Comments and forex-analytics from FBS Brokerage Company

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BoA: pound's slipping into downtrend

 

Analysts at Bank of America Merrill Lynch believe that British pound will trade within downtrend versus the greenback all year.

 

The specialists claim that if GBP/USD breaks below support at $1.5272 (October minimum), the pair will complete 15-month “head & shoulders” breaking through the neck line. As a result, the long-term trend will become bearish and sterling will be condemned to failure to $1.3908 and $1.3825.

 

Analysts at Commerzbank are also bearish on pound, though not as strongly yet. In their view, the pair will fall to $1.5272 and then to $1.5135, where it should hold first time around before resuming decline.

 

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BoA: Canadian dollar will fall in Q1

 

Analysts at Bank of America Merrill Lynch believe that by the end of the first quarter the greenback may reach peak at 1.09 versus its Canadian counterpart and then return to the lower levels.

 

The specialists underline that loonie keeps depending on the market’s risk sentiment. Canada’s currency is highly sensitive to the market volatility stemming from Europe and the situation in the euro area, in their view, will get worse before it gets better.

 

Moreover, the bank points out that Canada's housing market is overvalued. Although Merrill Lynch doesn’t expect a crash, this situation may кeinforce any large external shock if prices fall rapidly.

 

In addition, China remains the object of investors’ concerns.

 

All these factors contribute to increasing the possibility of an interest rate cut by the Bank of Canada, negative for CAD.

 

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MIG Bank: negative outlook for Aussie

 

Technical analysts at MIG Bank are bearish on the prospects of Australian dollar versus its American counterpart.

 

In their view, the pair AUD/USD will go down to the parity level and then drop to $0.9862 (December 15 minimum) and $0.9664/20 (November 23 minimum).

 

According to the bank, the pair won’t be able to overcome 200-day MA which has been has been holding steady around $1.0413 during 3 months.

 

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Citigroup: USD/JPY is facing resistance

 

Analysts at Citigroup think that US dollar will be imprisoned in range between 75 and 80 yen in 2012.

 

The specialists claim that USD/JPY will face resistance of the weekly Ichimoku Cloud which is situated in the 78/80 yen area.

 

In their view, the greenback will trade with a slight downside bias unless and until the Federal Reserve shifts to tighter monetary policy.

 

Strategists at ANZ are bearish on USD/JPY in the long-term as Japan switches away from direct currency intervention tools. In addition, they say that the private sector is likely to have a continued bias to repatriate offshore assets because of the global deleveraging cycle. As yen is strengthening in most of its crosses, it would be very difficult for Japanese policymakers to encourage large outflows of private sector capital.

 

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ECB: rates unchanged, analysts’ comments

 

As it was expected, yesterday the European Central Bank left its benchmark rate unchanged at 1%.

 

Here are the main points of the euro zone’s monetary authorities:

 

- There are “tentative signs of stabilization” in the European economy, yields at Spanish and Italian bond auctions decline.

- Still euro zone’s economic outlook in 2012 seems alarming, the region’s financial market is in the state of “high uncertainty and substantial downside risks”.

- During the next few months euro area inflation will remain at 2% before declining.

- European leaders have to encourage job creation without slippage in austerity measures and reforms.

- The new European fiscal compact, which is currently under negotiation, must be characterized by “unambiguous and effective wording”.

- The central bank’s decision to provide 489.2 billion euro in low-cost 3-year loans to the European banks has prevented a credit contraction.

- The ECB was pleased that euro zone leaders had confirmed that the involvement of private creditors in the second Greek bailout was “unique and exceptional.” The ECB has persistently argued against private sector involvement warning that it would increase contagion risks.

 

Analysts’ comments

 

Nomura underlines that the central bank wants to assess the latest data in order to judge the magnitude and depth of the recession in the region.

 

Societe Generale claims that further rate cuts will only be forthcoming in case of the signs of an outright credit crunch.

 

The single currency picked up versus the greenback returning above $1.28.

 

Never the less, UBS thinks that the overall negative outlook for euro didn’t improve after the ECB meeting. The specialists lowered forecasts for the pair EUR/USD from $1.25 to $1.15 by the end of this year and from $1.20 to $1.10 by the end of 2013.

 

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Morgan Stanley: sell EUR/CAD and EUR/AUD

 

Analysts at Morgan Stanley recommend selling the single currency versus Australian and Canadian dollars.

 

In their view, traders will be using euro as funding currency investing money in higher-yielding currencies such as Aussie and loonie. Such move of the market may be explained by high risk aversion in the euro area, low yield especially in key European economies and the risk of ECB’s easing policy, says the bank.

 

According to Morgan Stanley, one should open shorts on EUR/CAD at 1.3150 stopping at 1.3260 and targeting 1.2740 and on EUR/AUD at1.2660 targeting 1.1925 and stopping in the 1.2860/2905 area.

 

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Commerzbank on trading EUR/USD

 

Technical analysts at Commerzbank claim that resistance for the pair EUR/USD lies at $1.2860 and $1.2933. While the single currency holds below the latter, the outlook for it will be negative.

 

The specialists recommend going short on euro at $1.2760 stopping at $1.2935 targeting $1.2588.

 

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ING, Lloyds: EUR bearish trend will stay intact

 

The single currency has been trading within downtrend since November, when the possibility of Greece exiting the euro zone was mentioned officially for the first time.

 

Analysts at ING claim that no matter whether the European policymakers including the ECB reach agreement to stabilize the government debt crisis or not, the single currency will fall. In their view, the Europe’s credit crunch is a reality, and the euro zone requires softer monetary conditions, including a weaker euro.

 

At the same time, the specialists underline that euro’s shorts are too large now, so if the currency is to fall further from here, a “different community of sellers” – corporations, institutional investors and FX reserve managers – must emerge.

 

According to ING, US dollar, demand for which will be supported by the euro zone’s debt problems, will keep strengthening versus commodity and emerging market currencies. The recovery of American currency will go on for 3-6 months, says the bank.

 

Strategists at Lloyds Bank claim that though excessive euro shorts may allow the European currency to experience short-term runs, euro's reaction to the improved global data will be limited as the markets realize that European economy is severely weakened by the austerity measures and it would take a long time for the region’s growth to become strong enough so that the ECB would be able to tighten its monetary policy.

[fallenDC]

Italy: mixed results of the debt auction

 

Italy managed to raise 4.75 billion euro meeting the target level. The nation sold 3-year notes at an average yield of 4.83% down from 5.62% at a prior auction in December.

 

The single currency declined versus US dollar and Japanese yen as the demand wasn’t as high as the market’s expected: investors bid for 1.2 times the amount allotted, down from 1.36 last month.

 

Italy will soon face a more serious challenge – 10-year bond auction which is set to take place in 2 weeks. In the first quarter the country will have to pay off more than 100 billion euro.

 

Analysts at Morgan Stanley claim that any rebound of EUR/USD is going to remain limited and the medium-term outlook for the pair is limited.

 

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[fallenDC]

Rabobank: comments on EUR/GBP

 

Analysts at Rabobank believe that the single currency will decline to 0.82 versus British pound in 3 months.

 

The specialists say that though UK monetary authorities will likely do more quantitative easing in February, in the coming months the pair EUR/GBP will be driven by the euro zone’s fundamentals which seem to be in poor condition.

 

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[fallenDC]

France will offer bills amid the downgrade

 

The weekend was marked by the dim news for the euro area: Standard & Poor’s downgraded France and Austria by one level from top AAA rating to AA+ with “negative” outlooks. The agency also reduced credit ratings of Italy, Portugal, Spain and Cyprus by 2 steps and cut Malta, Slovakia and Slovenia by one notch. The ratings of Germany, Belgium and the Netherlands were affirmed.

 

In this light one has to watch French debt auction the result of which will be due around 13:55 GMT. The nation plans to sell 8.7 billion euro ($11 billion) in bills.

 

The yield on France’s 10-year bonds rose by 3 basis points to 3.055%. The yield spread between French and German 10-year bonds increased from less than 50 points a year ago to about 130 basis points.

 

France’s finance minister Francois Baroin claimed that “it’s not a catastrophe” and “it’s still an excellent grade.” Never the less, the downgrade will likely have a dreadful impact on the image of French president Nicolas Sarkozy. According to the polls conducted last week, Sarkozy, the leader of the ruling UMP party, has the backing of 23.5% of voters versus 21.5% who support anti-euro candidate Marine Le Pen, the leader of the nationalist National Front, while Socialist Party candidate François Hollande leads with 27%.

 

Coming auctions

 

Tuesday, January 17: EFSF, Greece, Spain

Wednesday, January 18: Portugal

Thursday, January 19: Spain

 

Debt payments in 2012

 

Debt to refinance, billion euro | Interest payments, billion euro

Italy 341 54

France 266 39

Germany 193 22

 

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[fallenDC]

J.P.Morgan: sell GBP/USD

 

Analysts at J.P. Morgan recommend selling British pound versus the greenback at $1.5295 stopping at $1.5530 and targeting $1.4800.

 

The specialists remind that the European crisis has strong negative impact on British economy as about 40% of UK exports go to the euro area and a large percentage of the nation’s banks have claims on the euro zone.

 

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[fallenDC]

Barclays Capital: comments on British pound

 

Analysts at Barclays Capital claim that as British pound may be able to hold at current levels for a while as so far it has managed to close above $1.5270 – the neckline of a multi-week pattern.

 

If GBP/USD closes below this level, it will fall to $1.5150 and $1.4950 later in January. The fact that sterling spiked below this mark on Friday means that the bears will ultimately pull the rate lower.

 

According to the bank, the outlook for pound will remain negative as long as it’s trading below $1.5410.Barclays Capital: comments on British pound.

 

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[fallenDC]

Westpac: recommendations for EUR/USD

 

Analysts at Westpac recommend selling EUR/USD at $1.2650 stopping at $1.2800 and expecting the pair to fall to $1.2350.

 

The specialists don’t expect much of an upward correction amid sovereign downgrades and a breakdown in talks over the Greek debt restructuring. In their view, it seems that the single currency has shifted into a clear downtrend regardless of more supportive signals from stocks and euro basis swap.

 

In addition, the specialists underline that euro’s current decline doesn’t seem excessive as during the past 20 years EUR/USD survived at least 8 sustained, multi-week large slumps when it fell by about 20% peak to trough, while euro has lost only 11% dropping from October 2011 maximum at $1.4250.

 

According to Westpac, from the fundamental point of view, there are only 2 main factors which may reverse euro’s downtrend: another round of QE by the Fed and/or aggressive steps by EU policymakers to bring more definitive coherence to EU finances. Never the less, neither of these outcomes is likely to realize in the short term.

 

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UBS: recommendations for EUR/USD

 

Analysts at UBS recommend selling euro at $1.2755 stopping at $1.3050 and targeting $1.2250. The specialists remind that the European Central Bank is expected to cut 2 more times rates in the next few months from1.00% to 0.50%. In their view, Greece may suffer a disorderly default in March.

 

According to the bank, downgrades of European economies by S&P will have a greater impact on the euro than just one day's price action would suggest – the strategists think that the downgrades still aren’t fully priced in yet. UBS claims that euro’s fair value is in the $1.15/$1.20.

 

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[fallenDC]

HSBC: Germany is vulnerable to crisis

 

Analysts at HSBC note that that fact that S&P downgraded European economies on Friday wasn’t unexpected as in December the ratings agency warned the region’s policymakers.

 

The specialists claim that the euro zone’s officials are guilty of 3 sins: optimism, inaction and omission.

 

Firstly, too many countries are too optimistic about recovery when all the evidence is now pointing towards recession in both the periphery and the core. Secondly, inaction is inevitable for politicians faced with a difficult trade-off between political expediency and fiscal reality. Thirdly, the idea of a fiscal pact doesn’t deal with the shortfall of income which led to today’s crisis.

 

According to HSBC, euro zone’s difficulties in the coming months will likely strengthen. The economists think that Germany will get under pressure as its exports to other nations of the currency union will shrink, while its financial institutions are exposed to the region’s debt.

 

As a result, the leading European economy will be forced into recession. HSBC expects that the ECB will have to step in and start quantitative easing. That would make the crisis easier to solve, though the ultimate way out may be provided only by the political action.

[fallenDC]

January 17: data and comments

 

Yesterday Standard & Poor’s reduced the rating of the EFSF, the euro area’s 440-billion-euro bailout fund, from AAA to AA+ after earlier downgrades of France and Austria as the fund’s obligations are no longer fully supported either by guarantees from EFSF members rated AAA by S&P, or by AAA rated securities.

 

The downgrade of the EFSF was no big surprise after Friday's mass downgrade of nine euro-zone countries.

 

Klaus Regling, chief executive officer of the facility, claimed that “EFSF has sufficient means to fulfill its commitments” until the launch of permanent ESM (European Stability Mechanism) in 2012.

 

According to the data released today, China’s GDP added 8.9% y/y in the fourth quarter versus 8.7% expected. As a result, EUR/USD managed to rise to $1.2750 on the short squeeze. Even EUR/CHF backed away from the 1.20 danger zone. Asian equity markets added 1.5% on average; gold and oil also rise 1.5% to $1663/oz and $100.30/bbl respectively.

 

Later today:

 

• British CPI (9:30 a.m. GMT);

• BOE Gov King Speaks (9:45 a.m. GMT);

• German ZEW Economic Sentiment (10:00 a.m. GMT);

• Bank of Canada’s meeting: overnight rate release (2:00 p.m. GMT);

• EFSF, Greece, Spain: debt auctions.

 

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Merrill Lynch: forecasts for euro and pound

 

Analysts at Bank of America Merrill Lynch think that the single currency may drop to $1.2510 versus the greenback in the near term. In the medium term the specialists see EUR/USD falling to $1.12 and even $1.08 due to both fundamental issues and technical patterns.

 

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According to the bank, euro zone’s problems are also weighing on the British pound. Merrill Lynch claims that the pair GBP/USD will ultimately slide to $1.38. The specialists recommend selling sterling at $1.5300 stopping at $1.5425 and targeting $1.4250.

 

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[fallenDC]

UBS: how SBN will possibly act

 

The single currency declined versus Swiss franc from December 7 maximum in the 1.2445 area. At the beginning of this year euro’s decline accelerated after the resignation of the SNB’s president Philipp Hildebrand, who promoted EUR/CHF peg. On Friday the pair EUR/CHF hit 1.2061.

 

Analysts at UBS claim that if the Swiss National Bank holds EUR/CHF at 1.20, deflation pressure in 2012 will strengthen due to strong franc and recession in the euro area. As a result, Switzerland’s monetary authorities will eventually have to raise EUR/CHF minimal level to 1.30 during 2012 in order to offset falling consumer prices.

 

At the same time, the specialists really think that Hildebrand’s departure will make the central bank less willing to increase EUR/CHF floor. So, the bank expects SNB to keep the floor at 1.20 during the next few months before lifting it higher as the nation’s economy won’t be able to deal with franc’s strength on its own.

 

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[fallenDC]

EUR/USD on the upside, but outlook still bearish

 

The single currency keeps going up versus the greenback on the positive sentiment about US economic prospects.

 

There’s a bunch of important data released today in the United States which is projected to be better than forecasts. US unemployment claims are thought to have declined in the week before January 14 from 399K to 387K.

 

At the same time, demand for euro may be regarded as limited as the talks between Greece and its private creditors represented by the Institute of International Finance on a debt-swap plan continue for the second day.

 

France will offer debt later today with maturities from 2014 to 2040. Spain will also sell notes and bonds maturing in 2016, 2019 and 2022 today.

 

EUR/USD rose from Friday’s minimum of $1.2624 to the levels in $1.2860 area. Never the less, analysts at Citigroup and Nomura are bearish on the pair citing the euro zone’s weak economy and the poor state of the region’s finance.

 

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[fallenDC]

Commerzbank: bearish forecasts for GBP, AUD

 

GBP/USD

 

Although British pound has strengthened this week rising versus the greenback from Friday’s minimum of $1.5233 to the levels around $1.5450, the longer-term outlook for GBP/USD remains negative.

Sterling won’t be able to rise above $1.5633 (55-day MA) and $1.5672 (5-month resistance line) and will trade in the $1.4260/29 area in the longer term.

 

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AUD/USD

 

Australian dollar gained this week against its US counterpart trading within larger uptrend which started in December. However, AUD/USD hasn’t managed to break through the 5-month downtrend line yet. The decline will be confirmed if Aussies goes down below $1.01946 (6-week support line). That will make the pair drop to $1.0000 heading to $0.9818 and $0.9664/80.

 

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[fallenDC]

Lloyds expects EUR/CHF to rise

 

Analysts at Lloyds advise investors to buy the single currency versus Swiss franc.

 

The specialists think that the Swiss National Bank won’t let EUR/CHF to get below 1.20: the SNB has an unlimited supply of francs and serious intentions. The strategists think that the current situation will stay intact until the nation’s monetary authorities decide that franc’s peg to euro is economically unjustified.

 

Swiss economic growth is slowing down, while inflation rate is negative. As a result, the nation’s central bank is unlikely to change its monetary policy in the short term, claims Lloyds.

 

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[fallenDC]

Gaitame.com: NZD will fall by 5%

 

Technical analysts at to Gaitame.com Research Institute believe that New Zealand’s dollar may fall versus the greenback by almost 5%.

 

The specialists note that NZD/USD didn’t manage to hold above 200-day MA and is now going to survive downward correction. In addition, the RSI (relative strength index) returned below 70 signaling that kiwi may reverse direction.

 

According to the specialists, NZD/USD may go down to $0.7876 (20-day MA) in January and then probably to $0.7640. Analysts surveyed by Bloomberg News expect the pair to drop to 0.7500 by the end of March.

 

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[fallenDC]

Why BoE may decide to wait with QE?

 

While the market’s expecting to see more quantitative easing from the British central bank in February, Ben Broadbent, external member of the Bank of England’s Monetary Policy Committee (MPC), says that the central bank probably won’t be so quick to act.

 

The economist justifies this assumption be several points. To begin with, during the past half a year the downside risks for British economy have slightly subsided. The odds are that UK economic growth picks up in the second half of the year and the household income growth improves.

 

Moreover, UK will gain from the positive effects of loose ECB policy. Broadbent underlines that the quarterly pace of economic growth in 2012 is likely to be volatile. Such events as the Olympics in the third quarter will contribute to growth volatility.

 

“I would say very, very near term (output looks) slightly weaker. In the slightly less near term Q1 is marginally stronger. Over six months, the downside risks have been lessened slightly - partly because of what the ECB has done, partly because of QE itself and you can see that in risk asset markets - quite clearly”, claims the policymaker. Broadbent adds that the decline in headline CPI inflation from 4.8% in November to 4.2% in December should help to maintain inflation expectations.

 

The BoE meeting will take place on February 9.

 

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Westpac recommends selling EUR/NZD

 

The single currency has managed to strengthen versus the greenback this week. Euro was supported by the successful bond auctions in Spain and France and positive US labor market data. The number of people seeking unemployment benefits plummeted last week to 352,000, the fewest since April 2008.

 

However, analysts at Westpac see the advance as EUR/USD only as the selling opportunity. In their view, liquidity in the market “is supporting risk seeking”, which should lead investors out of currencies like the euro and into things like commodity currencies.

 

As a result, the bank recommends going short on EUR/NZD around $1.6000 stopping at $1.6180 and targeting $1.5650.

 

Westpac notes that the Reserve bank of New Zealand is one of the few which is unlikely to cut borrowing costs. Low inflation data creates an attractive entry point for the trade: New Zealand’s CPI declined by 0.3% in the fourth quarter (q/q).