Comments and forex-analytics from FBS Brokerage Company

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Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

As it was expected last week British pound slumped. The prices broke through support of both Tenkan-sen (2) and the lower border of Kumo – Senkou Span “B” (4) and got below the Ichimoku Cloud.

 

The bearish Cloud retains its size (5). Kijun and Tenkan are directed horizontally. The pair may show some upside corrections, though now all attempts of sterling to rebound will face rather strong resistance (1, 2, 3, and 4).

 

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Daily GBP/USD

 

As projected, the Standard line (1) and the Turning line (2) formed the “dead cross” (5). The prices went sharply down following the falling Tenkan-sen (2) and dropped under Kumo.

 

The Ichimoku Cloud (4) hasn’t stayed bullish for long: its borders – the lines Senkou Span A (3) and B once again came together to one point, the bears are ready to get the situation under control.

 

The only support for the British currency is provided by September and October minimums.

 

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Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

Last week Japanese currency managed to close above the Turning line (1) obtaining support.

 

Resistance for the prices is provided by the Standard line (2) and the descending Ichimoku Cloud (3, 4).

 

The prospects of the pair will significantly improve if US currency manages to overcome Kijun-sen.

 

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Daily USD/JPY

 

US dollar has managed to rise above both the Turning line (1) and the Standard line (2) and get above the thin daily Ichimoku Cloud. This may be regarded as an important breakthrough taking into account the pair’s dynamics during the previous months. Tenkan-sen stopped declining (1) and become horizontal.

 

As a result, the bulls’ prospects improved, although the market remains in the situation of uncertainty. The thin Cloud (3) shows that neither bulls nor bears have significant advantage.

 

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Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

The bulls keep moving the pair’s rate higher, to the upper border of the Ichimoku Cloud. The prices are supported by the Turning line (1) and the Senkou Span A (3).

 

Tenkan-sen (1) and Kijun-sen (2) hold though weak, but still the “golden cross”. Kumo switched to the bullish mode, though it remains very thin.

 

However, Tenkan and Kijun are horizontal that may hold the pair from growth.

 

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Daily USD/CHF

 

On the daily chart Tenkan-sen (2) and Kijun-sen (1), which have so far formed the “golden cross” (3) – the strong bullish signal as the lines intersected above Kumo, are directed horizontally supporting the greenback.

 

However, the bullish Ichimoku Cloud has become very thin (4). Whether the greenback will be able to continue growth this week depends whether it manages to overcome October maximums.

 

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UBS, Deutsche Bank, Nomura on potential collapse of euro

 

Many experts from the major banks and ratings agencies agree that the euro area may break up unless the region’s policymakers find solution to the euro zone’s debt crisis.

 

Analysts at UBS underline that the currency market’s beginning to price in the collapse of the currency union. Strategists at Deutsche Bank and Nomura agree that the European debt turmoil has entered a very dangerous phase as investors started worrying about the euro zone’s core economies such as Germany.

 

Agency Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings and that the risks will keep rising if no steps are taken to stabilize the situation.

 

Last week was full of negative events: Germen government failed to draw bids for 35% of 10-year bunds, while Spain decided not to sell 3-year bonds and Italian 2-year yields surged above the 10-year ones. In addition, Standard & Poor’s cut Belgium’s credit rating and Fitch Ratings lowered Portugal’s one to the junk grade. The IMF rejected the talks provoked by La Stampa that it’s preparing to lend Italy 600 billion euro.

 

Among the coming political news there are Ecofin meetings on Tuesday and Wednesday and EU leaders’ summit on December 9. I(t seems that the measures previously rejected by the region’s authorities such as the increase of the ECB bond buying and governments issuing common securities in a deeper fiscal union are now the only possible steps to save the monetary union.

 

Strategists at Morgan Stanley note that it’s possible that the European policymakers won’t be able to present credible solution at the summit. Analysts at UBS note that the surging bind yields will hit Germen and other euro zone’s banks which may require additional capital. According to Bank of America Merrill Lynch, if Germany left the bloc, the fair value of EUR/USD would drop by 2%, while if Italy quits it would increase by 3%.

 

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Commerzbank: comments on AUD/USD

 

Technical analysts at Commerzbank note that Australian dollar managed to find support versus its US counterpart in the $0.9660/70 (78.6% Fibonacci retracement) and open on Monday with a positive gap rising to the levels above $0.9900.

 

However, the specialists think that the current rebound is only a correction and that the outlook for AUD/USD will remain negative as long as it’s trading below resistance line at $0.9985.

 

According to the bank, if the pair gets below the previously mentioned support it will fall to October minimum at $0.9388. In the longer term Commerzbank expects Aussie to slide to $0.8545.

 

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Citigroup: recommends selling EUR/CAD

 

The single currency managed to recover versus the greenback from more than 1-month minimum at $1.3211 to the levels above $1.3300 on the speculation about the new plan which implies stronger integration of the core economies.

 

Never the less, analysts at Citigroup are bearish on euro and recommend selling it on the rallies. In their view, such plan would be difficult to realize as it will likely meet opposition of different European nations. As a result, the hopes that the ECB will increase bond buying may be unjustified.

 

The specialists advise investors to open shorts on EUR/CAD. In their view, the outlook for Canadian dollar as more bullish as Canada has rather credible fundamentals, is closely connected with the United States which seem to be resilient enough despite the negative effects coming from Europe, and, finally, because loonie is able to gain from advance in commodity prices.

 

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BBH: European policymakers meet this week

 

European finance ministers meet twice this week: today at the Eurogroup meeting and tomorrow at the Ecofin one.

 

Analysts at Brown Brothers Harriman believe that if the policymakers don’t come up with specific proposals of how to deal with the crisis, investors will resume selling euro and stocks.

 

As for the talk that the region’s leaders may be negotiating a new pact, the specialists note that earlier there were many times when the markets were lightened with hope but got disappointed as nothing happened.

 

According to the BBH, it’s also necessary to take into account surging bond yields in Europe and the warnings from the OECD and Moody's Investors Service that the way out of the escalation debt turmoil should be found urgently.

 

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Societe Generale: forecast for QE3

 

Currency strategists at Societe Generale believe that the Federal Reserve will decide to conduct the third round of quantitative easing by March 2012.

 

As the reasons for such forecast the specialists cite the projected US weak economic growth in the first quarter of the next year and the slowing inflation in the country.

 

The specialists claim the Fed will buy mainly mortgage-backed securities and QE will be worth about $600 billion over 6-8 months. As a result, the central bank’s securities portfolio will increase by the end of 2012 from $2.65 to $3.25 trillion.

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Commerzbank: comments on EUR/USD

 

The single currency managed to recover versus the greenback from more than 1-month minimum at $1.3211 to the levels above $1.3300.

 

Technical analysts at Commerzbank claim that EUR/USD is facing strong resistance at $1.3418 (resistance line) and $1.3457 (23.6% Fibonacci retracement of the recent decline). In their view, the pair won’t be able to get above $1.3615 (November 18 maximum) in the near future remaining in the $1.3457/3615 area.

 

According to the bank, if euro breaks below $1.3145 (October 4 minimum), it will be poised down to $1.2860 (2011 minimum). On the downside the longer term target lies at $1.20.

 

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Euro area, China: economic outlook deteriorated

 

Analysts at UBS reduced China’s 2012 GDP forecast from 8.3% to 8%. The specialists expect exports growth to slow as the demand for Chinese products weakens due to the euro zone’s debt crisis. In their view, the nation’s exports will stagnate the next year, while earlier they expected 5.5% growth.

 

The outlook for European GDP growth was earlier cut from 0.7% to 0.2%. According to the bank, the currency union has chance to avoid collapse of euro and banking crisis. However, UBS points out that the region’s economy will nevertheless be in recession in 2012.

 

Strategists at Deutsche Bank cut projections for euro area’s economic growth from +0.4% to -0.5%. The specialists underline that as Europe’s economic prospects deteriorate, the European authorities will be more motivated to act.

 

The OECD also lowered 2012 forecast for euro zone’s economic growth from 2.0% to 0.2%.

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Fitch Ratings: negative outlook for US rating

 

Fitch Ratings changed the outlook for US top credit rating to negative. The agency doubts that American authorities are able to act in time in order to put the nation’s public finances in order. According to Fitch, the probability of a downgrade now exceeds 50%.

 

Last week the Congressional Supercommittee didn’t manage to reach agreement on the deficit cuts and the country now faces $1.2 trillion in automatic spending cuts. The failure of the committee will delay any major deficit- reduction agreement until after the next presidential election that will threaten US economy.

 

“The scale of any subsequent budget cuts are probably going to have to be larger than they otherwise would have been and certainly implemented in faster manner,” said Fitch. The economists underline that US needs more the reforms of entitlements and taxation than simply discretionary cuts.

 

The agency expects that American federal debt held by the public will get over 90% of GDP by the end of the decade, while interest on the debt will require more than 20% of the tax revenue.

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EUR/USD: comments on trading day

 

The single currency has managed today to test the levels above $1.3400. The market’s sentiment improved as Italy was able to sell 7.5 billion euro in bonds meeting its target, even though the nation’s borrowing costs keep rising: the country paid almost 8% to sell 3-year bonds (critical level) and 7.56% for 10-year bonds (record maximum), but thankfully lower than the actual average yield levels were all lower than market levels.

 

However, the relief didn’t last long – the European currency erased its today’s advance easing down to $1.3300 as the ECB failed to attract enough deposits from banks required to offset its purchases of bonds from the indebted euro zone’s economies. The central bank attracted 194 billion euro in 7-day bank deposits versus 203 billion needed. This way it may be regarded as a form of quantitative easing as the supply of euro went up, though analysts at Credit Agricole that QE will occur in case the shortfall repeats and grows.

 

Analysts at Deutsche Bank remain bearish on euro claiming that the situation is still very serious. Strategists at Lloyds Bank expect EUR/USD to test this week the levels below $1.3150.

 

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UBS: demand for Japanese debt will remain high

 

Japanese 10-year bond yield rose yesterday 3-month maximum at 1.055% from the record minimum of 0.94% hit last week. As a result, the pair USD/JPY tested levels above 78 yen.

 

Analysts at UBS think that the greenback will remain trading 75.00 and 80.00 yen unable to get higher as the demand for yen and Japan’s debt will remain high amid concerns about the euro area. The specialists point out that 95% of Japanese government bonds are held by domestic investors which prefer the home currency distrusting other major countries' sovereign debts.

 

Strategists at Societe Generale see only 2 risks to Japan’s safe haven status: either household and corporations will start to save less than what the government needs to borrow or the country would have to suffer a capital flight. In their view, for now both these outcomes aren’t likely.

 

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Eurogroup agreed to boost capacity of EFSF

 

The European finance ministers agreed to extend the capacity of the European Financial Stability Facility.

 

The officials decided to guarantee 20-30% of new bond issues from the indebted nations and to develop investment vehicles that would give the EFSF more freedom to intervene in primary and secondary bond markets. The policymakers noted that both measures may run at the same time and could be launched in the beginning of 2012.

 

According to Luxembourg Prime Minister Jean-Claude Juncker, finance chiefs also about the possibility of increasing the International Monetary Fund’s resources through bilateral loans of the national central banks, though only as a last resort.

 

In addition, European authorities signed off on an 8-billion-euro aid payment to Greece which was delayed until Greece’s commitment to conduct structural reforms.

 

However, BNP Paribas points out that the market players remain rather skeptic recalling their previous disappointments. The sentiment was also affected by the news that S&P had downgraded 37 major global banks.

 

EUR/USD remains on the downside. Resistance for the pair is found at $1.3457 (23.6% Fibonacci retracement of the decline from October maximum at $1.4248 to last week's minimum at $1.3211). Euro has lost 3.9% versus the greenback and 4.2% against yen in November.

 

Today there’s a meeting of finance ministers of the whole European Union. The region’s prime ministers meet on December 9.

 

Tomorrow Spain will try to sell 3.75 billion euro ($5 billion) of debt maturing in 2015, 2016 and 2017, while France will offer bonds maturing in 2017, 2021, 2026 and 2041.

 

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UBS: comments and forecast for GBP/USD

 

Currency strategists at UBS note that British pound is trading within downtrend versus the greenback.

 

The specialists claim that support for the pair is situated at $1.5459. If sterling drops below this level, it will be poised down to $1.5422 (November 25 minimum). Resistance for GBP/USD lies at $1.5707.

 

The bank expects the pair to trade at $1.5500 in a month before declining to $1.5000 in 3 months.

 

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Commerzbank: comments on USD/JPY

 

Technical analysts at Commerzbank think that the outlook for USD/JPY remains positive as the greenback was successfully supported yesterday at 77.60 yen and .

 

The specialists expect the pair to rise to the 4-year downtrend resistance line at 79.46 and then to the 55-week MA at 80.31. If US currency manages to overcome these levels, the longer term trend will reverse to the upside.

 

According to the bank, support for US dollar lies in the 76.80/60 area (Standard line on the daily Ichimoku chart).

 

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RBS advised selling EUR/CAD

 

Analysts at Royal Bank of Scotland advise investors to sell the single currency versus Canadian dollar.

 

The specialists expect EUR/CAD to drop to this year’s minimum in the 1.2800 area. In their view, the market is very pessimistic about euro’s prospects. The bank says that the region is under threat of recession and easing of ECB monetary policy.

 

According to RBS, such trade will allow traders to benefit from improving environment in US and Canada and from deterioration of the euro zone’s conditions.

 

The European currency is strongly correlated with the S&P 500 index. The strategists think that Canadian dollar is correlated with equities too, but the cross rate of the two currencies is not, so the volatility connected with the changes in investors’ risk sentiment is excluded.

 

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BOTMUFJ: US dollar may rise versus Japanese yen

 

Analysts at Bank of Tokyo-Mitsubishi think that the greenback may reverse upwards versus Japanese yen and advance to the 4-month maximum in the 81 yen zone by the end of 2011 or in the beginning of January 2012.

 

The specialists note that the Turning line (Conversion line) on the daily Ichimoku chart tends to cross the Standard line (Baseline) bottom-up, while the prices are above the Cloud – the bullish signal.

 

The bank underlines that 5-day MA on USD/JPY is rising above the 21-day one, while 65-day MA is getting above the 90-day line.

 

According to Bank of Tokyo-Mitsubishi, if US currency manages to hold above 78 yen, it will be eventually able to start climbing.

 

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Scotia Capital: comments on AUD/USD

 

The single currency keeps performing rather well versus its US counterpart taking into account the fact that the market is worried about the possibility of the euro area’s breakup.

 

Analysts at Scotia Capital note that as the European authorities don’t deliver any fundamental changed, the prospects of the monetary union will remain very uncertain weighting on euro’s rate.

 

The specialists advise traders to turn to Australia as there are no doubts about its triple-A credit rating. In addition, the nation is reach with commodities and is closely connected with Asian economies. The economists underline that Australian dollar suffered this month, so it has where to rise back if the risk sentiment remains positive.

 

Scotia Capital suggests that AUD/USD may climb to $1.0400.

 

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Central banks act to support financial sector

 

The single currency, British pound and commodity currencies bounced versus the greenback as the Federal Reserve, the Bank of England, the Bank of Canada, the Bank of Japan, the European Central Bank and the Swiss National Bank agreed to lower interest rates on dollar liquidity swap lines from 100 to 50 basis points from December 5. In other words, it’s now cheaper for the central banks to borrow dollar from the Fed.

 

The main goal is to help the central banks meet liquidity demands of the banking sector, households and businesses which have amid the euro zone’s debt crisis, ease tensions at financial markets and encourage economic activity.

 

Analysts at Bank of New York Mellon point out that such step was totally unexpected. Strategists at Rabobank think that the move of the central banks will help make dollar funding less expensive and help to keep the European debt crisis from spreading to other economies.

 

EUR/USD surged above $1.3480, while Australian dollar added more than 3 cents reaching 2-week maximum at $1.0335.

 

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RBC: trading recommendations for EUR/USD

 

Analysts at RBC Capital Markets think that volatility will likely to remain elevated by the end of this trading week as the market awaits the release of ISM Manufacturing PMI and French and Spanish bond auctions later today and US non-farm payrolls figures tomorrow.

 

The specialists note that the single currency has so far recovered this week. In their view, it will be able to continue going up.

 

On the one hand, the short positions on EUR/USD has increased to the level at which traders are no more willing to sell euro. On the other hand, the European currency will remain under pressure of the concerns about indebted peripheral states.

 

The bank points out that the pair has been trading between $1.32 and $1.50 and advised to open shorts at the top of the range expecting euro to fall to $1.3200 and $1.3140.

 

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Commerzbank: comments on USD/CHF

 

Technical analysts at Commerzbank note that the greenback didn’t manage yesterday to overcome 0.9240/50 versus Swiss franc and had to return to the lower levels due to dollar’s broad weakening provoked by the central banks’ action.

 

The specialists claim that USD/CHF went down getting below the 3-month upward trending support line at 0.9173. In their view, that means that US currency is poised down for further correction to 0.8950 (50% Fibonacci retracement) and 0.8730/8684 (200-day MA).

 

According to the bank, support is situated in the 0.8555/50 area, while resistance lies in the 0.9341/99 zone (April maximum and 50% Fibonacci retracement of the decline in 2010-2011).

 

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WSJ on the outlook for the British currency

 

Analysts at Wall Street Journal note that the demand for the British government bonds is rising amid the euro zone’s debt crisis. The specialists underline that sterling is now seen as an alternative to the single currency that gives pound safe haven status.

 

The pair EUR/GBP lost 2.1% since the beginning of September. WSJ draws attention to the fact that yesterday when the move of the major central banks made the riskier currencies rally, pound weakened against euro as the other refuge currencies. The economists claim that sterling has become more attractive since the SNB pegged franc to euro.

 

At the same time, though pound strengthened versus euro, it only returned to the levels where it began this year, while against US dollar sterling is above the levels of the beginning of 2011 only by 0.6%.

 

UK economic problems are strongly affecting the national currency. Pound is under pressure as the Bank of England’s conducting QE. The economic outlook for Britain is dim, as the country is affected by the weak growth in Europe. Moreover, UK has to conduct its own austerity measure that will also reduce its GDP growth rate.

 

Analysts at Barclays Capital are bearish on GBP/USD in the short-term saying though that pound’s slide will be limited. Some experts say that the negative factors are already priced in pound’s rate, so the pair may strengthen to $1.60. According to the calculations of Societe Generale pound is undervalued by 11%, while the European currency is overvalued by 0.5%.

 

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French and Spanish bond auctions considered successful

 

France has managed to sell today 1.57 billion euro of 10-year bonds. The average yield was equal to 3.18%, lower than at its last auction on November 3 (3.22%).

 

Spain sold 3.75 billion euro of bonds meeting the maximum target. The average yield on 5-year debt, however, was 5.544%, higher that the last time on November 3 (4.848%).

 

Analysts at Bank of Tokyo-Mitsubishi UFJ note that the demand for the nations’ debt was high enough adding that the market’s sentiment is still positive after the major central banks acted yesterday to facilitate access to dollar liquidity to the euro area.

 

EUR/USD is trading in the $1.3400 area, up from the opening level at $1.3445.

 

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BarCap: China’s economic forecast

 

Analysts at Barclays Capital believe that China’s economic growth pace will decline from 9.1% in the third quarter to 8.3% in the final 3 months of the year and then slide below 8% in the first quarter of 2012.

 

The specialists underline that Chinese November Manufacturing PMI data was lower than expected and accounted for 49.0 versus consensus forecast of 49.8. In their view, that means that Chinese economy is suffering from the deteriorating demand for its exports.

 

The bank warns that the risks to Chinese economy come from the possible global recession and from the dangerous situation at Chinese property market.

 

This week the People’s Bank of China has unexpectedly reduced reserve requirement rate by 50 basis points. According to Barclays, the central bank will continue easing its monetary policy in case of the GDP growth slowdown and cut RRR 3 more times by the middle of the next year. The analysts say that the chances of interest rate cuts in 2012 are also high.