Comments and forex-analytics from FBS Brokerage Company

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BarCap, BNP Paribas on central banks' action

 

Yesterday 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 dollars from the Fed. Such step was aimed to facilitate access of the euro area to the dollar liquidity.

 

Analysts at Barclays Capital, however, believe that though the risk sentiment on Wednesday has significantly improved, it’s now too early to say that the situation has changed. The specialists note that the stock indexes remain range bound and longer term charts still point to weakness.

 

Strategists at BNP Paribas say that the central banks' joint action treats the symptoms but not the cause of the problems. In their view, the market’s attention will remain focused on the situation in the euro area and investors will keep hoping that the region’s economies will move towards fiscal integration.

 

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Goldman Sachs: 2012 stock markets’ forecast

 

Economists at Goldman Sachs project that the stock markets will keep falling in the first quarter of 2012 due to the threat of recession in the developed economies, but later start advancing around the middle of the next year. In their view, the major indices will end 2012 10% above current levels. Goldman says that it’s hard to say exactly when the rebound is going to start as that will depend on the actions of the policymakers.

 

The specialists expect euro zone’s GDP to decline by 0.8% the next year. In their view, Germany and France will survive sharp but short-lived recession, while the peripheral economies of the region will suffer much more. However, despite the economic contraction some kind of resolution to the euro zone debt crisis will lead to a rally for stocks and a narrowing of bond spreads.

 

According to Goldman Sachs, currency bloc’s collapse is unlikely, but in case it happens, the consequences for the member states and the global financial markets will be terrible.

 

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Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

Last week British currency has managed to make rather strong move up and even test the levels above the Turning line (1). The bulls won as the market’s risk sentiment improved after the world’s major central banks decided to lower rates on dollar swaps.

 

The prices didn’t manage to close above Tenkan-sen (1) and this week they also opened outside of Kumo. However, if sterling manages to overcome the lower border of the Ichimoku Cloud – the line Senkou Span B – and enter it, the prices will likely correct to the resistance line of the downtrend following the line Tenkan-sen which has went up. In addition, the bearish Cloud is narrowing (3), so the bears began losing strength.

 

In addition, pound will face rather strong resistance in the area of the Turning line (1).

 

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Daily GBP/USD

 

On the daily GBP/USD chart the prices will manage to get above the Turning line (1), which is supporting the pound.

 

At the same time, the pair is still below the Cloud which has recently switched to the bearish mode (3). Tenkan-sen (1) and Kijun-sen (2) keep holding the “dead cross” moving horizontally that allows to expect consolidation within this channel in the short-term. Taking into account the thin Kumo the bulls have chance to try and change the situation to their benefit.

 

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Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

Last week US currency managed to hold above the Turning line (1) which is currently playing the role of support. Resistance for the prices is provided by the Standard line (2) and the descending Ichimoku Cloud (3).

 

The lines Tenkan-sen (1) and Kijun-sen are directed horizontally that points at the sideways trend.

 

The prospects of the pair will get significantly better if US currency manages to overcome Kijun-sen (2).

 

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Daily USD/JPY

 

On the daily chart the prices manages to hold last week above the Standard line which is painted blue on the chart. The positive factor is the “golden cross” (1) formed by Tenkan-sen and Kijun-sen above Kumo. These lines will provide support to US currency.

 

At the same time, the Ichimoku Cloud (2) remains very thin. This means that the market is in the state of uncertainty as neither bulls, nor bears have enough strength to change the situation in their favor.

 

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Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

Last week US dollar declined versus Swiss franc after the month of continuous growth. Dollar’s slide may be explained by the general weakness of US currency amid the improved investors’ risk sentiment.

 

Never the less, the prices remain inside the Cloud. The pair is supported by the Turning line (1) and Senkou Span A (3). The Ichimoku Cloud which has so far switched to the upside has widened. Tenkan-sen (1) and Kijun-sen (2) hold though weak, but the “golden cross”. The fact that they are directed horizontally means that the rate may consolidate.

 

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Daily USD/CHF

 

On the daily chart the pair USD/CHF is consolidating around Tenkan-sen (1). This move is likely to continue for some time.

 

All in all, from the technical point of view, the greenback has all chances to resume growth in the near term: the Turning line (1) and the Standard line (2) last month formed the “golden cross” (3) – very strong bullish signal as the lines intersected above Kumo. In addition, the lagging Chinkou Span broke through the price chart, while the priced were above the Cloud, and the Ichimoku Cloud itself, though narrowed, but is still bullish.

 

For the greenback could start the rising, the bulls have to overcome resistance in the area of October and November maximums.

 

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RBA once again cut interest rates

 

The Reserve Bank of Australian reduced today the key interest rate by 25 basis points to 4.25%. Australia’s monetary authorities claimed that such decisions were made due to the risks coming from the European debt crisis. In particular, the country’s exports and, consequently, its economy and the global economy in general will likely suffer from the declining demand in the euro area. Economic growth of China, Australian biggest trading partner, is also slowing down.

 

Analysts at RBC Capital Markets believe that the RBA will lower the borrowing costs once more in the first quarter of 2012. Specialists at St. George expect the central bank to cut rates in February, especially if there is no fundamental solution in Europe. Strategists at Westpac think the cuts will be conducted in February and May of the next year.

 

The RBA decreased rates for the second consecutive month: in November it lowered borrowing costs from 4.57% to 4.50%.

 

Australian dollar declined versus its US counterpart from the recent maximums in the $1.0330 area to the levels in the $1.0200 zone.

 

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BMO recommends longs on NZD/CAD

 

There are many central banks’ meetings this week, including the Bank of Canada later today and the Reserve Bank of New Zealand on Thursday.

 

Analysts at BMO Capital compared Canada’s and New Zealand’s economic data and came to conclusion that the latter is better than the former. The specialists think that the RBNZ is likely to lift up the borrowing costs, while the BOC is seen staying on hold.

 

As a result, BMO believes that New Zealand’s dollar will gain versus its Canadian counterpart. The bank suggests buying NZD/CAD in the 0.7875 zone stopping below 0.7735 and targeting 0.8275.

 

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Barclays Capital: trading recommendations

 

Currency strategists at Barclays Capital are slowly truing more positive on the prospects for the single currency as the region’s gradually moving to a sort of progress.

 

The European Central Bank meets on Thursday and the EU leaders gather on Friday. The specialists think that these meetings will be an important step forward and can help to lower the risk premium on euro. Barclays notes that as the majority of market players are currently bearish on the single currency, their sentiment may sharply change.

 

At the same time, the analysts advise traders to avoid euro as EUR/USD’s moves may be extremely volatile and unpredictable. In their view, the ECB’s meeting is unlikely to improve risk sentiment while posing risks to the euro zone’s interest rate advantage. If the European policymakers don’t deliver some relief, euro will get under pressure.

 

As a result, Barclays recommends buying USD/CHF in the 0.92 area stopping below 0.90 and targeting 0.98.

 

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Merkel and Sarkozy step in with new proposals

 

German Chancellor Angela Merkel and French President Nicolas Sarkozy who lead the 2 biggest economies of the euro area claimed yesterday that they will try to establish new rules to tighten euro area economic cooperation.

 

Merkel and Sarkozy agreed that there should be automatic penalties for those nations who violate the allowed limited of budget deficit, while the limits on debt are to be fixed in euro states’ constitutions.

 

Such demonstration of intention to solve the crisis came after Standard & Poor’s warned of possible downgrades of the euro zone’s economies, even the 6 AAA-rated countries.

 

Germany and France also aim to try to precipitate the creation of the permanent European rescue fund from 2013 to 2012 and ensure that decisions by the fund can be made by a “qualified majority” rather than a unanimous vote by the participating governments.

 

According to Sarkozy, the leading euro area’s nations plan to reach consensus on treaty change with other euro leaders by March.

 

At the same time, it’s necessary to note that Merkel and Sarkozy reiterated their rejection of the idea of the joint euro bonds. As a result, analysts at Bank of Tokyo Mitsubishi UFJ say that the main pressure in saving the currency will lie on the ECB. According to the bank, the plans announced by Merkel and Sarkozy on Monday may satisfy the European Central Bank and could prevent S&P from massive ratings cuts in the euro area.

 

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Barclays Capital: comments on USD/JPY

 

Technical analysts at Barclays Capital note that the greenback is testing support at 77.65 trading versus the greenback. The specialists note that if the pair USD/JPY broke below this level, it will go down back to 77.30 yen. In their view, in December US dollar will stay between 77.10 and 78.30 yen.

 

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Nomura: 2012 forecast for EUR/USD

 

Analysts at Nomura expect the single currency to fall versus its US counterpart to $1.20 by the end of the first quarter of the next year. Then the specialists see EUR/USD recover to $1.25 by the end of 2012. Such forecast is based on the assumption that the European Central Bank will have to conduct quantitative easing in order to prevent Greek default.

 

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Commerzbank: comments on EUR/USD

 

The single currency rose versus the greenback from yesterday’s minimum at $1.3333 to the levels in $1.3440 area.

 

Technical analysts at Commerzbank believe that euro’s advance is only a correction. In their view, EUR/USD won’t be able to rise above $1.3608/15 (38.2% Fibonacci retracement of last decline and November 18 maximum). The specialists underlined, however, that it’s not possible to rule out the possibility of the pair’s rebound to $1.3835/60 (July minimum, November maximum and the 61.8% Fibonacci retracement of the recent move down).

 

According to the bank, EUR/USD is poised down to test the 2011 uptrend support at $1.3210 where it will manage to find some support.

 

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EUR/USD: comments on sentiment, ECB and EU summit

 

Currency strategists at Morgan Stanley believe that the European currency may gain more versus its American counterpart as the market has become more optimistic ahead of the EU summit on Friday. In their view, if EUR/USD managed to rise above $1.3490, it will be able to strengthen more in the near term.

 

Specialists at Citigroup, however, advise traders to be careful. The bank underlines that it would be very difficult for the pair to hold its advance after the EU summit is over. The analysts warn that one cannot rule out the risk that the market will get disappointed by the European authorities and euro will get under pressure.

 

Analysts at Barclays Capital think that the single currency may rise to $1.3550, but not higher. According to the bank, there’s still risk of euro’s slide to $1.3210/1.3145 (November and October minimums).

 

By the way, BNP Paribas points out that the market has priced in only 80% of the 25-basis-point rate cut on Thursday, so it the ECB actually lowers borrowing costs euro will take a blow. The median forecast of economists surveyed by Bloomberg News is that the central bank will reduce rates from 1.25% to 1% on December 8. Excluding that scenario and the risk of the EU summit failure additional short-covering may give EUR/USD some lift ahead of the weekend, says BNP Paribas.

 

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Commerzbank: comments on USD/CAD

 

Analysts at Commerzbank underline that so far the greenback hasn’t managed to overcome 50% Fibonacci retracement of its advance versus Canadian dollar from October to November in the 1.0200 area.

 

The specialists point out that if USD/CAD slides below the 5-month uptrend support line at 1.0100, it will dive to 1.0027 (78.6% Fibonacci retracement) and 1.0000 (psychological level) before bouncing up.

 

According to the bank, resistance for the pair is situated at 1.0495 (resistance line) and 1.0523 (November maximum). In the first quarter of 2012 US dollar may reach 1.0590 (200-week MA) and 1.0656 (October maximum).

 

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Societe Generale: technical levels for USD/JPY

 

Technical analysts at Societe Generale claim that support for USD/JPY is found at 77.60/55 and 77.30, while resistance for the greenback lies at 78.30/40 and 78.70.

 

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BNY Mellon: sentiment about euro again changed

 

The single currency weakened versus the greenback after starting the day on the upside. Analysts at Bank of New York Mellon note that the positive sentiment which has so far began to build switched to the gloomy stance on the euro area's future.

 

Euro declined after German government official told reporters on condition of anonymity that the nation rejects proposals to combine current and permanent euro-zone bailout funds – yesterday the Financial Times reported that the European leaders may agree to do this.

 

In addition, Berlin is pessimistic about the chances to reach a deal on solving the crisis on the December 9 summit. If the summit disappoints the market, EUR/USD may slide to $1.3210 and $1.3145.

 

The majority of the economists surveyed by Bloomberg News expect the European Central Bank to cut its benchmark rate tomorrow from by 25 basis points to 1%. If it happens, euro will get under pressure.

 

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BOTMUFJ on the approaching SNB meeting

 

Analysts at Bank of Tokyo-Mitsubishi UFJ note that investors seem nervous ahead of the Swiss National Bank meeting on December 15.

 

EUR/CHF rose today to 1-month maximum at 1.2440 on the talk that the central bank may lift up the minimal level for the pair from the current 1.20 level. Such speculation was caused by the fact that the nation’s CPI contracted by 0.2% in November, while the economic growth in the third quarter hit the minimal level in more than 2 years.

 

Switzerland’s Finance Minister Eveline Widmer-Schlumpf claimed today that the committee charged with searching for the ways to stem franc’s appreciation examined such issues as negative interest rates and capital controls.

 

At the same time, the majority of the analysts don’t think that the SNB will move the floor for euro. Strategists at Bank Sarasin claim that the policymakers will base their judgments not on the figures for 12 month, but on the medium-term outlook for Swiss inflation. Economists at Zuercher Kantonalbank say that Swiss services prices are rising and there will be higher medical aid contributions next year, so this will support the prices.

 

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BMO on British economy and trading GBP/USD

 

Analysts at BMO Capital expect the Bank of England to ease its monetary policy at today’s meeting.

 

Such assumption is based on UK economic weakness. In particular, the specialists name the lowered growth forecast from the Office for Budget Responsibility and the nation’s latest manufacturing data that turned out to be worse than expected. The bank underlines that Britain is very vulnerable to the euro zone’s crisis as the monetary union is its biggest trading partner.

 

BMO says that GBP/USD is trading within a downtrend channel and advises to sell the pair in the $1.5850 area stopping above $1.6000 and expecting sterling to slide down towards $1.5050.

 

OBR reduced UK economic growth forecast from 1.7% to 0.9% in 2011 and from 2.5% to 0.7% in 2012. British Manufacturing PMI dropped in November by 0.2 to 47.6, the lowest level since June 2009.

 

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Reuters poll: where do analysts see EUR/USD in a year?

 

According to the monthly poll conducted by Reuters among about 60 banks and analysts, the median forecast of the specialists is that the single currency will depreciate versus the greenback to $1.3000 in 3 months. The survey shows that the economists expect EUR/USD to trade in that area during 3 months and then recover to reach $1.3250 in a year from now.

 

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BOTMUFJ, RBS: all eyes on the ECB

 

The single currency keeps consolidating versus the greenback ahead of the ECB meeting today and EU summit tomorrow. EUR/USD is hovering this week in the narrow range between $1.3333 (December 6 minimum) and $1.3486 (December 5 maximum).

 

The market expects the central bank to lower its benchmark rate by at least 25 basis points to 1% and introduce 2- to 3-year long-term refinancing operations.

 

If the ECB hinted at more aggressive bond buying and cut rates by 50 basis points, the experts see different possibilities: either euro will weaken to support at $1.3355 (trend line from November 25 minimum), $1.3210 (November minimum) and $1.3145 (October minimum), or, as the analysts at Bank of Tokyo-Mitsubishi UFJ say, rebound to on improved risk appetite which could activate strong short-covering to $1.35 or even to $1.3729/3851 (50% and 61.8% Fibonacci retracements of euro’s decline in November). Strategists at BOTMUFJ advise to buy Australian dollar in such case as there are no doubts that it will benefit from the ECB cut.

 

If the European Central Bank doesn’t deliver the expected cut EUR/USD and EUR/JPY may fall by about 100 pips, according to RBS, but not more as investors they are also waiting for the outcome of the EU summit.

 

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Morgan Stanley: 2012 forecast for GBP/USD

 

Analysts at Morgan Stanley expect British pound to lose about 11% versus the greenback by the third quarter of 2012 sliding from the current levels in the $1.5700 area to the minimum since March 2009 at $1.3900.

 

The specialists warn that with the 40% of its exports going to Europe British economy will seriously suffer from the euro zone’s crisis and the inevitable recession. In their view, the Bank of England will have to extend quantitative easing dampening the demand for British assets, especially for gilts.

 

According to the bank, in the second half of the next year the positive effects of QE on UK economy begin to show up and the recovery begins. As a result, sterling will get a lift and return to $1.4100.

 

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Morgan Stanley: forecasts for EUR/USD and USD/JPY

 

Analysts at Morgan Stanley believe that the single currency will be steadily declining versus the greenback the next year from $1.2500 in the first quarter to $1.2300 in the second, to $1.2100 in the third and to $1.2000 in the final 3 months of 2012.

 

The specialists believe that in Europe the issues of the private sector will add to those of the public one. Trading is going to be volatile and the demand for safe havens will be high. In such circumstances US dollar and Japanese yen tend to benefit.

 

The latter will be strengthening versus the former: the pair USD/JPY is expected to decline to 74.00 in the first quarter, to 73.00 in the second, to 72.00 in the third and 71.00 in the first 3 months of the next year.

 

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Bank of England stays on hold

 

The Bank of England decided to leave its benchmark rate unchanged at 0.5% and its assets purchase program at 275 billion pounds.

 

Many economists expect the BoE to extend the amount of asset purchases in February when the 75-billion-pound purchase announced in October is over.

 

UK economy is in a very poor state – according to the OECD (Organization or Economic Cooperation and Development), the nation has already entered mild recession. British central bank projects that inflation – the main obstacle for QE – will drop from the current levels close to the 3-year maximum of 5% below the 2% target level.

 

The pair GBP/USD is trading on the upside but very close to the opening level.

 

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ECB acts: rates are lowered by 25 bps

 

As it was widely expected, the European Central Banks cut its benchmark rate by 25 basis points.

 

The single currency bounced from the daily minimums in the $1.3380 area to the levels above $1.3400.

 

According to Mario Draghi, the central bank’s president, the euro zone economy could be heading for a mild recession.

 

The market’s awaiting the ECB’s press conference at 1:30 p.m. (GMT+4) for the hints on the bank's willingness to buy more government bonds of the indebted nations. Such step would help to ease down the borrowing costs for the peripheral European states.

 

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Draghi: speech essentials

 

The ECB president Mario Draghi announced that the central bank will conduct further (temporary) non-standard monetary policy measures in order to enhance banks access to liquidity:

 

- 2 3-year LTROS (long-term refinancing operations) of 36 months;

 

- Full allotment for banks at fixed rates (a form of QE)

 

- Easier collateral rules for asset-backed securities;

 

- National central banks are allowed to accept bank loans as collateral;

 

- Reserve ratio is cut from 2% to 1% (effective from January 18).

 

Forecasts:

 

- Euro zone’s economic forecast reduced from 0.4-2.2% to -0.4%-1.0%

 

- There are substantial downside risks to growth.

 

Never the less, the single currency has takes a blow as Draghi:

 

- Dismissed the talk that the ECB will be lending to the IMF as it’s not the member of the organization;

 

- Said that the ECB won’t lend to the euro zone’s government as the treaty forbids that;

 

- Dismissed the speculation that the ECB will buy bonds of the indebted euro zone’s nations if EU gets its fiscal house in order.

 

EUR/USD hit weekly lows in the $1.3333 area.

 

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