Comments and forex-analytics from FBS Brokerage Company

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Analysts on USD/JPY prospects

 

Analysts at BNP Paribas believe that one shouldn’t hurry to turn bullish on USD/JPY. The specialists underline that though the Bank of Japan decided to keep expanding its balance sheet and set a 1% inflation target, it will not be guiding policy any differently. The economists remind that asset purchases didn’t manage to reverse yen’s uptrend either in the past 3 years or during the prior QE in 2002-2004. According to the bank, USD/JPY will trade in 73 yen area in first quarter, 71 in the second one and then decline to 70 in the final 3 months of the year.

 

Never the less, analysts at Barclays Capital note that the BOJ is trying to "catch up to its counterparts, and this adds to the downward pressure on yen already prevailing from Japan’s ongoing external balance deterioration and the risk of a sovereign downgrade toward fiscal year-end (March 31)”. With Japanese interest rates also “lower for longer” Japanese investors will look abroad for better returns stepping up monetary outflows from Japan. In addition, US dollar will be helped by American economic recovery. In their view, USD/JPY will rise to 79.00, 81.00 and 83.00 yen in 3, 6 and 12 months.

 

By the way, specialists at Societe Generale point out that the move of Japanese central bank doesn’t look that large compared with ECB’s actions: the BOJ will increase bond purchases by a further 10 trillion yen this year, which could increase the size of their balance sheet by 2% of GDP, while the ECB's December LTRO added nearly 5% GDP to the central bank's balance sheet (remember that there will be another 3-year LTRO February 29). The specialists say that though the fast that USD/JPY rose above 200-day MA is rather promising, the pair still has to overcome the critical 80 yen level.

 

Economists at CitiFX believe that yen’s depreciation will be short-lived. In their view, it will be difficult for USD/JPY to start sustainable rally until US Treasury yields as a whole start to press higher.

 

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HSBC about the forex market prospects

 

While many experts expect the single currency to keep falling versus the greenback, analysts at HSBC think that EUR/USD will rise to $1.3700 by the end of the second quarter.

 

The specialists don’t think the market has arrived at any kind of final verdict on Greece. There is disappointment that there wasn’t anything firmer in terms of ring-fencing Greece, but progress has been made and there is political commitment on the outcome. In that environment, people should still buy the euro, claims the bank. In the short term, euro will push higher and some of the doubts will fade away.

 

HSBC also believe that the Swiss National Bank (SNB) will defend the floor for EUR/CHF which was set at 1.20 in September 2011 without raising it in the near future. As for USD/CHF, it will remain stable at around 0.90 over the next 3 months.

 

The specialists are bullish on emerging market currencies, even though many are dependent on global growth indicators, and are driven by unpredictable risk appetite.

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Euro’s pressed by Greek uncertainty

 

The single currency fell to 3-month minimum versus the greenback.

 

Tomorrow German’s Chancellor Angela Merkel meets Italian Prime Minister Mario Monti. The leaders will hold a joint press conference afterwards.

On Monday, February 20, euro zone’s finance ministers will gather to discuss a second bailout package for Greece. Initially the meeting was scheduled to take place yesterday, but then was postponed. Luxembourg Prime Minister Jean-Claude Junker assured the markets that “all the necessary decisions” on the issue will be taken at February 20 meeting.

 

The markets worried that a delay in Greek aid will increase borrowing costs for the region. The situation remains rather uncertain. According to Reuters, several EU sources said on Wednesday the euro zone is examining ways of holding back parts or even the entire bailout program until after Greek elections in April while still ensuring it avoids a disorderly default. The risk sentiment was also affected by Moody’s announcement that the ratings of several banks including UBS, Credit Suisse and Deutsche Bank are put on review to the downside.

 

In the current circumstances watch Spain’s and France’s debt auctions later today. France will offer 8.5 billion euro in 2-, 3- and 5-year bonds, while Spain plans to sell 4 billion euro in securities maturing in January and July 2015 and in October 2019.

 

Analysts at Nomura believe that by the end of the month EUR/USD will hit $1.2500. In their view, the market has lost confidence and investors won’t have much incentive to buy euro.

 

The pair fell today below 38.2% Fibonacci retracement of its rally this year at $1.3056 and 55-day MA at $1.3050. Support for euro is now found in the $1.2970 area (50% retracement of the same rally, daily Ichimoku charts' Kijun-sen line and also the Cloud’s bottom).

 

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ANZ: scenarios for EUR/JPY

 

Analysts at ANZ underline that the level of divergence in both monthly and weekly indicators suggests that if the current rebound can be maintained, EUR/JPY may also have formed a base.

 

In their view, the outlook for the pair will become bullish if it overcomes resistance in the 105.50/107.00 area. In such case euro will get chance to repeat the 2009 rally and to climb through 112.00 towards 125.00 and possibly to 133.50.

 

At the same time, the specialists claim that one can’t rule out the possibility that the single currency may survive a gradual decline to 2000 minimum versus Japanese yen at 88.95 yen. The potential rally of EUR/JPY will be undermined below 100.00 yen.

 

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Spanish and French auction results

 

Spain managed to sell the planned volume (4.074 billion euro out of the 3-4 billion euro target) of bonds with lower yields and better cover ratio. Here are the details:

 

- 3-year bonds: 2.268 billion euro, yield 3.332% (vs. 2.861%), cover 2.2 (vs. 1.6);

- January 2015 papers: 733 million euro, yield 2.966 (vs. 4.984%) %, cover 4.4 (vs. 2.4);

- October 2019 papers: 1.073 billion euro, yield 4.832% (vs. 5.352%), cover 3.3 (vs. 2.1).

 

France was able to sell 8.45 billion euro out of a targeted 7-8.5 billion euro. Here are the details:

- 5-year bonds: 5.025 billion euro, yield 1.93%, cover 1.99;

- July 2014: 2.090 billion euro, yield 0.89% (vs. 1.05%), cover 2.361 (vs. 2.12);

- January 2015: 1.335 billion euro, yield 1.09%, cover 3.303.

 

The actions may be regarded as successful enough. Never the less, euro didn’t get much help and keeps trading in minus for the fifth day in a row.

 

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Commerzbank: USD/CAD technicals

 

Technical analysts at Commerzbank note that the greenback keeps trading around the 200-day MA versus its Canadian counterpart.

 

According to the bank, resistance for US currency lies at 1.0049/73 (December minimum and January 3 minimum) and at 1.0149/46 (55-day MA and the 3-month downtrend). The outlook for the pair will become positive only above the latter. Commerzbank says US dollar won’t likely get that high this week.

 

The specialists think that the pair USD/CAD may slide to October minimum at 0.9892. In their view, this level will contain further declines as only an unexpected drop and 2 daily closes below the October low would point towards further range trading with a bearish bias and the possibility of such outcome isn’t high.

 

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USD/JPY: will the recovery continue?

 

The greenback keeps rising versus Japanese yen. On Tuesday USD/JPY broke above the 200-day MA spurring the bullish sentiment.

 

Today the pair set 3-month maximum at 78.88 yen. The cross is still trading below the post-intervention spike at 79.52 set at October 31 and November 1 maximum at 78.97.

 

However, some analysts keep warning investors that it may be premature to turn bullish on US dollar. The specialists remind that in the past few years USD/JPY broke above the 200-day MA many times, but this signals turned out to be false and there was no bullish reversal afterwards.

 

In addition, as the possibility that the Federal Reserve will decide to launch another round of quantitative easing seems strong enough, it would be hard for traders to sell yen. Expectations of QE3 will keep US short-term note yields (in particular, 2-year Treasury yields) low. USD/JPY is strongly correlated (90%) with yield spread between Japanese and US 2-year debt, so in such conditions US dollar will remain under pressure.

 

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Western Union about NZD/USD

 

New Zealand’s dollar got a lift today versus its US counterpart as the Reserve Bank of New Zealand’s governor Alan Bollard claimed that the nation’s growth numbers are currently understated due to conservative statistical interpretations and the particular nature of the economy. According to Bollard, if Australian conventions are applied New Zealand’s GDP could be 10% higher.

 

Analysts at Western Union claim that NZD/USD is helped by more positive sentiment towards Greece: “All it takes is another bit of speculation that the Greeks have found more places to slash their budget, and while there is nothing concrete they have said that it (the second bailout) is likely to be green lit on Monday – which is all the market apparently needs”.

 

The specialists expect kiwi to trade at the current levels or edge higher to 0.8400. In their view, support for NZD is situated at 0.8320 (February 15 and 9 minimums), while resistance is found at 0.8420 (February 15 maximum).

 

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BofA: euro may renew 2-month minimum

 

Analysts at Bank of America claim that the single currency may fall to more than 2-year minimum versus the greenback.

 

The specialists note that if euro doesn’t manage to hold at the current levels and resume decline closing the day below $1.3026, this would mean another wave of the downtrend within which EUR/USD has been trading since May 2011. In such case the pair will move down to $1.2644/$1.2510.

 

Euro’s moving average convergence/divergence, or MACD, was at 0.0036, below the signal line of 0.0045. A reading below the signal line indicates the euro may decline.

 

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Commerzbank: comments on GBP/USD

 

Analysts at Commerzbank claim that British pound may rise higher versus the greenback testing 200-day MA at $1.5919.

 

The specialists note, however, that sterling’s advance will be limited, if not by this level, then by the next resistance at $1.5967 and $1.6016 (55-week MA).

 

According to the bank, support for the pair GBP/USD lies at $1.5603/1.5580 (55-day MA and 50% Fibonacci retracement).

 

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Euro strengthened on Greek bailout news

 

The single currency went up versus the greenback erasing earlier decline and reached 3-month maximum against Japanese yen as the euro-zone finance ministers agreed on a second bailout package for Greece saving the nation from default in March.

 

The package includes a 53.5% write-down for Greek bondholders – it’s a bigger trade-off from the nation’s private creditors than initially expected. Debt-swap bonds will have a coupon of 2% in 2014, 3% in 2015-2020 and 4.3% after that. The ECB President Mario Draghi expressed his approval of the deal.

 

Euro shorts are covered now. The pair EUR/USD opened around $1.3250 and started sliding lower as the press conference was constantly delayed. The market players were pretty sure that there would be an agreement and there were enough longs on an intraday basis and these longs kept getting squeezed out, the longer the decision was delayed. After the announcement euro made 70-pip spike up. Currently the pair came close to the opening levels as stop-losses were all done.

 

Analysts at Credit Suisse claim that euro will likely be capped as although “short-covering is supporting the euro, this much was within expectations”. In addition, EUR/USD will get under pressure due to improving US economy. The specialists think that the pair will trade in range between $1.3150 and $1.3350 for the rest of the global day and between $1.3050 and $1.3350 during the coming week.

 

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UBS: dollar’s long-term advance against euro will go on

 

Analysts at UBS claimed that the single currency will continue declining versus the greenback in the longer term from the record maximum at $1.6038 reached in July 2008.

 

The specialists think that US dollar will break its negative relationship with oil prices as the United States become more independent of foreign energy supply due to the development of shale-gas deposits and an increase in domestic oil production.

 

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More comments about euro’s outlook

 

ING: the Greek deal might have bought a couple of months' worth of stability to the euro-zone sovereign-debt markets. The pair EUR/USD may go up to test 2012 maximum at $1.3320 and rise to $1.3430/50.

 

Barclays Capital: the risk of Greece’s disorderly default reduced for at least a few quarters. Never the less, there still are the implementation risks. In addition, there are near-term risks associated with early elections and rise of political opposition.

 

Commerzbank: the skepticism about the euro is justified even after euro area’s finance ministers agreed to provide Greece with the second bailout. That isn’t positive for euro. The large majority of market players are finding it hard to believe that Greece will get through to 2020 without a further default.

 

BNP Paribas: Greek agreement won't support euro much. Many traders would like to sell euro on the rallies. All the same, if the agreement really does remove the risk of a Greek default markets will be looking to fund riskier bets with a suitable currency such as euro. As a result, the European currency is doomed to remain under pressure.

 

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Deutsche Bank, UBS: forecasts for USD/JPY

 

Analysts at Deutsche Bank think that the greenback may resume its decline versus Japanese yen. In their view, the effects of the latest round of easing conducted by the Bank of Japan will fade. Last week the Bank of Japan added 10 trillion to it's now 65 trillion yen quantitative easing program leaving the benchmark interest rate at the record low of 0.1%.

 

The specialists claim that USD/JPY may decline from the current maximums in the above 79.50 back to 75 yen area. According to the bank, Japan’s external investment position is large and growing, so its current-account balance will support yen’s strength for some time. Currency effects from Japan's shifting trade dynamics are being overplayed and the country will probably return to a trade surplus this year. The only way to prevent such outcome is additional stimulus from Japan’s monetary authorities.

 

Analysts at UBS, however, don’t share the view of Deutsche Bank. The specialists reduced their 1- and 3-month forecasts for Japanese yen from 77 yen per dollar to 80 and 85 yen per dollar. As the reason for the downward revision the specialists cited easing conducted by the BOJ.

 

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BoE minutes coming: watch the pound

 

Today the market’s looking forward to the release of the Bank of England’s February meeting minutes (9:30 a.m. GMT). The minutes will unveil how the central bank’s 9-member Monetary Policy Committee votes on the expansion of asset purchase program by 50 billion pounds ($79 billion) to 325 billion pounds this month.

 

The consensus forecast is that the decision was unanimous. The experts, however, don’t rule out the possibility of 1-2 dissenting votes from the hawks against more QE.

 

The BoE decided to conduct additional quantitative easing in order to help weak UK economy: Britain’s revived Q4 GDP figures which are released on Friday will likely confirm that the nation’s economy contracted by 0.2% in the final 3 months of 2012 (q/q).

BoE Deputy Governor Charlie Bean claimed that despite the news that Greece will get the second bailout, serious risks remain and the debt crisis won’t be over. Such situation will hurt Britain hitting its exports and finance and affecting its consumer and business confidence. The official was also worried about the fate of other peripheral European economies.

 

On the one hand, it’s necessary to note that some positive consumption and housing data have been released so far, so the BoE may improve its fundamental outlook for the UK economy. In this case pound will be poised to strengthen. On the other hand, cautious tone may signal that the door is open to expand the central bank’s asset purchase program beyond 325 billion pounds – such outcome would increase bearish pressure on sterling.

 

Since the beginning of the year the pair GBP/USD consolidated between $1.5680 and $1.5930. Analysts at Lloyds say that sterling won’t be able to rise above $1.6000 versus the greenback in the near term. Specialists at Commerzbank think that the pair may test 200-day MA and then slide back to $1.5645.

 

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Nomura: USD/JPY forecast revised up

 

Analysts at Nomura revised up their forecast for USD/JPY from 75 to 79 yen by the end of the first quarter of 2012. The forecasts for the end of Q2 and the year-end were left unchanged at 80 and 81 yen consequently.

 

The specialists claim that odds that the greenback will resume its decline decreased due to the Bank of Japan’s additional quantitative easing, better US macroeconomic data and easing tensions in the euro area.

 

Nomura draws investors’ attention to the fact that Japanese central bank decided to increase investment in the government bonds with maturity of 1-2 years. This would cap the possibility of 2-year yield growth. As a result, the yield differential between 2-year US and Japanese securities will increase encouraging USD/JPY. In addition, internal capital flows also point at yen’s gradual depreciation.

 

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Barclays Capital expects USD/JPY to consolidate

 

Analysts at Barclays Capital claim that the greenback will consolidate between 78.50 and 80.50 yen ahead of the US February jobs report which is released on March 9.

 

The specialists think that after the pair USD/JPY has made such an impressive progress this month rising from 76 to 80.50 yen it currently lacks strong indicators for further advance, so the market will likely stand still ahead of the labor market data. According to the bank, the risk of the Federal Reserve announcing another round of quantitative easing is low.

 

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[fallenDC]

USD/JPY again renewed maximums

 

The greenback made a spike higher today spiking to almost 4-month maximum at 81.67 yen due to improved US economic data and the increased possibility that the crisis in the euro area will be contained. After reaching the new high dollar backed down correcting after a rapid advance.

 

Analysts at Ueda Harlow claim that investors aren’t afraid to sell yen anymore as they believe that the worst case scenario for global economy will be avoided. The G-20 is making efforts to solve the debt crisis, note the specialists.

 

Strategists at UBS think that the pair USD/JPY is now trending upwards. In their view, the Bank of Japan has finally shown its determination to use aggressive approach combating yen’s appreciation.

 

Analysts at Westpac claim that US currency is currently overbought and will return to 79 yen and then resume growth. According to the bank, USD/JPY will meet resistance at 82 yen. If the pair breaks above this level, it will be able to rise to 85.60 yen.

 

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Commerzbank: comments on USD/CHF

 

Technical analysts at Commerzbank believe that the greenback may fall versus Swiss franc to 0.8788/71 (78.6% Fibonacci retracement and 200-day MA).

 

According to the bank, key support for USD/CHF is situated at 0.8568 (October minimum).

 

The specialists are bearish on US currency as it dropped below 0.8960 (61.8% Fibonacci retracement of the pair’s advance from October to January). In their view, the short-term outlook remains bearish as long as US dollar trades below resistance in the 0.9066/88 area.

 

In the medium term Commerzbank expects USD/CHF to return to the levels around 0.9595 (January maximum).

 

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Banks' forecasts for FX majors

 

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SocGen: EUR/USD will decline

 

Analysts at Societe Generale claim that the single currency may weaken by 6% versus the greenback sliding to $1.2590.

 

The specialists keep thinking that euro’s advance from this year’s minimum at $1.2624 hit on January 13 was only a correction within the middle-term downtrend. In their view, the resistance line of the descending channel at $1.3570 will likely cap euro on the upside.

 

According to the bank, EUR/USD will decline to $1.2590/$1.2620.

 

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CFTC trader positioning data

 

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

 

• Euro shorts declined from the previous week’s total of 148.6K to 142.3K contracts.

• British pound shorts decreased from 40.6K contracts on February 14 to 31.3K contracts on February 21. Longs on sterling were cut by almost 8K contracts, while shorts were reduced by almost 11K contracts.

• Japanese yen net longs declined from 29.4K contracts reported on February 14 to 17.3K as the data on February 21 showed.

• Swiss franc net shorts extended from 15.9K net short contracts on February 14 to 19.8K contracts on February 21. Short positions increased surpassing small increase of longs.

• The value of US dollar's net long position rose to $17.25 billion in the week ended February 21 from $16.98 billion the previous week.

 

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.

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US employment forecasts improved

 

US National Association for Business Economics announced today that the forecasts for US employment improved.

 

According to NABE’s survey of the leading economists, payrolls will rise 170,000 a month on average in 2012. In November the consensus was of 127,000 new jobs a month. Unemployment will average 8.3%, down from 8.9% be the previous estimate.

 

Such change in expectations reflects a potential positive shift in consumer confidence and better growth prospects for the world’s largest economy. At the same time, economists maintained forecasts for consumer spending, which may rise 2.1%, and predicted GDP to add 2.4% in the fourth quarter from a year earlier, unchanged from the November survey.

 

In January US non-farm payrolls by 243,000, showing the biggest advance in 9 months, while the unemployment rate fell to the minimal level since February 2009 at 8.3%.

 

US February labor data will be released on March 9.

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Forecast Pte: USD/JPY is facing correction

 

Yesterday the greenback spiked to 81.67 yen reaching the maximal level since May 31. Since the end of January it gained more than 5%.

 

However, technical analysts at Forecast Pte claim that the pair USD/JPY may lose about 1.5%.

 

The specialists base their conclusions on the momentum indicators. The greenback’s 14-day relative strength index was at 72 yesterday, above the 70 level some traders see as a sign an asset’s price is set to change course.

 

“The candle formation looks to signal a possible reversal,” say the analysts noting that American currently seems to be extremely overbought.

 

As a result, the specialists think that US dollar will go though correction in the short term. In their view, USD/JPY may drop to 78.85 yen (50% retracement of dollar’s advance from the February 1 minimum to yesterday’s maximums). Then the pair may climb to 85 yen in the next 1-3 months.

 

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BBH: US dollar’s under pressure due to oil prices

 

Analysts at Brown Brothers Harriman note that as oil prices are rising, US dollar will find itself under pressure.

 

The specialists say that the current oil price’s advance is caused by several factors. Firstly, supply from Sudan, Syria and Yemen has sharply contracted due to political instability if not to mention Libya and Iran. Secondly, Japan’s increasing oil consumption replacing nuclear fuel. Moreover, the unusual cold in Europe may be fueling demand as well.

 

According to BBH, high oil prices increase the risk that the Federal Reserve will launch another round of quantitative easing as the economy of the United States will suffer as oil import becomes more and more expensive.

 

The Fed’s Chairman Ben Bernanke will be testifying before Congress on Wednesday and Thursday, so the bank recommends watching his comments for the hints of the central bank’s opinion on the issue.