Comments and forex-analytics from FBS Brokerage Company

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Greece: the referendum story

 

Everything about the euro area and Greece in particular seems to change with great speed. At the beginning of the week the markets were shaken by Greek Prime Minister George Papandreou’s unexpected announcement of the referendum on the bailout package.

 

The EU policymakers’ reaction was abrupt as they froze credit payments to Greece and raised the question of the nation’s membership in the monetary union. Then Greek opposition expressed readiness to compromise, Papandreou backed away with the referendum idea and investors’ concerns ease. The head of Greek government has no intention to step down. Now Greek authorities discuss the prospects if setting up a transitional government with the participation of the opposition to make sure Greece will get aid payment.

 

The analysts in Deutsche Bank caught the point claiming that trading EUR/USD has become so volatile that it has become too risky to open significant positions for longer than 5 minutes.

 

The pair EUR/USD rose from 3-week minimum in the $1.3600 area to the levels above $1.3800. Strategists at Westpac say that the single currency has no strength for the sustainable rally but there is some relief as the threat of referendum that would very likely bring “no”-result has been removed.

 

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NAB: market awaits NFP data

 

The market’s looking forward to get another confirmation of the coming QE3: many traders expect that US jobs growth slowed in October, while the unemployment rate remained high at 9.1%. Economists surveyed by Bloomberg project Non-Farm Payrolls to increase last month by 95K after adding 103K in September.

 

Analysts at National Australia Bank claim that even if the NFP reading beats economists’ forecasts but the unemployment rate stays unchanged, traders will see this as a reason for additional monetary stimulus and this will weight on the greenback.

 

Analysts at Bank of Tokyo-Mitsubishi UFJ point out that for unemployment to decline by half a percentage point over a year US employers have to hire about 150K workers a month. According to the labor statistics, by the beginning of October American economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

 

The NFP figures and the jobless rate are released today at 12:30 GMT.

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Commerzbank: comments on GBP/USD

 

British pound consolidated versus the greenback at the levels around $1.6000.

 

Technical analysts at Commerzbank believe that as long as GBP/USD stays below the 200-day MA at $1.6140, the outlook for the pair will be negative.

 

The bearish pressure would ease only if British currency overcomes 61.8% Fibonacci retracement at $1.6185. In such case pound will be poised up to 78.6% retracement of the decline from May at $1.6430.

 

The specialists, however, think that sterling is more likely to break support at $1.5875 (55-day MA).

 

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RBS: sell euro versus Canadian dollar

 

Currency strategists at Royal Bank of Scotland see the trading opportunity on the current European mess.

 

The specialists note that the euro zone’s economic outlook is very dim, while the prospects of Canadian economy seem to be much more favorable. According to RBS, it would be beneficial to sell the single currency versus Canadian dollar in the longer term.

 

The analysts underline that trading EUR/CAD is a better idea then EUR/USD as the latter is strongly correlated with the S&P500 index that tends to jump on positive news from Europe, so this type of trade doesn’t suit here.

 

As a result, the bank’s recommendation is to open shorts on EUR/CAD in the $1.3925 area stopping above $1.4380 and targeting the levels just below $1.2800.

 

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Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

British currency still remains within Ichimoku Cloud: a week earlier the bulls had brought prices to the upper border of Kumo – Senkou Span A (4) – from which sterling has recoiled and reversed down.

 

It’s necessary to note that as the Turning line is directed down it’s possible to expect pound’s decline to continue (2). In addition, the bears seem to gain strength: bearish Cloud is widening.

 

The lines Kijun-sen (1) and Tenkan-sen (2) as well as Senkou Span B will act as support for pound.

 

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Daily GBP/USD

 

On the daily chart the bulls have managed to make good advance in the second half of October as they have found the narrow place in the Ichimoku Cloud and pushed the pair’s rate above it. At the moment pound is fluctuation around support provided by the Turning line (1). The next support for the British currency will be Senkou Span B (3).

 

At the same time, sterling’s appreciation may be only a correction: in the $1.6335 area the pair met resistance line connecting September and October maximums.

 

Although the Ichimoku Cloud has switched to the rising mode (4), it is still too tiny to speak about bulls’ strength.

 

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Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

The third intervention conducted this year in Japan lifted the pair USD/JPY from the record minimum at 75.56 yen hit on October 31 to the levels above the Turning line, slightly higher than 78 yen.

 

At the same time, Japan’s move didn’t much change the outlook at the weekly Ichimoku chart: the Turning line (1) and the Standard line (2) still hold the strong “dead cross” in place (5), the descending Cloud maintains its width together with Kijun-sen acting as resistance for the prices.

 

The Channel between Tenkan-sen (1) and Kijun-sen has narrowed. This week the greenback is likely to remain within it.

 

Despite the efforts of Japanese monetary authorities to curb the national currency investors’ demand for yen as a refuge is still high.

 

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Daily USD/JPY

 

After the intervention US dollar has been holding in the 78 yen area supported by Senkou Span B (2).

 

The market is in the state of uncertainty: the lines Tenkan-sen and Kijun-sen have merged in one moving horizontally (1). The same happened with the borders of the Cloud which has turned into a straight line (3).

 

Neither bulls, nor bears have courage to act. The pair is likely to consolidate at the current levels.

 

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Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

On the weekly chart the pair USD/CHF remains below the weekly Ichimoku Cloud, though the bulls aren’t going to give up the attempts to move the greenback up overcoming resistance provided by Kumo.

 

The Turning line which is supporting the prices is directed sharply up (1). Tenkan-sen (1) and Kijun-sen (2) hold weak but anyway “golden cross” on place (5). In addition, the descending Cloud has significantly narrowed – the bulls have all chances to make it switch up and reverse the general downtrend.

 

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Daily USD/CHF

 

On the daily chart the greenback is trading within Tenkan-Kijun channel: the Turning line acts as support (1), while the Standard line provides resistance (2).

 

The rising Ichimoku Cloud is still a good support for the prices.

 

It’s necessary to note that all lines of the chart are directed horizontally that points at the pair’s consolidation.

 

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Commerzbank: negative outlook for EUR/USD

 

Technical analysts at Commerzbank claim that as long as the single currency is trading versus the greenback below resistance in the $1.3855/1.3930 area, the outlook for it will remain negative.

 

The specialists expect EUR/USD to decline to $1.3381/60 (September 26, October 7 minimums) and then to $1.3145 (October 4 minimum). According to the bank, in the longer term the pair will drop to $1.2000.

 

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J.P. Morgan: trading in case of risk aversion

 

Currency analysts at J.P. Morgan believe that in the long term the efforts of European authorities to solve the region’s debt crisis will be repaid.

 

At the same time, there are still plenty of risks, so the specialists advise traders to watch for the events this week. If the news turns out to be more negative, it will be necessary to sell Australian dollar versus its US counterpart.

 

As the reasons for choosing this type of trade in the risk-off situation the bank cites the fact that the Reserve Bank of Australia has so far started reducing its benchmark interest rate. In addition, there are some concerns about Australian economic growth and the currency is correlated with euro and its ability to reflect the risk sentiment and the state of the things in the euro area.

 

So, the recommendation is to open shorts at AUD/USD in the $1.0360 area stopping above $1.0500 and taking profit at $0.9950. The strategists also warn investors that the market seems to be extremely volatile and one should put place the stops close.

 

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Morgan Stanley: comments on the European crisis

 

Analysts at Morgan Stanley warn that as the European leaders have officially raised the possibility of Greece leaving the euro area, the consequences may be very dangerous (see the http://www.fbs.com/analytics/news_markets/view/9022).

 

The specialists underline that until last week such idea was a taboo but now it seems likely the currency union will use the threat of exclusion against its recalcitrant members.

 

In their view, the crisis may get much more severe, for example, there may be runs on sovereigns and banks in the indebted peripheral nations.

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Greece: Papandreou agreed to step down

 

Greek Prime Minister George Papandreou agreed to step down for the new national unity government to be formed. Its creating was agreed after the negotiations of Papandreou, the head of socialist Pasok party, Antonis Samaras, the leader of the main opposition party and President Karolos Papoulias.

 

The main goal of this government is to assure that the nation gets bailout money and help the nation’s economy survive.

 

The elections will take place right after the decisions of European Council made on October 26 are implemented. According to finance ministry’s statement, the most suitable date is February 19.

 

Analysts at Standard Chartered Bank note that the markets have become a bit more confident about Greece and investors’ attention has moved to Italy where Prime Minister Berlusconi is under pressure to step down.

 

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Default Commerzbank: comments on USD/CHF

 

Technical analysts at Commerzbank expect the greenback to rise to 0.9082 versus Swiss franc.

 

Then, if US currency manages to overcome this level, it will be poised up to 0.9317 (October maximum) and 0.9341/99 (April maximum and 50% Fibonacci retracement of the 2010/2011 decline).

 

Here the specialists look forward to some profit taking on USD/CHF.

 

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Default BMO: sell pound versus franc

 

Currency strategists at BMO Capital Markets advise investors to pay attention to the Bank of England’s meeting on Thursday as it, in their view, represents good trading opportunity.

 

The specialists distinguish 3 possible scenarios:

 

- BoE doesn’t act at all;

 

- BoE undertakes minor quantitative easing on the order of 25 billion pounds;

 

- BoE does more significant easing.

 

The analysts regard the third outcome as likely as British economy is in a very poor condition that together with the euro zone’s debt crisis will keep pound under pressure, while franc has upside potential as a safe haven. BMO thinks that the results of Swiss National Bank’s any intervention won’t last long. As a result, the bank recommends selling sterling versus Swiss franc.

 

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Default Westpac: market is focused on Italy

 

Today the market’s attention is focused on the budget vote in Italy. The nation’s Prime Minister Silvio Berlusconi is under pressure to step down, so the vote will show whether the premier still has a majority in the 630-seat Chamber of Deputies.

 

Next week Berlusconi plans to hold the confidence vote a on implementation of measures pledged to the European Union that are designed to promote Italian economic growth and reduce its huge debt.

 

Analysts at Westpac Banking claim that it seems that the market will be satisfied only if Berlusconi resigns and technocratic government is formed. The specialists say that when it happens, risk sentiment increases and the euro increases. In their view, one should use the advance of EUR/USD to sell the single currency as the relief for euro won’t last long.

 

Analysts at Societe Generale are worried about high Italian borrowing costs as the 6.5% yields would be soon unbearable for the country with only 1.8% nominal GDP growth and the debt accounting for 120% of GDP. Another thing to watch will be the nation’s auction of fixed-rate bonds on November 14 that may cause euro’s sell-off if the borrowing costs increase once again.

 

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Default BBH: euro will fall to $1.3145

 

Technical analysts at Brown Brothers Harriman claim that the single currency has breached the support of its middle-term upside channel within which it was trading since September 2010.

 

So, at the end of the last month this line started to play the role of resistance in the $1.4200 area.

 

According to BBH, the pair EUR/USD is poised down to $1.3145 (October 4 minimum).

 

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Default Standard Chartered, BarCap: comments on EUR/CHF

 

Swiss central bank Vice President Thomas Jordan claimed that Switzerland’s monetary authorities are closely monitoring franc’s rate and are ready to act if it’s necessary.

 

SNB President Philipp Hildebrand is speaking today at 17: 30 (GMT+4). In his last interview on November 6 Hildebrand warned that if franc remains strong the nation will face the risk of deflation or economic contraction.

 

Analysts at Standard Chartered Bank underline that Swiss monetary authorities do a lot of verbal interference in the currency market. So far this strategy has proved to be effective enough as the SNB manages to keep the pair EUR/CHF above the floor of 1.20 set on August 9 even though the worsening situation in the euro area urges investors to run to franc as a safe haven.

 

Strategists at Barclays Capital expect demand for Swiss currency to increase this week. In their view, the pair EUR/CHF is on its way down to $1.2245.

 

Specialists at ING don’t think that the SNB will raise floor for the pair as such actions may ruin the credibility of the threshold. On the upside the analysts see euro’s advance limited by $1.2500.

 

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Default Deutsche Bank on trading difficulties

 

Analysts at Deutsche Bank note that forex trading on the macroeconomic trends is getting more and more difficult.

 

The specialists point out that Swiss franc – the strongest currency this year – added 6.5% versus the greenback in 2011, while Canadian dollar – the weakest 2011 currency – declined against its US counterpart by 1%. The deviation between franc and loonie is less than 8% and judging by the 30-year average is very small. According to the bank, that means that it has become very difficult to find profitable trades.

 

The economists think that in 2011 the situation won’t improve due to the extremely low short-term interest rates of the developed nations’ central banks. According to Deutsche Bank, the next year many traders will start seeking profits outside of G10 currencies. As for the major currencies the bank favors selling euro versus yen and US dollar.

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Default Saxo Bank: forecast for EUR/USD

 

Analysts at Saxo Bank believe that the decline of the single currency from the October maximums in the $1.4200 area will continue during the rest of this year and in 2012 when the greenback is expected to gain 25%. The specialists claim that EUR/USD will slide to $1.20/1.30 and then to $1.10/1.15. In their view, euro will be affected by lower ECB rates.

 

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Default BNY Mellon: forecasts for the major pairs

 

Forecasts from 10/26/2011

 

Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

EUR/USD 1,30 1,35 1,4 1,42 1,43

GBP/USD 1,5 1,55 1,6 1,64 1,65

USD/JPY 76 78 80 81 82

USD/CHF 0,9231 0,8889 0,8571 0,8451 0,8392

USD/CAD 1,05 1,02 1 0,98 0,98

AUD/USD 0,95 0,98 1 1,02 1,03

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Default BMO: loonie’s prospects in 2012

 

Analysts at BMO Capital Markets claim that the dynamics of Canadian dollar has been so far determined by 2 factors: Bank of Canada’s monetary policy and the euro zone’s debt crisis.

 

The bank’s specialists think that Canada’ currency will lose to its US counterpart during the first half of the next year affected by the concerns about financial market.

 

In the second half of 2012 loonie will likely strengthen as the Bank of Canada will likely be the first central bank to start raising rates. According to BMO, be the end of the next year the pair USD/CAD will decline to parity.

 

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Italy: Berlusconi agreed to step down

 

Yesterday Italian controversial Prime Minister Silvio Berlusconi didn’t manage to obtain the absolute majority on the routine budget bill as he was supported only by 308 lawmakers out of 630.

 

As a result, Berlusconi, who seems to have lost political confidence, pledged to leave his post as soon as the nation’s parliament approves austerity measures promised to the EU. The whole matter should be over in the next few weeks.

 

The market’s reaction, as expected, was optimistic: investors hope that new authorities will be able to find way out of the crisis. Never the less, analysts at RBS warn traders that the relief won’t last long.

 

Italy now faces technocratic government – the government with limited term meant to carry out specific reforms. It’s likely to be chosen by political leaders and appointed by President Giorgio Napolitano and charged with implementing debt-reduction agenda until April 2013 when the elections are to be held. Conducting new elections on the spot as suggests Berlusconi would delay reforms. Most of the opposition parties have signaled they would support a broader coalition or a technical government.

 

However, one should realize that the country’s 1.9 trillion euro-debt is very difficult to control, so there are no guarantees that new authorities will do much better than Berlusconi.

 

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Commerzbank: comments on USD/JPY

 

Japanese yen keeps gradually strengthening versus the greenback as the concerns about another potential intervention fade.

 

Technical analysts at Commerzbank believe that USD/JPY is poised down to the level of 50% Fibonacci retracement of the advance made after October 31 intervention at 77.40 yen.

 

The specialists claim that the outlook for the pair will remain bearish as long as it keeps trading below the 4-year downtrend line at 79.64 yen and 55-week MA at 80.52 yen. If US currency manages to overcome these levels, it will be able to rise to 2011 maximum at 85.53 yen.

 

According to the bank, support is found at 77.50/40. If dollar breached these levels, it will drop to 76.93 and 76.22/75.94.

 

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RBC: sell Swiss franc versus Japanese yen

 

Analysts at RBC Capital Markets believe that the single currency will stay in a tight range for some time.

 

Instead, the specialists advise traders to turn to yen and franc as the Swiss National Bank’s and the Bank of Japan’s intervention approaches are different.

 

The SNB is concerned about deflation risk, so it set specific target for franc in order to reverse its advance versus euro and is successfully defending it. The BOJ has also attempted to stop the appreciation of the national currency, but failed to keep yen from strengthening. So, the latter, according to the bank, lacks determination and the use of specific targets of the former.

 

As a result, RBC recommends opening shorts on CHF/JPY in the 87.25 area stopping above 89.30 and targeting 83.00 yen.

 

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MIG Bank: negative outlook for EUR/USD

 

Currency strategists at MIG Bank note that the single currency is under pressure as Italian 10-year bond yields have surged to the record levels of 7.22% and S&P500 index is down from the recent maximums.

 

The specialists note that EUR/USD was rejected by 2-year trend-line and expect the pair to slide to $1.3140.

 

According to the bank, support is found at $1.3145 (October 4 minimum) and $1.3000 (psychological level).

 

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UBS, Commerzbank: dollar will gain versus franc

 

Analysts at UBS advise investors to buy the greenback versus Swiss franc.

 

The specialists underline that the European Central Bank and the Reserve bank of Australia are decreasing rates and the Bank of England is doing quantitative easing. The Bank of Japan is conducting actual interventions, while the Swiss National bank is doing the verbal ones pledging to act if necessary. Only the Federal Reserve keeps its monetary policy unchanged that makes UBS bullish on the greenback.

 

The economists don’t choose trading EUR/USD because of high volatility, GBP/USD has chances to gain as sterling may be used as an alternative for euro, and AUD/USD is still expensive for shorts due to the higher borrowing costs in Australia. That brings the bank to choose franc as the currency to sell against US dollar.

 

Analysts at Commerzbank believe that if USD/CHF overcomes 0.9082, the pair will be poised up to 0.9317 (October maximum) and 0.9341/99.

 

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