Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

BOJ refrains from easing, but yen’s outlook seem negative

 

The Bank of Japan kept monetary policy unchanged at today’s meeting in line with the expectations. The benchmark interest rate remains below 0.1%.

 

Some traders got disappointed as the BOJ didn’t increase asset purchases after boosting them by 10 trillion yen in February. The Bank of Japan’s decision may be explained by the fact that yen backed off the record maximums, stock markets are showing positive dynamics and the tensions in the euro area eased after the Greek deal.

 

Instead the central bank expanded by 2 trillion yen ($24 billion) to 5.5 trillion yen a loan scheme aimed to encourage banks to fund prospective growth industries and extended its deadline by two years to March 2014. One trillion yen will be used in a new credit line using the BOJ's dollar reserves to encourage investment and loans denominated in foreign currencies. Such actions aren’t as powerful as QE, but still indicate the central bank’s willingness to help national economy.

 

Japanese yen strengthened from 11-month minimum versus US dollar after the BOJ meeting’s results were announced, but then dollar-bulls regained power: the pair USD/JPY has initially dipped to 82 yen, but then set daily high at 82.79 yen.

 

RBS: “The Bank of Japan is basically maintaining its stance of monetary easing after setting an inflation goal of 1%. To clarify its determination to beat deflation, the BOJ could ease policy further as early as late April.”

 

Citibank: Although some investors got disappointed, “today's decision is not something that can reverse the yen's fall.”

 

Among the reasons to remain bearish on yen one may name Japan's trade balance switching to deficit, monetary outflows from Japan as Japanese companies are seeking to enter foreign markets and relatively low odds of QE3 in the U.S.

 

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[fallenDC]

Loonie may strengthen versus the greenback

 

On Monday Canadian dollar declined against its U.S. counterpart as weak Chinese export data hurt commodities. According to the data released on Saturday, China posted its biggest trade deficit in at least a decade in February ($31.5bn), fanning concerns about growth in the world's second largest economy. After that the price of crude oil, Canada’s biggest export, fell by 1.9%.

 

Today USD/CAD is trading at 0.9900 after opening at 0.9924. According to analysts, market sentiment towards the Canadian dollar has turned favorable, with weekly CFTC data showing consistent increases in CAD long positions since mid-January.

 

Strategists at Scotia Capital say that recent M&A activity, including talk of a takeover of Viterra, Canada's largest grain holder, helps the currency. Typically any large M&A announcement has the psychological impact of reminding market participants that Canada has a lot of interesting assets that can be M&A targets in the future.

 

Analysts at UBS are bullish on CAD due to the solid domestic macroeconomic data and the fact that the BOC Governor Carney has accordingly become less dovish in his outlook. In their view, although loonie’s rate has already priced in potential policy tightening, loose monetary policy of other major central banks will make Canadian dollar very attractive.

 

Canadian currency is the best performer among 10 developed-nation counterparts over the past week, adding 1%, according to Bloomberg Correlation Weighted Currency Indexes. The U.S. dollar lost 0.1% and the euro gained 0.3%.

 

Loonie will trade at parity with its U.S. counterpart by the end of the second quarter, according to the median of 40 forecasts compiled by Bloomberg News.

 

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[fallenDC]

Credit Agricole and Commerzbank about AUD/USD

 

Analysts at Credit Agricole note that Australian dollar reached critical level versus the greenback. To maintain medium-term uptrend AUD/USD must close today above $1.0505 (March 7 maximum, “bullish hammer” reversal pattern). Otherwise, the sideways range may widen or Aussie will start sliding. The bank recommends buying Australian currency at the current levels stopping below $1.0505 and targeting recent highs in the $1.0800 area.

 

Strategists at Commerzbank think that AUD/USD has topped at $1.0856 on February 29 and is now going to weaken to $1.0406 (200-day MA) and $1.0382 (December maximum). Below these levels the pair will be poised down to the parity and lower. According to the bank, the outlook for Aussie will remain negative as long as it’s trading below resistance at $1.0670.

 

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[fallenDC]

Bank Sarasin: comments on franc and euro

 

Economists at Bank Sarasin are strongly convinced that the Swiss National Bank won’t raise the threshold EUR/CHF higher than 1.20 unless recession continues and deflationary threats keep looming in Switzerland. The analysts say if there was no floor set for the pair, the rate could be as low as 1.10.

 

Although the franc has strengthened since the start of the year, it has remained above the 1.20 floor, trading at 1.2057 against the euro on March 13. The bank thinks, however, that the threat of further SNB intervention will contain franc’s advance in the near future.

 

According to Bank Sarasin’s specialists, European growth is going to resume in the second quarter after the ECB liquidity injection. Perhaps, the liquidity will buy the time that is needed for a recovery, and in a long-term period EUR/USD may climb to $1.38 or $1.40. On the other hand, the economists warn that excessive liquidity always weakens the currency.

[fallenDC]

Main economic & market news

 

• FOMC meeting results:

 

- benchmark rate is left unchanged near zero and it planned to be kept there through at least late 2014;

- additional easing is still an option;

- US economic outlook was upgraded from "modest" to "moderate" growth;

- however, unemployment rate is “elevated” and “significant downside risks” are still in place. Inflation outlook is “subdued.”

 

• Australian consumer confidence is down by 5% this month, while housing starts dropped in the fourth quarter by 6.9% versus 3% decline expected (q/q).

• Japanese business sentiment sharply deteriorated in the first quarter.

 

• According to The Telegraph which citing a leaked Troika report, Greek budget deficit will probably fall to 1.5% in 2012 in line with the forecasts but “current projections reveal large fiscal gaps in 2013-2014.”

 

• The Fed released US banks stress test results: 15 of 19 banks would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario. The 4 banks which wouldn’t have enough capital if economic situation worsens (13% unemployment) are Ally Financial, Suntrust, MetLife and Citigroup. Analysts at RBC Capital Markets showed that the fact that the majority of the banks succeeded in passing the test shows that US banking system is strong.

 

DJIA reached the highest level since 2007. Yields on 10-year Treasuries increased to 2.13%. Specialists at Bank of Tokyo-Mitsubishi UFJ think US yields rise because the nation’s economy strengthens. In their view, the Federal Reserve may be forced to raise the key rate before the end of 2014, probably the next year. American currency generally strengthened.

 

Asian stocks rose, EUR/USD went a bit lower to yesterdays’a minimums in the $1.3050 area. The pair opened below 55-day MA. USD/JPY keeps rising.

 

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[fallenDC]

Sumitomo Mitsui: euro will rise on the 5th Elliot Wave

 

According to Sumitomo Mitsui specialists, EUR/JPY may strengthen to 112.80 by May, its highest level in more than 7 months. Strategists say it makes sense to apply the Elliot Wave Theory to analyze the current euro movements.

 

The Elliott Wave Principle, proposed by accountant Ralph Elliott in the 1930’s, is a form of technical analysis based on the theory that investor psychology moves between optimism and pessimism in natural sequences. It seeks to predict prices by dividing trends into 8 waves.

 

First wave: Jan. 16-26 (rally from 97.04 to 102.21);

Second wave: Jan. 27 - Feb.1 (decline from 102.21 to 99.25);

Third wave: Feb. 2-27 (rebound from 99.25 to 109.93);

Fourth wave: Feb. 28 - March 6 (drop from 109.93 to 105.65).

 

Sumitomo Mitsui: EUR/JPY is now in the middle of the fifth wave of the multi-month upward cycle,” which is projected to end around April. The market swings follow a predictable five-stage structure.

 

Today EUR/JPY is trading at 108.47 after having risen more than 11% over the past 2 months.

 

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[fallenDC]

Barclays Capital lifted up USD/JPY forecast

 

Analysts at Barclays Capital increased forecasts for USD/JPY from 82 to 90 yen in 6 months and from 84 to 90 yen in a year.

 

As the reason for such revision the specialists cited Japan’s current-account decline and differences in monetary policy of the 2 nations’ central banks: the Fed’s statement showed a gradual reduction in the central bank’s dovish stance, while the Bank of Japan will likely increase monetary stimulus to achieve 1% inflation goal.

 

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[fallenDC]

Analysts: Comments on FOMC statements

 

On Tuesday FOMC decided to leave the strategic points of its monetary policy unchanged (Federal funds rate and quantitative easing program). However, additional easing is still an option. Specialists were not long in commenting the recent data.

 

Wells Fargo Securities: For more stimulus the economy had to weaken again, but FRS is still not slamming the door on more QE.

 

International Strategy and Investment Group: The FOMC’s meetings in April and June would be good opportunities for the Fed to do something if policy makers see additional stimulus as needed.

 

Capital Economics: The Fed can hardly be accused of acting as a cheerleader for the recovery. Nevertheless, the improvement in the incoming data may persuade the Fed to shelve any plans it had for additional monetary stimulus in the near term.

 

Tokyo-Mitsubishi: The Fed's direction will become clearer in late April when policymakers meet next and update their projections for economic growth, inflation, unemployment and interest rates.

 

BNP Paribas: Either the economic outlook will continue to improve, or the Fed will take action to inject more liquidity into markets.

 

Nomura: Within the next six months $500 billion operation is expected to occur, consisting of purchases of both mortgage backed securities and Treasuries. Asset purchases would be “sterilized” using reverse repos and term loans in order to appease inflation hawks.

 

Most analysts agree that growth in the current quarter and throughout the rest of the year will be slower than in last year's fourth quarter.

[fallenDC]

Societe Generale: risks from China property market

 

Economists at Societe Generale warn that investors’ optimism for the global economic prospects is vulnerable to the signs of fragility in U.S. growth momentum or of the slowdown of Chinese property market and bank loan growth.

 

The specialists claim that in the second quarter China's property sales may contract by about 10% in weighted prices losing nearly 20% of volume. In their view, while the decline may be rapid, it will be constrained. This year will likely be the bottom for Chinese property market.

 

China’s Premier Wen Jiabao claimed today that the nation’s home prices are still are still significantly above the reasonable level. Wen underlined that China would have to maintain efforts to curb real estate speculation as the property bubble would harm the economy if it burst.

 

Property sales in the world’s fastest-growing economy fell by 20.9% in the first two months of 2012 from a year earlier as the government had introduced a series of measures including property sales taxes and lending restrictions to curb speculation.

[fallenDC]

Greece defaults… Who’s next?

 

During the recent weeks the market was focused on the events unfolding in Greece. At the same time there are other nations in the list of the euro zone’s problem economies.

 

As a result, the question arises: was Greece a “completely unique case” as German Finance Minister Wolfgang Shaeuble said last week or will the indebted peripheral countries follow its path (conducting debt swaps and retroactively enacting collective-action clauses in its debt contracts)?

 

The yields of peripheral European debt have been relatively quiet so far. Portugal's 10-year yields, for example, slid from the record maximum of 18.29% in January to 13.71%, though still far from normal levels. Are we witnessing the first signs of improvement or is it a lull before the storm?

 

Portugal

 

Portugal is seen as the first candidate for default. The nation’s sovereign debt is lower than the Greek one, but Portugal has a far higher level of private sector debt – 200% of GDP versus Greece’s 120%. Such level of debt is hardly sustainable and will need writing down through the banking system and, consequently, sovereign help to support the banks.

 

Analysts at Deutsche Bank think that talks about a second international bailout for Portugal may begin later this year as the current 78 billion-euro aid plan will keep the nation funded only through September 2013 and the IMF “cannot disburse if a twelve-month funding outlook is not guaranteed.”

 

Portugal's economy fell by 1.6% in 2011 and may lose 3.0% this year, Troika experts say. The European Commission, the ECB and the IMF appraised Portugal for austerity measures. However, the specialists point out that last year the nation manages to lower deficit to the 5.9% level which is in line with the target only through transferring funds (5.6 billion euro or 1.9% of GDP) from the banking-sector pension system to the government social security one. The country’s public debt may reach 118% of GDP in 2013 from 102.7% of GDP last year.

 

Spain

 

According to governmental forecasts, Spanish economy will contract by 1.7% in 2012. The nation’s jobless rate is the highest in Europe: unemployment rose from 21.7% in December to 23.3% in January and is expected to reach 24.3% this year.

 

Spain was supposed to cut its deficit-to-GDP ratio to 4.4% in 2012, a goal agreed with EU finance ministers, but the new government announced earlier this month that it would only be able to cut its deficit to 5.8% of GDP for this year and promised to maintain a 2013 target of 3%. On Monday European finance ministers ordered Spain to bring its deficit down to 5.3%.

 

Meanwhile, the Spanish employees demonstrate against the government's new labor reform. It affects most worker entitlements, making the dismissal of employees simpler, reducing salaries and increasing working hours. The government is aiming at revitalizing the economy and proving that Spain will not require a bailout to overcome its problems. However, opponents of the reform say it does nothing towards creating new jobs in the country and represents profound social regression.

 

All in all, the threat of contagion remains an urgent problem and Europe may have to spend much more than it already did to keep all the member states funded. Europe must assure markets that such big economies as Spain (and Italy) won’t default on their debts. The euro area will likely remain in stress as contracting GDPs in peripheral countries will undermine their efforts to reduce debt and deficit ratios. To some extent, Greece’s scenario in other nations would help the currency union as it would at least lower the degree of uncertainty. Emergency financing from the European Central Bank is no more than a temporary solution. Postponing the final reckoning will only increase the economic pain and the cost of the inevitable bailouts.

[fallenDC]

Fitch reduced UK rating forecast

 

Fitch Ratings changed the forecast on Great Britain from “stable” to “negative”, indicating a “slightly greater” than 50% chance that the AAA rating will be reduced within 2 years. The verdict comes exactly one month after the rating agency Moody’s also placed the UK on negative outlook.

 

Fitch is citing the weak economic recovery, high debt levels and threats from Europe’s debt crisis. Recent data showed U.K. jobless claims rose more than economists forecast in February and a broader measure of unemployment remained at the highest in 16 years, underscoring the weakness of the labor market.

 

On March 21 Chancellor of the Exchequer George Osborne will present an annual budget. Recently he offered a new plan to issue 100-year government bonds to fund the government’s debts. Most analysts said that the plan was “sensible” but that any benefit it could bring is being outweighed by QE programs.

 

The U.K. deficit halved over the past two years, to 3.5% of GDP in 2011-12 from 7% of GDP in 2009-10. However, it is still higher than the average rate for the “ААА” countries.

 

GBP/USD has initially dipped to $1.5635, but then returned to the upside to trade in the $1.5670 area. The pair’s facing resistance of 55- and 100-day MA. Pound has to hold above $1.5600 in order to retain chances for recovery.

 

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[fallenDC]

SNB stays on hold

 

The Swiss National Bank kept the Libor rate unchanged in a 0.00-0.25% range at today’s meeting. The central bank also pledged to “continue to maintain liquidity on the money market at an exceptionally high level” or, in other words, to buy unlimited amounts of foreign currency preventing the appreciation of the national currency. The floor for EUR/CHF was maintained at 1.20.

 

Bank Sarasin: Franc buyers are still paying a premium for hedging against the risk of negative scenarios. Evidently, the nascent economic recovery and subsiding euro debt crisis have not yet eased investors’ risk aversion sufficiently.

 

However, Swiss government said it expects the economy to expand 0.8% this year instead of a previously projected 0.5%. It forecast the economy to grow 1.8% in 2013. The slowdown of exports is “less marked than feared some months ago” and economic growth should gradually strengthen this year with no risk of a recession.

 

Swissquote Bank: SNB is not expected to rise its ceiling anytime soon. They’re sitting back and monitoring the situation. Nobody out there signals to change the floor. They’ve convinced the market that it’s credible.

 

After the SNB's announcement EUR/CHF fell by about 40 pips, but then retraced half of this decline returning to 1.2100. USD/CHF declined to the levels around 0.9270. Technical analysts at Commerzbank point that if the pair closes the day higher than 0.9317 mark, it will be able to climb to 0.9595 (Jan. maximum).

 

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[fallenDC]

SocGen: US dollar will keep appreciating

 

US dollar has strengthened since the end of February. Analysts at Societe Generale think that American currency will keep appreciating during the coming month.

 

According to the bank, the possibility of further QE in the United States decreased and the greenback will be no longer used as a funding currency in carry trade. In addition, as Chinese yuan is under negative pressure due to China’s trade balance deficit posted in February, another dollar-negative factor dissolved.

 

The specialists recommend selling EUR/USD in the $1.3050 area stopping at $1.3250 and targeting $1.2650.

 

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[fallenDC]

Danske Bank: buy EUR/GBP on the dips

 

Analysts at Danske Bank recommend buying the single currency at levels around 0.8250 or when the pair EUR/GBP stabilizes.

 

The specialists claim that the recent decline of EUR/GBP is a result of the pair’s strong correlation with EUR/USD and an overdue correction to recent movements in relative rates. At the same time, euro may soon rebound as the Bank of England is continuing QE and stock markets show positive dynamics.

 

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[fallenDC]

Danske Bank: buy EUR/GBP on the dips

 

Analysts at Danske Bank recommend buying the single currency at levels around 0.8250 or when the pair EUR/GBP stabilizes.

 

The specialists claim that the recent decline of EUR/GBP is a result of the pair’s strong correlation with EUR/USD and an overdue correction to recent movements in relative rates. At the same time, euro may soon rebound as the Bank of England is continuing QE and stock markets show positive dynamics.

 

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[fallenDC]

Westpac, ANZ: AUD/USD

 

Analysts at Westpac believe that Aussie’s advance from the minimums in the $1.0420 region may soon lose momentum and AUD/USD may retreat to $1.0405 and $1.0372. The specialists say that the pair’s fair rate lies in the $1.0200/1.0300 range. On the other hand, any dovish signs from the Federal Reserve would make the pair rise to $1.0500/55. Aussie will also be supported if the People’s bank of China decided to reduce the RRR or conduct other stimulus measures.

 

In the medium term economists at ANZ are optimistic on AUD/USD. In their view, the pair will be able to test levels in the $1.1000 area due to high commodity prices, interest rates which attract offshore investors and significant changes in the emerging market economies with regards to expanding money supplies and changing credit ratings.

 

As for the longer term, the specialists see Aussie affected by the slowdown of China’s and global economic growth. In case of a modest slowdown in global economies AUD/USD could ease to $1.0350. If there’s more of the slowdown like last year or the economic performance deteriorates specifically in China, the pair may hit $0.9800.

[fallenDC]

US TIC increase beats forecast

 

Net overall capital inflows into the United States fell from December's revised inflow of $95.216 billion to $18.825 billion in January. This isn’t enough to cover the trade deficit for the month ($52.57 billion). U.S. trade gap widened in January to more than 3-year maximum of $52.6 billion.

 

Net long-term capital inflows were $101.046 billion in the first month of 2012, up from purchases of USD19.1 billion in December.

 

China remained the top holder of U.S. Treasuries (up by $8 billion to $1.160 trillion), but Japan may take over the first place as it continues to increase investments in U.S. debt (up by $21 billion to $1.079 trillion).

[fallenDC]

Societe Generale: comments on Swiss franc

 

The Swiss National Bank increased its GDP growth forecast for 2012 from 0.5% to 1%. The central bank lowered inflation forecasts for 2012-2013 to -0.6% and 0.3% respectively.

 

Analysts at Societe Generale claim that although Swiss franc is still overvalued and inflation risks are subdued, the SNB sees no reason to immediately take new initiatives to weaken the national currency.

 

The specialists underline that the bullish pressure on franc has somewhat eased due to the increased liquidity in the euro area and improved risk sentiment. However, many investors still don’t dare to sell Swiss currency. A continuation of the rally in stocks and commodities alone won’t be enough to make the market players go short on franc. As a result, the prospects of EUR/CHF will depend primarily on further actions of the SNB and the ECB.

 

Societe Generale don’t see how the European Central Bank will be able to take a less dovish approach amid the euro zone’s economic weakness caused by severe austerity measures. As a result, the analysts see no point in buying EUR/CHF anytime soon.

[fallenDC]

BOJ will have to ease policy because of China

 

The deterioration of China’s trade position may force the Bank of Japan to do more aggressive monetary easing.

 

Last month China posted trade deficit of $31.5 billion. The nation’s authorities have signaled that it might suspend its long-standing policy of allowing yuan’s gradual appreciation versus US dollar in order to boost its exports’ competitiveness or at least keep them from further shrinking.

 

As China is Japan’s largest trading partner, Japanese economy will surely be affected by weaker renminbi. As a result, the BOJ will have to take measures to keep yen sliding.

[fallenDC]

BOJ meeting minutes: inflation issue

 

The opinions of the Bank of Japan’s board members on further policy actions divided in February:

 

- One member proposed to lift inflation target up to 2%. Some members said that 1% CPI growth is enough as the inflation goal for the time being as the current level of

inflation is low, though added that the option of changing the target should be kept for future.

- After discussion about the appropriate terms concerning inflation, members agreed that it would be appropriate to refer to the inflation rate that is consistent with price stability sustainable over the medium to long term as “the price stability goal in the medium to long term.”

 

For more into on the BOJ monetary policy approach see the text of the central bank’s February 13-14 meeting.

[fallenDC]

Morgan Stanley: trading recommendations

 

Analysts at Morgan Stanley suggest 2 types of trade:

 

- set limit buy order for USD/JPY at 81.80 targeting 95.00 and stopping at 76.00.

- set limit sell order for AUD/CAD at 1.0550 targeting 0.9600 and stopping at 1.0780.

 

The specialists claim that yield differential between the United States and Japan widened due to better US economic data and less dovish than expected comments of the Federal Reserve. Japanese investors are actively investing to America and in March their US investments may increase even more.

[fallenDC]

Morgan Stanley: trading recommendations

 

Analysts at Morgan Stanley suggest 2 types of trade:

 

- set limit buy order for USD/JPY at 81.80 targeting 95.00 and stopping at 76.00.

- set limit sell order for AUD/CAD at 1.0550 targeting 0.9600 and stopping at 1.0780.

 

The specialists claim that yield differential between the United States and Japan widened due to better US economic data and less dovish than expected comments of the Federal Reserve. Japanese investors are actively investing to America and in March their US investments may increase even more.

[fallenDC]

US dollar slid from the recent highs

 

The greenback fell against the other major currencies like the euro, yen and Swiss franc after being on the rise last week. However, analysts believe that the dollar’s drop was a typical case of correction following big gains.

 

Regardless the yesterday’s EUR/USD rise, the euro is unlikely to show a sustainable growth in a long term due to the economic uncertainty in European area and the U.S. robust growth.

 

USD/JPY yesterday also edged down. According to Tokyo Mitsubishi, it’s just a tiny correction in the uptrend. Analysts expect the U.S. grow quicker than Japan in the coming quarters. Bank of Japan, as distinguished from the Fed, continues to loosen its monetary policy aiming at the weakening of the yen.

 

Swiss franc yesterday strengthened to the dollar due to SNB’s announcement to keep the Libor rate unchanged in a 0.00-0.25% range and to maintain floor for EUR/CHF at 1.20.

 

Against the backdrop of improving U.S. economics the dollar’s decline doesn’t raise any serious concerns. According to economists, inflation is close to a 2% target level and there is unlikely to be a further quantitative easing. Data released on Thursday showed the number of Americans claiming new jobless benefits fell to a four-year low last week and manufacturing activity in the Northeast picked up this month.

 

FX Solutions: Consolidation could last another couple of days, but if economic reports continue to be positive, the dollar should once again resume its climb.

 

BNP Paribas: With the major U.S. equity indices going out at their highest levels for 10 years (Nasdaq), or since mid-2008 (S&P 500), and no sign that U.S. Treasury yields are about to swoon, we look for further dollar advances one side or the other of the weekend.

 

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[fallenDC]

Eurostat: recession starts to spread over Europe

 

Data released this month by Eurostat showed that about a third part of euro zone nations have already entered recession in the final 3 months of 2011 (defined as GDP contraction during 2 consecutive quarters).

 

Economy declined for the second quarter in row in Italy, the Netherlands, Belgium and Slovenia. Greece’s economy is declining for already 4 years (down by 0.2% in 2008, by 3.3% in 2009, by 3.5% in 2010 and by 6-7% in 2010, according to the estimates). Portugal is deep in recession as well.

 

In addition, in Q4 we’ve seen the first GDP contraction in Sapin, Germany, Austria, and Estonia and in non-euro Sweden and the UK. Some of these economies may fail to return to growth in Q1.

 

GDP decreased by 0.3% in both the euro area (EA17) and the EU27 during the fourth quarter of 2011 (q/q). In the third quarter of 2011, growth rates were +0.1% in the euro area and +0.3% in the EU27.

 

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Source: Eurostat

[fallenDC]

BBH: where to get trading hints from?

 

Analysts at Brown Brothers Harriman underline that one can no longer rely on the changes in risk appetite while trying to forecast currency moves. For instance, USD/JPY had a 0.42 correlation with the S&P 500 in January, while now this index switched to -0.11. The greenback used to fall on rising stocks, but so far it has been rising with equities and Treasury yields.

 

As a result, the analysis of market’s sentiment has lost its relevance for trading. The specialists say that they are “shifting toward the more fundamental outlook for growth.”

 

So, BBH recommends forex traders to watch:

- Bond markets (the steepness of Treasury yield curve). The specialists claim that a “sharp rise in the 10-year yield is indicative of improvement in the U.S. economy and perhaps the outlook for Fed policy” that means lower odds of more QE and stronger US dollar.

- 2-year yield spreads between U.S. and Germany and U.S. and Japan for hints about the dynamics of EUR/USD and USD/JPY.