Comments and forex-analytics from FBS Brokerage Company

[FBS.com Official]

Results of EU leaders meeting encouraged investors

 

The European currency advanced versus the greenback from Friday’s minimum 1.3750 getting above 1.3950.

 

European authorities will allow the European Financial Stability Facility (EFSF) to spend its full 440 billion-euro ($613 billion) capacity. Earlier the EFSF spending was limited by 250 billion euro. It’s necessary to note, though, that EFSF funds can’t be used to purchase bonds of problem euro zone nations. A final agreement is scheduled on March 24-25 summit.

 

Investors regarded such agreement as a breakthrough. Analysts at ANZ National Bank claim that such news more than exceeded the market’s expectations, so that will be positive for euro. In their view, taking into account the fact that the ECB intends to lift up the interest rates in April, it’s quite likely that euro will break though the key $1.40 level in the near-term.

 

Analysts at Societe Generale note that as long as the pair EUR/USD holds above the short-term support line at 1.3855, it can return to last Monday's maximum at 1.4040 and even to the 1.4285-1.4305 area.

 

On March 17 there will be the meeting of European Central Bank’s governing council.

 

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The outlook for EUR/CHF

 

Analysts at UBS claim that the European currency may advance versus Swiss franc after the European leaders decided to expand the European Financial Stability Facility (EFSF) to 440 billion euro. In addition, the money-market rate differentials between the euro zone and Switzerland are likely to widen soon. However, it’s very likely that the impact of euro-positive factors may be limited due to the rising risk aversion on international financial market.

 

Technical forecast

 

Specialists at Barclays Capital note that the pair EUR/USD jumped from the daily Ichimoku Cloud support and the channel base in the 1.2800/30 area. In their view, the pair may go slowly up to 1.3140 and 1.3200. In the near-term euro is expected to trade between 1.2830 and 1.3040.

 

Analysts at BNP Paribas, on the other hand, advise investors to use rebounds to close long position and await a deeper pullback before reestablishing bullish strategies.

 

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Commerzbank: USD/JPY will keep trading between 80.00/84.00

 

Technical analysts at Commerzbank note that the pair USD/JPY was very volatile during the recent sessions fluctuating between 80.60 and 82.00 yen on the concerns about the consequences of Japan’s earthquake. The specialists, however, believe that in the longer-term the greenback won’t leave the range between 80.00 and 84.00 yen.

 

According to Commerzbank, support is situated between the 5-month support line at 81.44, February minimum at 81.10, January minimum at 80.93 and current March minimum at 80.61. The strategists say that as long as US dollar is trading above November minimum at 80.23, the trend will be sideways.

 

Resistance levels are found at 55-day MA at 82.47, the 61.8% Fibonacci retracement of the decline from September to November at 83.15 and Friday’s maximum at 83.31. If USD/JPY overcomes these levels, it will face 6-month resistance line at 83.65 and February maximum at 83.99.

 

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Chart. Daily USD/JPY

[FBS.com Official]

Goldman Sachs: USD/JPY may drop below 80 yen

 

Currency strategists at Goldman Sachs claim that as the pair USD/JPY is trading in wide range with current rate close to its lower border and with high volatility, it may renew the record minimum below 80.00.

 

The last time the Bank of Japan intervened at the currency market was in September 2010. The central bank aimed not to let the national currency appreciate too much. The intervention was conducted when dollar’s rate fell below the 83 yen level. Although the BoJ spent several trillion yen to buy US currency, the outcome was far from expected – USD/JPY fell to 80.20/25 in November and rose only to 81.15 by the end of the year.

 

Goldman believes that after the earthquake that occurred on March 11 the country’s monetary authorities will do everything they can to prevent yen from gaining. Japanese officials have already demonstrated their intention to ensure stability at financial markets.

 

If USD/JPY goes sharply down, the central bank will likely intervene once again even though now the focus is on the quantitative easing. The strategists note that the 80 en level remains the key one for the bank of Japan.

 

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[FBS.com Official]

MIG Bank: EUR/USD is forming the “double top”

 

Technical analysts at MIG Bank note that the pair EUR/USD was once again rejected in the psychological 1.40 zone and is now forming minor “double top” near this level.

 

Support levels are found at the 50% Fibonacci retracement at 1.3730 and 61.8% at 1.3660. The close lower will mean that euro may test February 22 minimum at 1.3525.

 

According to the bank, bearish pressure on the pair will ease only when the rate gets above 1.40. In such case EUR/USD will get chance to rise to 1.4085/1.4116 and 1.4265/1.4285.

 

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[FBS.com Official]

Roubini: yen is likely to weaken

 

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, notes that yen’s surge was caused by the risk aversion that strengthened due to the quake in Japan. In his view, the appreciation of Japanese currency won’t last long as the disaster affected the nation’s economy.

 

Roubini expects that the massive reconstruction will worsen Japan’s fiscal state. The Bank of Japan will have to increase the volumes of the long-term bonds’ purchases monetizing additional fiscal deficit.

 

The economists underlined that domestic demand in the country is low and Japan has to increase its net exports. To do this Japanese authorities will need weaker rate of the national currency. As a result, the fundamentals speak for the weakness in yen’s rate. Yen will strengthen only if the external balance improves.

 

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[FBS.com Official]

SNB won’t raise rates in March

 

Analysts at UBS expect that the Swiss National Bank will keep tomorrow its benchmark interest rate unchanged at the record low of 0.25% to let interest differentials between the euro area and Switzerland widen pushing the pair EUR/CHF up. All 20 economists surveyed by Bloomberg News share this point of view.

 

UBS specialists think that the SNB will raise growth and inflation forecasts this week. In their view, the hiking cycle will start in June.

 

The SNB's rate decision is announced Thursday at 08:30 GMT.

 

Swiss currency has been driven so far by rising risk aversion amid the events in Japan and the Middle East. The pair USD/CHF renewed yesterday the record minimum falling to 0.9140. The pair EUR/CHF is down from February maximums in the 1.3200 area trading currently in the 1.2840 region.

 

Economists at Goldman Sachs note that although domestic economic situation clearly argues for a monetary tightening, recent geopolitical tensions have increased the risk of safe haven capital flows into the franc. So, the analysts continue to expect the SNB’s first hike in September.

 

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Chart. Daily USD/CHF

 

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Chart. Daily EUR/CHF

[FBS.com Official]

HSBC: Japan's disaster won't affect Asian economies much

 

Analysts at HSBC claim that Japan's earthquake will neither derail the growth of emerging Asian economies, nor ease inflationary pressure.

 

The specialists note that Asian monetary authorities may be tempted to postpone any already-scheduled tightening. Such outcome, in their view, would be a mistake. The economic impact of Japanese disaster on the rest of the region will remain relatively limited, so HSBC underlines that the region’s central banks should make fighting inflation a priority.

 

The economists say that although Japan's consumption will certainly slow down in the coming months, it will be compensated by high government and private spending on reconstruction, especially in what concerns an housing, infrastructure, electricity generation and transmission.

[FBS.com Official]

Commerzbank: comments on USD/JPY

 

The greenback failed in the 82.45 area on Monday and went down to trade below 81.00 versus Japanese yen. Technical analysts at Commerzbank note that US currency is coming close to the lower border of last 5-months trading range.

 

Support for the pair USD/JPY is found at the base of a 3-month channel at 80.33 and the all time minimums in the 80.00/79.70 zone. The specialists believe that the latter levels will be able to hold the bears.

 

According to Commerzbank, downside pressure will ease if dollar manages to close the day above 81.15.

 

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[FBS.com Official]

Mizuho: comments on EUR/USD

 

The European currency went down from 1.4035 at the beginning of March and then recoiled from support at 1.3750 returning in the 1.4000 area.

 

Technical analysts at Mizuho Corporate Bank claim that yesterday there probably was a “hanging man” candle formed on the daily chart that hints at the potential “double top”. That means that the pair EUR/USD may reverse down, though yesterday it once again closed above the 9-day MA.

 

The specialists warn, however, that yesterday's candle could also be the “spike low” ahead of the surge of euro’s rate. Such concept is preferred by Mizuho as it corresponds to the bank’s long-term outlook.

 

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[FBS.com Official]

Commerzbank: comments on USD/CHF

 

The greenback is trading near the record minimum versus Swiss franc at 0.9150 as the demand for Swiss currency rose due to the concerns about Japan and the Middle East.

 

Technical analysts at Commerzbank note that US currency may extend declines to support line from October to March at 0.9120.

 

The lowest possible level for the pair USD/CHF is found at 0.9000 representing psychological Elliot wave and Fibonacci projections, believe the specialists. In their view, dollar will manage to hold at this level and reverse upwards.

 

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[FBS.com Official]

Daiwa: BPJ will have to monetize fiscal deficits

 

Analysts at Daiwa note that yen’s rate is strengthening, while the CPI is falling and massive public debt of nearly 200% of GDP leaves Japanese monetary authorities little room for maneuver. In these circumstances the Bank of Japan will have to monetize the fiscal deficits needed to fund reconstruction.

 

The BOJ will be obliged to be more aggressive on asset purchases to effectively counter the tendency toward a stronger JPY, ensuring positive inflation in 2011.

 

Southeast Asian nation may initially suffer from reduced Japanese FDI in the second quarter of the year as Japan's corporations focus on domestic market. Korea and Taiwan may be affected by disrupted supplies of key capital goods that they import solely from Japan. However, as the period of deflation is likely to end, Japan will manage to take the road of sustainable by the second half of 2011.

 

BOJ has already doubled its asset purchase program to 10 trillion yen. The program will last 15 months.

 

Analysts at UniCredit say that although the BOJ may try to limit the impact of the earthquake on USD/JPY, the pair may still hit record minimums as long as repatriation flows continues, while risk aversion remains high and stocks weak. As a result, the bank advises investors to avoid spot JPY positions.

 

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[FBS.com Official]

Moody’s cut Portugal's credit rating

 

Moody’s Investors Service cut Portugal’s credit rating to A3. Among the reasons for such decision Moody’s named weaker outlook for economic growth, risks to the government’s deficit- reduction plans and a possible need to recapitalize banks.

 

Portugal is now 4 steps from junk status. The ratings agency said that id the ECB lifts up interest rates it will become more difficult for Portugal to reduce its budget deficit. The nations funding costs as well as the private-sector borrowing costs will increase. The country’s economy has to survive rising taxes and severe spending cuts in more than three decades as the government tries to convince investors’ in its ability to pay all the debts and diminish the deficit.

 

According to Moody’s, Portugal’s GDP may decline this year showing weak recovery at best in 2012. The Bank of Portugal claimed on January 11 that as consumer demand is decreasing and the government is cutting spending, the country’s economy will lose 1.3% this year. Portugal’s unemployment rose to 11.1% in the fourth quarter, the highest since 1998.

 

Portugal intends to sell 20 billion euro of bonds in 2011 to finance its budget and cover the cost of maturing debt. Its 10-year bond yield reached euro-era record of 7.70% on March 9. Portugal has to repay 9 billion euro in April and June.

 

Analysts at Brown Brothers Harriman say that Moody’s negative outlook for Portugal is justified and further cuts seem to be quite likely.

 

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[FBS.com Official]

Danske Bank changed 3-month forecast for EUR/GBP

 

Analysts at Danske Bank expect the European Central Bank to raise its benchmark interest rate in April by 25 percentage points. The Bank of England, in their view, is less likely to raise the interest rates as the UK economy is too fragile. British central bank may keep the borrowing costs at the current 0.5% level until August.

 

As a result, the specialists cut their 3-month forecast for pound versus euro from 0.86 to 0.89. The pair EUR/GBP rose from 0.8280 on January 10 to 0.8680.

 

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[FBS.com Official]

Credit Suisse: BOJ should lower rates

 

Analysts at Credit Suisse claim that the Bank of Japan has to cut short-term interest rates in order to stop yen’s appreciation to the record maximums. In their view, this would be better than the government intervention in the currency market.

 

Japanese currency climbed yesterday to 76.31 yen versus US dollar rising above the previous post-World War II maximum at 79.75 yen per dollar reached in April 1995.

 

The specialists believe that the pair USD/JPY will stay in range between 78 and 79 yen unless the spread in short-term interest rates between Japan and the United States widens.

 

The central bank should lower the interest rate on a 30 trillion yen ($378 billion) credit program, as well as the interest on excess reserves held by financial intuitions at the BOJ.

 

On March 14 Japanese monetary authorities doubled the size of its asset-purchase plan to 10 trillion yen and kept the benchmark interest rate at 0-0.1%.

 

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[FBS.com Official]

BNP Paribas cut Japan's growth forecast

 

Analysts at BNP Paribas reduced their Japanese economic growth forecast for 2011 due to the 9.0 magnitude earthquake in northern Japan and the nuclear crisis at the Fukushima power plant.

 

The projections for the fiscal year growth were lowered from 1.6% to 0.9%, while the estimates for the calendar year were cut 1.6% to 1.2%.

 

The specialists expect the country’s economy to contract severely in the first two quarters of the year. In the third quarter Japan will likely return to the positive growth. In 2012 Japanese GDP may add 2.9% helped by the reconstruction.

 

These forecasts are based on assumption that the Fukushima crisis will be contained and the rolling blackouts by Tepco will finish as planned at the end of April.

[FBS.com Official]

Commerzbank: comments on USD/JPY

 

US dollar has compensated yesterday’s decline rising from the new record minimum at 76.60 above 79.00. Then, however, the pair USD/JPY once again headed down, this time at lower pace.

 

Technical analysts at Commerzbank note that resistance for US dollar is found at 79.78 and 80.60 levels representing 50% and 61.8% Fibonacci retracements of the rate’s decline during the past week.

 

According to the bank, bearish pressure on the greenback will ease only if it overcomes January minimums at 80.93.

 

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[FBS.com Official]

Analysts on SNB rates

 

Analysts at BNP Paribas note that the markets wasn’t surprised by today’s decision of the Swiss National Bank to keep the benchmark interest rate at the current 0.25% level and increase growth and inflation forecasts as investors were looking forward to exactly the same outcome.

 

The specialists note that the SNB was very careful not sound too hawkish as Swiss franc is strengthening and there's high uncertainty about the scale and implications of the Japanese crisis.

 

Economists at UniCredit claim that the possibility of the rate hike has declined. In their view, Japanese earthquake and its impact on the Fukushima power plant introduced a “new element of risk”. UniCredit supposes that the SNB won’t start lifting up rates until September.

 

Specialists at Moody's also believe that SNB is likely to keep its key interest rate on hold for the next several months as the strong Swiss franc and the euro zone economic weakness will affect Swiss exports.

 

Strategists at Citigroup expect Switzerland’s monetary authorities to begin raising rates in the third quarter. The exact term depends on how the near-term uncertainties are resolved. The interest-rate bias seems upside as the SNB dropped previous references to the danger of deflation. On the contrary, its statement indicates concern that low interest rates are encouraging undesirably strong growth of credit and broad money.

 

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[FBS.com Official]

BNY Mellon: investors will sell emerging market currencies

 

Currency strategists at BNY Mellon claim that it’s possible to observe the net outflow from higher yielding currencies such as the South African rand, Russian ruble, Hungarian forint, Brazilian real, Argentine peso and Turkish lira. Investors’ risk sentiment has deteriorated after the Japanese disaster. The market’s participants poured their money into Swiss francs, US dollars and even yen.

 

J.P. Morgan also turned bearish on emerging-market currencies cutting the currency exposure in its Global Bond Index-Emerging Markets portfolio by 10%, with especially large reductions in the Brazilian real, the Chilean peso, and the Russian ruble. According to the bank, there’s the risk that Japanese investors will sell emerging-market currency-related debt to buy yen.

[FBS.com Official]

Barclays Capital: comments on USD/JPY

 

Technical analysts at Barclays Capital claim that the spike low to the record minimum at 76.26 seen on the weekly USD/JPY chart indicates the potential stability of the rate in the near term.

 

The specialists say that the greenback’s likely to move up, although it will be very hard for US currency to overcome the resistance of the 2-year downtrend line in the 83.00/30 zone. In order to ease the bearish pressure in the medium term, the pair has to close the day above 84.50. According to Barclays Capital, support level is situated at 79.40.

 

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[FBS.com Official]

Wells Fargo, Bank of Tokyo: yen will drop in 2011

 

After the Kobe earthquake in 1995, yen gained 20% in 3 months. In 6 days after the recent disaster that occurred on March 11 the pair USD/JPY lost 3.7% as investors were concerned about yen’s repatriation by the Japanese investors estimated by 10 trillion yen ($124 billion).

 

Never the less, economists surveyed by Bloomberg expect Japanese currency to lose 8% in 2011 surviving the biggest decline in 6 years as Japanese growth and demand for money will fall affecting yen. On Friday, March 18, G7 nations accompanied Japan in the currency intervention undertaken to weaken yen that had reached the postwar maximum at 76.25 yen per dollar.

 

Analysts at Wells Fargo and Bank of Tokyo-Mitsubishi UFJ believe that yen will begin depreciating as the Bank of Japan injects cash in the country’s financial system, while the other central banks are getting ready to tighten monetary policy. Last week the BOJ added 38 trillion yen to Japanese financial market in one-day operations. In 1995 Germany’s Bundesbank and US Federal Reserve, on the contrary, reduced interest rates. The specialists think that Japanese policymakers will make enough efforts to weaken the national currency and look forward to further intervention, at least from Japan.

 

Wells Fargo sees yen’s rate easing to 86 yen per dollar in a year, while Bank of Tokyo predicts that Japan’s currency will drop to 89 by the end of 2011. The median estimate according to Bloomberg survey is at 88 yen per dollar.

 

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[FBS.com Official]

Commerzbank, Lloyds Bank expect pound to decline

 

The pair GBP/USD has renewed 2-week maximum at 1.6293. Technical analysts at Commerzbank say that sterling may fail to rise higher as it faces the 4-year downtrend at 1.63 and the range top at 1.6340. The specialists expect the British currency to drop to February minimums at 1.60/1.5962.

 

According to the bank, it’s necessary to sell pounds at 1.63 stopping above 1.6430 and taking profit at 1.60.

 

Analysts at Lloyds Bank Corporate Markets claim that the pound’s rate will keep being determined by the interest rate differentials. In their view, sterling may found itself under bearish pressure until investors’ risk sentiment improves.

 

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[FBS.com Official]

BNP Paribas: Aussie may strengthen to $1.04

 

Analysts at BNP Paribas expect Australian dollar to climb versus the greenback to the maximum since 1983 helped by the growth of the commodity prices.

 

Benchmark European coal derivatives for next-year delivery gained 8.6% since the beginning of the year to $134.40 a ton on March 16.

 

The specialists remind that Australia is the world’s biggest coal producer and rising coal prices will increase the country’s income and asset prices.

 

According to the bank, Aussie may strengthen to $1.04. So far the highest level of the pair AUD/USD was reached on December 31 when it rose to $1.0256.

 

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[FBS.com Official]

Commerzbank: ECB may postpone rate hike

 

Economists at Commerzbank claim that the recent events in Japan can make the European Central Bank revise it’s almost made decision of raising the interest rates. The matter is that the Bank of Japan is adding huge amounts of liquidity to the country’s financial market in order to weaken the national currency. The specialists believe that the concerns about rising inflation in the euro area may seem exaggerated in comparison with the inflationary pressure Japan may face in future.

 

As a result, European monetary authorities may postpone the rate hike. In this case euro will survive a sharp decline. According to Commerzbank, the current levels of the pair EUR/USD in the 1.4200 area seem to be overvalued.

 

In addition, it’s also necessary to take into account that investors’ sentiment towards the greenback may improve. The bank thinks that US dollar will be weak only in the short term. The analysts think that when yen’s repatriation is over, the market’s attention will once again switch to the Europe’s debt problems, so they recommend buying American currency in the medium term. RBC strategists agree with such opinion. In their view, one more factor in favor of US currency is the tensions at the Middle East that will make investors seek refuge in dollars.

 

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[FBS.com Official]

CMC Markets: AUD/USD may rise to 1.0185/1.0200

 

Analysts at CMC Markets believe that Australian dollar may climb versus the greenback in the coming days.

 

In their view, Aussie will be able to rise mainly due to the weakness of US currency. The specialists note that investors are getting less concerned about the situation in Japan and potential spreading of the Middle East tensions, so the risk aversion seems to be easing down.

 

According to the forecasters, the pair AUD/USD may rise to the 1.0185/1.0200 zone.

 

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