affected by economic weakness of the United States, its biggest trade partner.

 

The head of the central bank didn’t express any concerns about inflation. Analysts at TD Bank believe that August burst of inflation will prove to be only temporary.

 

Canadian GDP contracted by 0.4% in the second quarter. The IMF lowered yesterday the nation’s 2011 economic growth forecast from 2.9%, according to June’s estimate, to 2.1%.

 

Canadian dollar is weakening versus its American counterpart for the third day in a row on the declining oil price. The pair USD/CAD rose from Monday minimum at 0.9778 approaching the parity level.

 

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Commerzbank: technical comments on USD/CAD

 

US dollar rebounded this week versus its Canadian counterpart using support provided by the 200-day MA at 0.9777 reaching the parity level.

 

Technical analysts at Commerzbank note, however, that USD/CAD’s advance will be limited by resistance in the 1.0000/58 zone. According to the specialists, this area contains 50% retracement of the decline in 2010/2011 and January maximum. If the greenback eventually manages to overcome 1.0058 and close above this level in New York for 2 times, it will be able to rise to 1.0109/1.0139.

 

The bank says that support for the pair is found at 0.9742/26 (55-day MA and late August minimum).

 

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UBS: bullish outlook for EUR/CHF

 

Analysts at UBS are bullish on the single currency versus Swiss franc.

 

In their view, the outlook for EUR/CHF has become positive as the pair broke yesterday above resistance at 1.2191.

 

The specialists expect euro to rise to 1.2346 and then to 1.2469. Support for the European currency lies at 1.2051.

 

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The Fed conducts Operation Twist

 

The Federal Reserve announced yesterday that it will conduct an Operation Twist or, in other words, lengthen the average maturities of the Treasuries in its portfolio from 75 to 100 months (8 1/3 years) by the end of 2012 by buying $400 billion of long-term debt (with maturities of 6-30 years) through June, while selling an equal amount of shorter-term securities maturing in 3 years or less.

 

In addition, the central bank will reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries in order to improve the situation in the mortgage market.

 

The Fed’s goal is to lower longer-term borrowing costs making financial conditions more accommodative. The Federal Open Market Committee (FOMC) reiterated its pledge to keep the benchmark interest rate near zero until the middle of 2013 as the US suffers from high unemployment and the inflation outlook is subdued. At the same time, it’s necessary to note that the rates are already pretty low – the yields on 10-year Treasuries fell from 2011 maximum of 3.74% reached in February to 1.86%.

 

Analysts at Barclays Capital regard Fed’s actions as a modest step. In their view, this may be only the beginning of easing and the central bank may become more aggressive if they don’t see the economic growth improving. However, Richard Fisher, Narayana Kocherlakota and Charles Plosser – the heads of the federal banks of Dallas, Minneapolis and Philadelphia – voted against the FOMC decision for the second time in a row as they are against of additional monetary stimulus.

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Barclays, Citi: comments on USD/JPY

 

Yesterday the greenback tested the levels in the 76 yen area – the lowest since it hit the record minimum of 75.95 yen on August 19.

 

Early today USD/JPY rose almost to 77 yen as the Federal Reserve announced the Operation Twist and not the quantitative easing. In addition, the market’s wary that the Bank of Japan’s may once again step in to weaken the national currency.

 

Then the pair erased its advance returning down to 76.15/30. Resistance levels are situated at 77.00 (September 19 maximum/today’s maximum), 77.35 (September 15 spike high) and 77.85 (September 9 maximum).

 

Analysts at Barclays note that investors become more risk-averse after the Fed’s statement as the central bank sounded pessimistic. According to FOMC, there are serious risks to the US economic prospects partly caused by the turmoil associated with the euro zone’s debt crisis. The specialists note that the talk about the possible BOJ intervention has set floor for USD/JPY.

 

Japanese Finance Minister Jun Azumi reiterated yesterday that the nation’s closely watching markets and will act decisively if needed. At the same time, analysts at Citi don’t worry much about the potential Japan’s action noting that Japanese officials got used to treat the effects of strong yen through exports subsidies. In addition, the nation is unlikely to make too sharp moves ahead of G20 meetings on Thursday and Friday.

 

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