Comments and forex-analytics from FBS Brokerage Company

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Deutsche Bank: recommendation for EUR/USD

 

Analysts at Deutsche Bank note that there’s 84% correlation between the size of the Eurosystem's consolidated balance sheet and the dynamics of the single currency versus the greenback. So, when the balance sheet expands, EUR/USD weakens and vice versa.

 

However, the specialists say that as the 2 rates are moving in tandem rather than one reacting to the other – that makes it difficult to use this relationship for trading strategies. There may be the case, though, when this information will be quite useful – if European debt crisis is solved by some kind of balance sheet expansion.

 

The specialists think that the odds of such outcome are high. In their view, the euro area will either use the stabilization fund or the ECB will continue buying debt of the peripheral countries. As a result, most ways which don’t involve immediate sovereign ratings implications lead to a continuation of the ESCB’s balance sheet expansion and, consequently, to euro’s depreciation.

 

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Citigroup reduced global economic forecast

 

Analysts at Citigroup revised down their global economic growth forecasts for the second time in less than a month. The specialists lowered 2011 growth estimate from 3.2% to 3.0% and the 2012 one – from 3.7% to only 2.9%. According to the classification of the IMF and the World Bank, 2% global growth means is considered as global recession.

 

The bank cut China's 2012 GDP growth rate from 9% to 8.7%. The outlooks for the United States, Europe, Japan, Canada and the UK were also reduced.

 

Citigroup expects a long period of negative real interest rates in the main advanced economies. The analysts think that the ECB is likely to cut the borrowing costs, while the Bank of England will start the second round of quantitative easing in the next 1-2 months. In their view, Moody's and Standard & Poor's will keep downgrading euro zone nations such as Italy, Spain, Greece, Portugal and Cyprus.

 

All in all, the economists advise investors to be cautious, avoid risks and favor US dollar and Japanese yen.

 

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Germany gave green light for EFSF

 

The single currency keeps trading on the upside as German parliament approved the expansion of the European Financial Stability Fund (EFSF) – there were 523 in favor of legislation versus 85 votes against it. Tomorrow there will be another vote in the upper house, or Bundesrat.

 

The bill enables EFSF to buy the bonds of the indebted peripheral nations and offer emergency loans to governments. The fund is boosted from 440 to 780 billion euro, the amount guaranteed by Germany increased from 123 to 211 billion euro.

 

The EFSF extension has been already ratified in Slovenia, Belgium, Greece, Ireland, Italy, Luxembourg, Spain, France, Portugal and Finland.

 

Analysts at JPMorgan Chase expect euro to continue its “remarkable resilience” until the end of the year and end 2011 at $1.38. Strategists at Lloyds Bank say that the risk of the currency union’s disorderly breakup decreased. In their view, EUR/USD will finish 2011 at $1.40, though the specialists don’t rule out the possibility of euro’s slump to $1.32 before that.

 

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Fitch and S&P downgraded New Zealand

 

New Zealand’s dollar fell to the 6-month minimum versus the greenback at $0.7626 after Standard & Poor’s and Fitch Ratings downgraded the nation’s debt from AA+ to AA with stable outlook.

 

The agencies explained their decision by New Zealand’s high external debt and its persistent current account deficit. Strategists at Citigroup underline that Fitch’s and S&P’s move seems surprising as everyone has been aware about these problems for a long time.

 

It’s also necessary to note that the survey conducted by ANZ National Bank that was released today showed that New Zealand’s business sentiment has worsened: only 30.3% of companies expect the economy will improve during the next 12 months compared with 34.4% in August. In addition, China, New Zealand’s second-biggest export market, reported the longest contraction of the PMI (Purchasing Managers Index) in 2 years.

 

Analysts at Westpac note that the global outlook remains rather discouraging, so commodity currencies like Aussie and kiwi will likely stay under pressure. In the view, New Zealand’s dollar may slide to $0.7500.

 

The pair NZD/USD lost 10% in September, while AUD/USD dropped by 8.8%.

 

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Commerzbank: comments on GBP/USD

 

Technical analysts at Commerzbank believe that British pound has finished its upward correction versus the greenback from 1-year minimum at $1.5325 hit on September 22 as it reached this week the levels in the $1.5700 area.

 

The specialists think that GBP/USD will resume its decline. In their view, the sell-off of sterling will be triggered when it dips below $1.5500.

 

According to the bank, support for the pair is found at $1.5297. In the longer term, British currency is poised down to the 2009-2011 uptrend line at $1.4973.

 

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Mizuho: USD/JPY will fall to 60 yen in 2013

 

Currency analysts at Mizuho Corporate Bank say that the greenback may fall to 60 yen in 2013 basing their conclusions on USD/JPY dynamics during the past 40 years.

 

The specialists note that US dollar has bottomed out around 30% below the preceding minimum on four occasions since 1971 experiencing slumps by 100, 80, 60 and 40 yen.

 

US currency was at 360 yen until the gold standard was ended in 1971. Then it slid to 254.45 yen in 1973, 177.05 yen in 1978, 121.25 yen in 1987 and 79.75 yen in 1995.

 

According to Mizuho, in 2 years this will happen for the fifth time: USD/JPY will fall by 20 yen from the previous minimum at 79.75 yen hit on August 19.

 

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MIG Bank: comments on USD/CHF

 

The greenback’s decline from Monday’s maximum in the 0.9185 area was limited by the support in the 0.8915/25 zone.

 

Technical analysts at MIG Bank are positive on the USD/CHF prospects. In their view, as US dollar has managed today to return above 0.9000, it will be able to return up to 0.9185.

 

According to the bank, the bearish pressure on the pair will activate if it slips below 0.8880. The larger correcting will be triggered if American currency tests the levels below 0.8647.

 

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SNB pledged to keep franc from appreciation

 

The Swiss National Bank’s President Philipp Hildebrand claimed yesterday that the central bank is firm in its decision to defend franc’s peg to euro.

 

Hildebrand didn’t unveil the amount of foreign currency purchases the SNB has to make in order to keep EUR/CHF above 1.20 and prevent the national currency from excessive strengthening that affected the nation’s exporters and posed recession risks. According to him, this measure is “totally credible.”

 

The single currency hit the record minimum versus franc of 1.0065 on August 9. The SNB announced the ceiling for franc on September 6.

 

Next week the SNB will release currency holdings for September. At the end of August the central bank’s reserves accounted for 253.4 billion francs ($280 billion).

 

Hildebrand said that though Swiss economic growth will weaken in the second half of the year, the cap will help to lower the threats of recession and deflation. In his view, franc is strongly overvalued.

 

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Wells Fargo: bearish EUR/USD forecast

 

Analysts at Wells Fargo are bearish on the single currency in the medium term. In their view, the pair EUR/USD will drop to $1.3200 by the end of this year and may slide to $1.2500 by the end of 2012.

 

The specialists believe that the weak economic outlook will hamper the results achieved due to the policymakers’ actions. In addition, the ECB’s approach has changed from the hawkish mode to the more dovish one. The central bank is likely to cut rates or conduct liquidity easing measures during the next few months.

 

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Deutsche Bank: EUR/USD is poised to decline

 

Analysts at Deutsche Bank point out that the European currency has fallen versus the greenback from the May maximums in the $1.4940 area to the levels below $1.3400.

 

In their view, euro’s decline is going to continue: the specialists expect EUR/USD to keep weakening during the next 12 months.

 

According to the bank, the pair will fall to $1.3000 in 3 months, then slide to $1.2700 by the end of the first quarter of 2012 and then reach $1.2500 in 12 months time.

 

The strategists think that euro’s dynamics will depend on the actions the euro zone’s policymakers will make to stem the crisis. Here it’s necessary to take the account the monetization risks and the downgrade risk of the member nations and the European Financial Stability Fund (EFSF) itself.

 

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Euro: this week’s events and analysts’ comments

 

The single currency remains near the 8-month minimum versus the greenback at $1.3313 hit earlier today and close to the 10-year minimum against Japanese yen at 101.92 hit on September 26.

 

The market is concerned about the possibility of Greece’s default and the health of the euro zone's banking sector.

 

Coming events

 

The focus this week will be on the monetary policy and growth. The European Central Bank meets on Thursday, October 6. Some investors are looking forward to a 25-basis-point rate cut even despite high September inflation data. The ECB President Jean-Claude Trichet speaks on Tuesday, October 4, at 1:00 pm GMT.

 

It’s also necessary to note that today begins 2-day meeting of the European finance ministers. The Ecofin is expected to put pressure on Greece to implement agreed structural reforms and to discuss the ways of increasing the European Financial Stability Facility’s (EFSF) financial firepower.

 

The decision about granting Greece the sixth tranche of the bailout – 8 billion-euro ($11 billion) – is postponed to the middle of October as the nation tries to reduce its huge budget shortfall.

 

Bearish forecasts

 

UBS: EUR/USD shorts will increase.

 

ING: euro will fall to $1.30/1.31.

 

Commerzbank: the pair will slide down to $1.2860 (2010 minimum) and $1.2000. Key resistance in the short term is seen at $1.3937 (September 15 maximum).

 

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Deutsche Bank: USD/JPY forecast

 

Analysts at Deutsche Bank claim that USD/JPY will test in the short term the levels below 75 yen.

 

The specialists expect the greenback to trade sideways versus Japanese yen in the 78.00 area during the first half of 2012. According to the bank, the global economic slowdown will keep encouraging high demand for yen. Japanese monetary authorities will likely limit themselves by the verbal interventions as long as the exchange rate moves slowly.

 

Later the pair will strengthen to 84.00 in the third quarter of 2012 and to 90.00 by end of the next year.

 

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BMO Capital: trading recommendations ahead of NFP

 

US September Non-Farm Payrolls data is released on Friday, October 7, at 12:30 pm GMT. The figures will be watched more than ever after US jobs growth stagnated in August.

 

Analysts at Bank of America Merrill Lynch expect to see the figure of 75,000, but warn that the risk is to the downside.

 

Strategists at BMO Capital say that if the market expects NFP to be somewhere close to 50,000 and the indicator posts 70,000, one should sell USD/CAD. If the published NFP figure finds itself between 70,000 and 30,000, it would be better to refrain from actions. If the figure comes below under 30,000, the specialists recommend buying the greenback versus Swedish krona.

 

According to BMO, the first scenario is the most likely. As a result, the specialists advise investors to sell US dollar versus its Canadian counterpart at 1.0400 stopping just above 1.0470 and targeting 1.0155.

 

At the same time, economists at J.P. Morgan point out that investors need to be cautious with trade like this watching other data released on Friday – Canadian nonfarm payrolls and Ivey PMI survey.

 

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Forecast Pte: technical comments on EUR/JPY

 

Technical analysts at Forecast Pte claim that he single currency may fall below 100 yen.

 

The specialists point out that euro’s MACD (moving average convergence/divergence) is in the downtrend: the indicator was found today at minus 1.8267 that’s below the signal line of minus 1.6881.

 

The pair EUR/JPY hit today the 100.74 level, the lowest since June 2001. According to the strategists, euro may slide to 96.84 yen, the level last visited on December 11, 2000.

 

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ANZ: the possibility of the RBA rate cut increased

 

Australian dollar fell to 1-year minimum versus its US counterpart at $1.9413.

 

It happened as the Reserve bank of Australia reported that the easing inflation pressure may allow it to reduce the borrowing costs in order to encourage economic growth.

 

The central bank’s Governor Glenn Stevens said that inflation may now be more consistent with the 2-3% target in 2012 and 2013.

 

The market now expects that the RBA will cut its benchmark interest rate from 4.75% to 4.25% be November and by 50 basis points more by the end of the year, claims ANZ. The specialists point out that it would be necessary to watch Q3 inflation reading as it would be the basis for November decision.

 

Analysts at Commonwealth Bank of Australia believe that AUD/USD may drop below $0.9000. Technical analysts at Commerzbank think that as long as the pair stays below $0.9580 (23.6% retracement of the entire 2001 — 2011 move), it risks sliding to $0.9407/.9390 (late 2009 and early 2010 maximums).

 

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Deutsche Bank: GBP/USD forecast

 

Analysts at Deutsche Bank think that sterling’s decline versus 2011 maximums versus the greenback in the $1.6740 area will continue.

 

In their view, pound will stay under pressure due to high possibility of the second quantitative easing program in UK.

 

According to the bank, pound will fall to $1.5100 in the fourth quarter of 2011 and then consolidate between $1.4800 and $1.4900 during major part of 2012 before jumping to $1.5600 at the end of next year.

 

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UBS: ECB will cut rates on Thursday

 

Currency strategists at UBS believe that the European Central Bank will reduce its benchmark rate by 50 basis points to 1.0% on October 6.

 

According to the specialists, the downside risks for EUR/USD in the near-term come from the potential ECB easing rather than from the possibility of Greece’s default.

 

The bank underlines that the rates markets have priced in 25-basis-point cut, but the forex markets haven’t. If the ECB loosens its policy, long-term investors – central banks and sovereign wealth funds – will sell the single currency.

 

As a result, UBS thinks that EUR/USD will move down to $1.20/1.30.

 

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Goldman Sachs cut forecasts for euro

 

Analysts at Goldman Sachs reduced their 2012 global economic growth forecast from 4.3% to 3.5%.

 

Japan’s growth outlook for the fiscal year beginning in April 2012 was decreased from 2.5% to 2.1%, while the estimate of the nation’s GDP growth this fiscal year was lowered from 0.2% to 0.1%.

 

According to Goldman, the United States will come close to recession at the beginning of 2012 – its economy will add in the first quarter only 0.5%. The nation’s economic forecast for the next year was cut from 2.0% to 1.4%.

 

The specialists think that during the next several quarters the euro zone’s core nations such as Germany and France will go through mild recession beginning in the fourth quarter, while the peripheral nations of the currency union will suffer much more. European GDP will add in 2012 only 0.1%.

 

The bank also revised down 3-month forecast for EUR/USD from $1.40 to $1.38 and for EUR/JPY from 108 to 106 yen.

 

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UBS: bullish forecast for USD/CAD

 

The greenback rose versus its Canadian counterpart from July minimums in the 0.9400 zone to the levels above 1.0500.

 

Currency strategists at UBS are bullish on USD/CAD as the Canadian trade flows worsen and the interest rate support is fading. In their view, the treat for CAD is in the growing reliance on foreign buying of debt denominated in loonie and rising domestic leverage levels.

 

According to the bank, the pair will reach 1.1000 by the end of the year.

 

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Mizuho, Nomura: euro remains under pressure

 

Analysts at Mizuho Securities note that there isn’t much progress in containing the sovereign crisis. In their view, the euro area risks falling into recession. The specialists believe that in these circumstances the single currency will stay under pressure. According to the bank, euro seems oversold and may recover a bit, but this upward correction will be short-lived.

 

Currency strategists at Nomura Securities think that the single currency may fall to the lowest levels since the beginning of the debt crisis in the $1.1800 area.

 

European finance ministers considered “technical revisions” to the second bailout package adopted in July during their 2-day meeting. The deal foresaw investors contributing 50 billion euro ($66 billion) to a 159 billion-euro rescue. That “private sector involvement” includes debt swaps and rollovers. According to Luxembourg Prime Minister Jean-Claude Juncker, the revisions may be necessary as the situation has changed since July.

 

The decision about granting Greece the next tranche of financial aid was postponed to the middle of October. Greek Finance Minister Evangelos Venizelos said that the nation will be able to repay its debts until the middle of November.

 

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Roubini: euro zone needs 2 trillion euro

 

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, says that the European bailout fund have to be increased to 2 trillion-euro ($2.7 trillion) before it’s too late. According to the specialist, this is the matter of not months, but weeks.

 

Roubini underlines that the main risks come from Italy and Spain as these nations are “too big to fail but also too big to save” – these nations have already lost the market’s confidence.

 

The economist says that the ECB has to ease its policy and cut rates depreciating euro. In his view, it’s also necessary to recapitalize European banks and set an orderly process to allow Greece quit the euro area. Fiscal stimulus at the core members of the currency union is also needed to avoid a recession for all European countries.

 

Roubini notes that the chance that all these measures will be conducted in a coherent way is low as there are serious political tensions. The specialist warns that the consequences of the European debt crisis will likely be worse than those of the Lehman Brothers collapse.

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Mizuho: forecasts for EUR/USD

 

Analysts at Mizuho believe that the single currency will fall versus the greenback to $1.3100 in a month, then rebound to $1.3400 by the end of 2011 and reach maximum at $1.3600 in 6 months before resuming its decline. The specialists say that the pair EUR/USD will trade at $1.3000 in a year from now.

 

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BMO: recommendations ahead of BoE and ECB meetings

 

There are 2 important central bank meetings on Thursday: the one of the Bank of England (with the rate and the amount of asset purchase facility released at 3:00 pm GMT+4) and the one of the European Central Bank (with the rate and the rate released at 3:45 pm GMT+4 and press conference at 4:30 GMT+4).

 

Analysts at BMO Capital Market note that there may be 4 possible combinations of the central banks’ decisions. Here they are:

 

- BoE does nothing, ECB does nothing;

 

- BoE increases quantitative easing, ECB does nothing;

 

- BoE does nothing, ECB cuts rates;

 

- BoE increases quantitative easing, ECB cuts rates.

 

According to the specialists, the last scenario represents the best trading opportunity. In such case the market may firstly react to the reduction of the interest rate differentials in favor of the UK and the single currency will decline versus British pound. However, investors will likely soon realize that the ECB’s action is meant to improve the situation in the euro area. As a result, the European bank equities and euro will advance. So, BMO recommends buying EUR/GBP on the dips, at 0.8550 stopping below 0.8500 and targeting 0.8700.

 

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Commerzbank: comments on EUR/USD

 

The single currency rebounded from Tuesday’s minimum at $1.3145 versus the greenback to the levels above $1.3300.

 

Technical analysts at Commerzbank note, however, that as long as EUR/USD is trading below the short-term resistance line at $1.3486, the outlook for the pair will remain negative.

 

The specialists claim that if euro breaches support in the $1.3145/1.3063 area it will fall to 2011 minimum at $1.2860.

 

According to the bank, the technical indicators on the daily chart remain negative. At the same time, the strategists say that there may be some consolidation after the abrupt slump seen so far.

 

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HSBC cut growth forecasts for Asian economies

 

Analysts at HSBC reduced its 2011 and 2012 economic forecasts for the most of the Asian economies – Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. The specialists revised down their 2012 growth estimates for Japan and New Zealand.

 

As the reasons for such revision the bank cited the potential decline in exports due to lower demand in indebted Europe and economically weak United States, as well as falling stocks and currencies.

 

The predictions for China, India, Australia and the Philippines remained unchanged. Chinese GDP is seen adding 8.9% this year and 8.6% the next. According to HSBC, Chinese strength may help to ease pressure on other Asian economies.

 

Specialists at Standard Chartered think that in case of another financial crisis Asian central banks will be able to save the region by monetary stimulus and get out of any deep recession. At the same time, the economists say that Asia along isn’t able to remove such threat of the whole world.