Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

Pound fell on data releases and the BoE

 

British pound fell versus the greenback on weak data and the results of Bank of England’s meeting.

 

The pair GBP/USD tested the levels below the 200-day MA, but found support at 50-day one from which it bounced upwards.

 

Resistance: $1.5885 (February 9, March 6 maximums) and $1.5922 (March 21 maximum).

 

Support: $1.5818 (today’s minimum, 50-day MA), $1.5775 (uptrend support line from the beginning of the year).

 

UK economy: growing or not? The BoE has taken a "wait-and-see" approach

 

In contrast with Manufacturing, Construction and Services PMIs which point to accelerating growth in these sectors, today’s data released in Britain was discouraging: UK manufacturing production contracted by 1.0% in February m/m (vs. expected increase of 0.1%). Official forecasts aren’t positive either: GDP growth in Q1 is unlikely to hit the 0.5% q/q as implied in the Monetary Policy Committee’s February forecast.

 

There is also some disappointing news from the euro area which strengthened the pressure on sterling as Europe is Britain’s main trading partner: German February industrial output data (-1.3% m/m vs. the Reuters consensus of -0.5%).

 

The BoE decided to leave the rates unchanged at 0.5% keeping the size of the Asset Purchase Facility at 325 billion pounds (the last increase was in February by 50 billion pounds). The central bank said that the MPC expects the asset purchases to take another month to complete and that “the scale of the program will be kept under review.” There’s no detailed policy statement. One will be able to get more hints on the BoE’s policy stance only when the meeting minutes are scheduled for release on April 18.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/05_04_12/daily_gbpusd_16-02_(1).gif

[fallenDC]

EUR/USD renewed 3-week low

 

The single currency is declining versus the greenback for the third day in a row. Today EUR/USD hit 3-week minimum at $1.3056 due to concerns about the euro area, primarily Spain.

 

Another source of pressure on euro – German February industrial output data: -1.3% m/m vs. the Reuters consensus forecast of -0.5%.

 

In addition the results of French debt auction conducted today came mixed: the nation managed to sell the planned volume 8.439 billion euro of debt maturing in 2017, 2022, 2026 and 2041 out of a targeted 7-8.5 billion euro, though the yields were slightly worse.

 

RBC Capital Markets: Euro zone pressures are picking up with the 10-year Italy-Bund spread sitting at 375 bps, the 50% retracement of the January-March tightening. Spain is also underperforming with our rates team noting spread widening is more pronounced in 2-year notes than in 10-year ones.

 

The technical outlook for EUR/USD seems bearish. However, taking into account the fact that we’ve seen a rapid decline it’s possible to expect some correction before the pair’s slide to $1.3000 and lower resumes.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/05_04_12/daily_eurusd_16-20.gif

[fallenDC]

Spain: frightening austerity agenda

 

On Friday, March 30, Spanish Prime Minister Mariano Rajoy delivered the annual budget. Spain is cutting 27 billion euros ($36 billion) from its budget this year as a part of the tough austerity plan. Prime Minister remains committed to reduce the budget deficit to 5.3% of GDP in 2012 from 8.5% in 2011, despite the protests, bursting in Spain.

 

To meet the goals set in the budget plan, Spain’s regional authorities will have to cut their deficits by 50% this year. As a result, budget spending in both health care and education is expected to be cut. Social unease may increase on the back of these reforms.

 

According to Spanish Economy Minister Luis De Guindos, the introduced austerity measures are focused on spending cuts rather than tax hikes. Moreover, Prime Minister Rajoy has denied the intentions to raise taxes. However, some economists are convinced that the government will also need to raise income taxes, increase electricity prices, abolish corporate tax breaks, and keep civil servant salaries fixed for a while in order to cut budget deficit.

 

The appraisal of the Spain’s government’s policy seems to be controversial. Investors believe the further austerity measures would deepen the recession in Spain and in the whole euro zone, given that the Spanish economy is already expected to contract by more than 1.7% this year. Some experts note Rajoy tries to eliminate budget deficit at the expense of economic growth in order to delight the EU officials.

 

European officials, however, appreciate the value of Spain’s attempts to return market confidence. “Even though Spain is in a difficult situation, the steps it has taken are consistent with its goal to improve the sustainability of its public finances”, said Olli Rehn, EU Commissioner for Economy and Finance.

 

On Wednesday, April 4, Spanish government conducted the first debt auction since announcing that public debt will surge to 79,8% GDP this year. Spain sold only 2.59 billion euros of debt out of 3.5 billion euros (maximum target). Spain's borrowing cost is actually higher than it was on the day of the first LTRO operation 3 1/2 months ago. The yields on 5-year notes rose to 12-week maximum of 4.5%.

 

Analysts at CIBC claim that if Spanish yields keep rising, euro will decline. In their view, euro zone’s periphery remains in extremely stressful condition.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/05_04_12/spain_5-year.png

 

Source: Bloomberg

[fallenDC]

How do you like the picture at EUR/CHF chart?

 

The pair has clearly pierced the SNB’s floor which lies at 1.20 posting the 7-month minimum at 1.1997 on the new wave of concerns about Spain’s finances. Switzerland’s central bank replied that it “won't accept any exchange rate below 1.20” reiterating its commitment to buy foreign exchange in unlimited quantities to defend this level.

 

Analysts at HSBC think that the SNB intervened today. In their view, the evidence is that stops in the 1.2030 area didn’t trigger sustained slump of euro below the minimal level. Strategists at Citi estimate that the central bank sold 1-2 billion euro at 1.20.

 

Swissquote points out that it was the CPI data released today which made traders test the SNB’s resolve to maintain franc’s cap. The specialists think that the SNB won’t manage to keep on with just verbal interventions from now on.

 

Swiss inflation accelerated to 0.6% in March from 0.3% in February beating the forecasts. The SNB’s foreign currency reserves increased from 227.2 billion francs in February to 237.5 billion francs in March. Recent data shows that franc’s peg to euro helps to stabilize Swiss economy, though CHF is still about 30% stronger than it was below the crisis.

 

RBC: Swiss central bank has signaled and repeated its unwavering commitment to the EUR/CHF floor. But though the market believes it for the next 1-3 months, EUR/CHF risk reversals show investors believe the floor will break beyond that. If downside price risks emerge, the SNB's only real tool is to raise the EUR/CHF floor. The floor can last as long as it is compatible with the SNB's mandate of price stability.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/05_04_12/h1_eurchf_18-53.gif

[fallenDC]

A few more comments on NFP and today’s trading

 

Release time: 12:30 p.m. GMT

 

Societe Generale: the pace of hiring has probable decelerated to 190K in March but likely upward revisions to prior months along with another drop in the unemployment rate to compensate the impact of slightly slower payroll growth. Employment growth between 1% and 1 ½% is weaker than in an 'old normal' recovery and may not be able to generate GDP growth above 2%, but it is pretty good insurance against a slip back into recession. However, QE3 may return to the agenda before June as the pace jobs growth declines. “Payrolls on a bank holiday is a good enough reason to take risk off for anybody.”

 

Goldman Sachs: forecast for March gain in nonfarm payrolls is raised from 175K to 200K on the better-than-expected ADP employment report.

 

Bank of New York Mellon: “The whisper number could be something larger than 250K. The problem is that everyone is talking about it, but nonfarm payroll data is so unpredictable and if the figure comes in below 200K, stocks are likely to sell off”.

 

Reuters’ consensus: +203K.

 

Trading implications

 

A good reading will encourage short-term Treasury yields and, consequently, the greenback, while the single currency will get under pressure.

 

For now EUR/USD has managed to find support at the bottom of the daily Ichimoku Cloud after hitting 3-week minimum at $1.3034 yesterday. At the same time, this support looks really fragile as the market’s still seems seriously concerned about Spain.

 

Analysts at Bank of Tokyo-Mitsubishi claim that euro’s slide below $1.30 looks inevitable.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/06_04_12/daily_eurusd_10-02.gif

[fallenDC]

Societe Generale: trading recommendations on USD/CHF

 

Strategists at Societe Generale recommend going long on the greenback against the Swiss franc, entering the trade at 0.9200 with a stop at 0.9075 and a target of 0.9600.

 

According to specialists, the American currency this week is growing both versus the euro and the Swiss franc on positive U.S. economic data and new troubles in Europe (unsuccessful Spain’s bond auction). In their view, the European problems may be “creeping back on the table."

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/06_04_12/daily_usdchf_06.04_10-30.gif

[fallenDC]

It was a grim week for the euro area

 

The single currency hit 3-weel low versus the greenback and lost 2.7% this week against Japanese yen showing the steepest 5-day slide since the week ended September 9.

 

Spain

 

The main theme of the past week was Spain. Analysts at Citigroup said that the nation was at “a greater risk than ever before” of a debt restructuring. Spain’s main IBEX 35 index touched the lowest in 7 months approaching to its post-credit-crisis minimum.

 

Spain’s 10-year borrowing costs returned above 5% after bottoming at 4.815% after the ECB’s second long-term refinancing operation (LTRO) in February. In March the indebted country shocked markets by announcing that it had missed its 2011 budget deficit target of 4.4% and set a lower goal of 5.3% for 2012. Spanish government failed to sell the planned amount of debt at this week’s auction (April 4) managing to borrow only 2.59 out of 3.5 billion euro target.

 

Bank stocks plunge

 

It’s also necessary to note that this week was the worst for European bank stocks since December with Italy’s Unicredit falling by more than 11% and Banca Poplare di Milano slumping by more than 15%.

 

ECB: downside economic risks

 

The ECB President Mario Draghi repeated that downside economic risks prevail and called talk of an exit strategy from LTO premature.

 

Discouraging data

 

German February industrial output data: -1.3% m/m vs. the Reuters consensus forecast of -0.5%.

 

EUR/USD

 

Scotiabank: watch the bearish signals from MACD, RSI and candlesticks. However, EUR/USD is still caught in sideways trend between $1.30 and $1.35 which has been in place since the end of January. As a result, wait for the breach of $1.2974 support for bearish confirmation.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/06_04_12/daily_eurusd_11-07.gif

[fallenDC]

NFP: Bloomberg survey in details

 

Bloomberg Survey

 

================================================================

Nonfarm Private Unemploy Hourly

Payrolls Payrolls Rate Earnings

,000’s ,000’s % MOM%

================================================================

 

Date of Release 04/06 04/06 04/06 04/06

Observation Period March March March March

----------------------------------------------------------------

Median 25 215 8.3% 0.2%

Average 208 220 8.3% 0.2%

High Forecast 250 265 8.4% 0.2%

Low Forecast 175 185 8.1% 0.1%

Number of Participants 80 45 76 49

Previous 227 233 8.3% 0.1%

----------------------------------------------------------------

4CAST Ltd. 200 215 8.2% ---

ABN Amro Inc. 210 230 8.3% ---

Action Economics 210 215 8.3% 0.2%

Aletti Gestielle 200 --- 8.3% ---

Ameriprise Financial Inc 215 210 8.2% 0.2%

Banca Aletti & C spa 230 246 8.2% ---

Bank of Tokyo- Mitsubishi 200 210 8.2% ---

Bantleon Bank AG 190 --- 8.3% ---

Barclays Capital 200 215 8.2% 0.1%

BBVA 200 210 8.3% 0.2%

BMO Capital Markets 190 --- 8.3% 0.2%

BNP Paribas 210 --- 8.3% 0.1%

BofA Merrill Lynch Resear 220 225 8.3% 0.2%

Briefing.com 230 250 8.2% 0.1%

Capital Economics 200 --- 8.3% 0.1%

CIBC World Markets 200 --- 8.3% 0.2%

Citi 185 --- 8.3% 0.1%

ClearView Economics 190 205 8.4% 0.2%

Comerica Inc 200 --- 8.2% 0.1%

Commerzbank AG 220 --- 8.3% 0.2%

Credit Agricole CIB 210 --- 8.3% 0.2%

Credit Suisse 235 --- 8.2% 0.2%

Daiwa Securities America 200 --- 8.3% ---

Desjardins Group 210 --- 8.3% 0.2%

Deutsche Bank Securities 250 250 8.2% 0.1%

Deutsche Postbank AG 230 --- 8.2% ---

Fact & Opinion Economics 240 250 8.2% ---

First Trust Advisors 210 223 8.1% 0.2%

FTN Financial 200 220 8.3% 0.1%

Goldman, Sachs & Co. 200 --- 8.2% 0.1%

HSBC Markets 180 189 8.3% ---

Hugh Johnson Advisors 180 185 8.3% 0.2%

IDEAglobal 210 220 8.3% 0.2%

IHS Global Insight 210 --- 8.2% 0.2%

Informa Global Markets 200 --- 8.3% 0.2%

ING Financial Markets 220 230 8.1% 0.2%

Insight Economics 235 --- 8.2% 0.2%

Intesa Sanpaulo 190 --- 8.3% 0.2%

Iur Capital Llc 195 --- 8.2% ---

J.P. Morgan Chase 215 220 8.3% 0.2%

Janney Montgomery Scott L 201 221 8.3% ---

Jefferies & Co. 195 210 8.2% 0.1%

JH Cohn 225 --- --- ---

Laurentian Bank Securitie 180 185 8.3% 0.1%

LCA Consultores 225 --- --- ---

Maria Fiorini Ramirez Inc 215 225 --- ---

Market Securities 219 --- 8.2% ---

MET Capital Advisors 222 --- 8.2% ---

Mizuho Securities 175 --- 8.3% ---

Moody’s Analytics 200 205 8.3% 0.1%

Morgan Stanley & Co. 175 --- 8.3% 0.2%

National Bank Financial 190 --- 8.3% ---

Natixis 205 --- 8.2% 0.2%

Newedge 205 215 8.3% ---

Nomura Securities Intl. 225 235 8.2% 0.2%

Nord/LB 175 --- 8.3% 0.2%

OSK Group/DMG 192 --- 8.2% ---

O’Sullivan 195 205 8.3% 0.1%

Paragon Research 242 --- 8.2% ---

Parthenon Group 206 224 8.2% 0.2%

Pierpont Securities LLC 235 245 8.2% ---

PineBridge Investments 245 265 8.2% 0.1%

PNC Bank 200 210 8.3% 0.2%

Prestige Economics 200 205 8.3% ---

Raiffeisenbank Internatio 240 245 8.2% ---

RBC Capital Markets 200 205 8.3% ---

RBS Securities Inc. 220 225 8.2% ---

Scotia Capital 220 --- 8.3% ---

SMBC Nikko Securities 250 250 8.3% 0.2%

Societe Generale 190 195 8.1% 0.2%

Standard & Poor’s 225 230 --- 0.2%

Standard Chartered 205 215 8.3% 0.1%

Stone & McCarthy Research 200 210 8.2% 0.2%

TD Securities 175 185 8.4% ---

UBS 200 210 8.2% 0.1%

University of Maryland 200 205 8.3% 0.2%

Wells Fargo & Co. 226 --- 8.2% ---

WestLB AG 220 --- 8.3% 0.1%

Westpac Banking Co. 180 --- 8.3% ---

Wrightson ICAP 230 235 8.2% 0.1%

================================================================

[fallenDC]

RBS is extremely bullish on GBP

 

Analysts at RBS expect the British pound in April to be on a rise against the euro, yen and Swiss franc. However, the sterling looks less likely to do well against the Australian and the New Zealand dollar.

 

According to specialists, in April sterling has traditionally been strong against a range of currencies. Moreover, higher than expected construction, manufacturing and services PMIs (56.7, 52.1 and 55.3 respectively) bring bullish sentiment to the market.

 

At the current run rate, previously announced asset purchases wouldn’t run off until early May. The further expansion of monetary easing is unlikely taking into account the improvement of UK economy.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/06_04_12/daily_eurgbp_06.04_11-30.gif

[fallenDC]

USD/JPY: analysts’ forecasts

 

The pair USD/JPY was trading sideways this week opening and closing in the 82/83 yen area.

 

Today the main event for all dollar crosses is the Non-Farm Payrolls release at 12:30 GMT.

 

Bank of Tokyo-Mitsubishi UFJ: USD/JPY may rise to 84 yen if NFP data exceed expectations.

 

JP Morgan: USD/JPY will likely trade next week between 81 and 83 yen.

 

Analysts at Brown Brothers Harriman claim that unless the Bank of Japan announce some aggressive easing measures on Tuesday, April 10, yen’s dynamics will be determined by external factors. The specialists underline that the LTROs in Europe may have already given all positive effect they could and that political and economic headline risk in the weeks ahead are on the downside. As a result, BBH believes that safe-haven demand for yen will increase and USD/JPY may decline to 80-81 yen, while EUR/JPY may slide to 104-106 yen.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/06_04_12/daily_usdjpy_13-21.gif

[fallenDC]

Mizuho: short-term bearish on USD/JPY

 

Analysts at Mizuho Corporate Bank believe that the greenback may drift lower versus Japanese yen sliding to 80.00 in the next 2 weeks.

 

“When we look at the amount of short positions in the yen, we see that they really have not decreased. Their volume is large. At some point, these positions will be closed, leading to an increase in the yen. Employment data can serve as an impetus for this,” say the specialists.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_usdjpy_11-22.gif

[fallenDC]

Ifr Markets: option expiration for today

 

Analysts at Ifr Markets, key analytical data provider, claim that today the following options expire:

 

EUR/USD: $1.3400, $1.3225, $1.3300, $1.3500, $1.3315.

USD/JPY: 82.25, 84.00 83.15, 83.00.

EUR/JPY: 108.00.

AUD/JPY: 83.75.

AUD/USD: $1.0200, $1.0300.

 

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/s3.reutersmedia.net.jpg

 

Photo REUTERS/Shannon Stapleton

[fallenDC]

CFTC trader positioning data

 

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

 

• The net short euro position dropped to 79.5k contracts, the smallest such net position since late November 2011. Long positions increased 5.8k contracts, while shorts shrank by 3.8k contracts.

• The net short yen position declined to 65.1k contracts from 67.6k. Longs rose by 3.7k, whereas shorts rose by 1.1k contracts.

• The net short pound position went down to 8.8k contracts from 11.1k. Both longs and shorts increased (2.7k and 380 contracts respectively).

• Swiss franc net shorts decreased to 14.7k from 15.1k contracts. Longs grew by 322 contracts and shorts were pared by almost 100 contracts.

 

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.

[fallenDC]

USD/JPY down on U.S. jobs figures

 

The greenback touched a one-month low versus the yen on Monday on the back of last week's lower-than-expected U.S. labor market figures. Investors are worried that the Fed may need more monetary stimulus to support the economy.

 

In March non-farm payrolls rose by 120K versus 240K in February and far lower-than-forecasted 207K, demonstrating the smallest increase since October. The unemployment rate decreased slightly to 8.2% from 8.3%.

 

Commonwealth Foreign Exchange: The question for the dollar is whether this is as viewed as an outlier in an otherwise improving trend in labor markets, or if it's viewed as enough to revive talk of another round of QE. At the very least it will keep the door open to additional policy easing, more so than before the number was released.

 

Japan, however, showed the first current account surplus in two months in February (1.178 trillion yen, down 30.7% from a year earlier, but stronger, than forecasted). Exports stopped contracting thanks to robust demand in the U.S. and Southeast Asia.

 

Early Monday the USD/JPY dropped as low as 81.19 yen on its lowest level since the beginning of March. The support for the dollar lies at 81.07 yen (a 38.2% retracement of its rally in Feb.-March), 80.59 yen (March 6 minimum), 80.25 yen (Feb.29 minimum) and 80.01 yen (Feb.28 minimum). The resistance levels for the pair are 82.56 yen (Apr.6 maximum), 82.88 yen (21-day MA) and the 82.99 (Apr.3 maximum).

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_usdjpy_09.04_12-30.gif

[fallenDC]

Saxo Bank: comments on euro, yen and franc

 

Analysts at Saxo Bank in London note that as the market’s focus shifts to Spain, the European Central Bank will face a lot of difficulties in the coming months.

 

The specialists claim that for now the ECB did well to contain spikes in peripheral sovereign yields through its long-term refinancing operations (LTROs) in December 2011 and February this year. However, Saxo Bank warns that if the concerns about Spain keep mounting, it will be very hard for the ECB to calm the market alone: more political co-ordination will be needed.

 

According to Saxo, French elections and new leadership will drive EUR/USD up, though the pair won’t be able to rise above $1.35/1.36, so a reversal downwards in this area’s expected.

 

As for Japanese yen, the analysts say that yen’s decline “in the next few months, this yen move will be overshot, and we will see a bit of a consolidation in these carry trades, which will mean the yen consolidates robustly against several of these currencies.”

 

Speaking about Swiss franc’s prospects, the economists say that the Swiss National bank is unlikely to raise EUR/CHF floor from 1.20 until the third quarter or even later.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_eurusd_12-27.gif

[fallenDC]

Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

British pound tested the levels above the Ichimoku Cloud last week, but then drifted lower and closed below Kumo.

 

At the same time, the pair managed to find support at Tenkan-sen (1), so the bulls haven’t lost all chances to turn the situation in the short term to their benefit. The pair also has some support of the uptrend line connecting January and March minimums.

 

However, the Turning line stopped moving up and switched to the horizontal mode following Kijun-sen (2) and pointing at sideways trend. Kumo isn’t wide, but still bearish (3).

 

We are looking forward to consolidation in the coming weeks. The ability of the bulls to bring the prices above the Cloud will be decisive for the future dynamics of GBP/USD.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/weekly_gbpusd.gif

 

 

Daily GBP/USD

 

On the daily chart the prices breached the Turning line (1), but were supported by the Standard line (2) and the upper border of the rising Ichimoku Cloud.

 

On the one hand, the situation looks stable: Tenkan and Kijun have so far formed “golden cross” which should be strong enough as the lines intersected above Kumo.

 

On the other hand, Tenkan-sen and Kijun-sen became horizontal and the Cloud has dangerously narrowed.

 

On the downside, if GBP/USD breaches support of the Kijun and enters the Cloud, it will likely slide to the bottom of Kumo. On the upside, if after a few days of consolidation sterling manages to rise above Tenkan, it will get chance to strengthen to the maximums of the early April.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_gbpusd.gif

[fallenDC]

US yields’ advance is likely to slow down

 

So far there was a lot of talk about rising US Treasury yields which helped to push USD/JPY up and breach its long-term downtrend. Is this really a reversal of the 30-year bullish market characterized by increasing bond prices and declining yields and the demand for treasuries will start declining? Not likely.

 

Reasons of high demand for Treasuries:

 

1) Reduction of supply: data from CRT Capital Group LLC shows that the net amount of Treasuries available will decline by 30% once proceeds from maturing securities are reinvested and fall by an average of $99.4 billion of investable cash a month. Average maturity of government debt has risen from 49.4 months in last quarter of 2008 to 62.8 months with the help of Operation Twist (shorter maturities in the Fed’s holdings are replaced with longer-term debt to cap longer-term rates), while the amount of American debt increased by $4 trillion.

 

2) Treasuries remain the safe haven #1 with few alternatives as the global economic prospects remain uncertain and there are severe problems looming over particular regions, such as the euro area. Investors see the improvement of US economy, but the majority agrees that it’s too early to be entirely optimistic.

 

3) The banks need to add safe assets to meet new reserve rules under the Dodd-Frank financial-overhaul law and Basel III regulations. US commercial lenders have already bought the same amount of Treasuries as in the while 2011.

 

4) Corporations have record cash on hand which they put in Treasuries seeking fixed income as they fear that the market may get shaken once more.

 

High demand means lower yields. Although 10-year US yields rose from 1.88% at the end of 2011 to about 2.4% in March, consensus forecast didn’t chance since January – it still shows the yields will finish 2012 at 2.49%. This means that investors aren’t ready to trim their Treasury holdings. Buyers bid $3.19 for each dollar of the $538 billion in notes and bonds sold this year – the highest demand since 1992 when such data became available. The only obstacle which may slow the rate of Treasuries purchases is rising inflation.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/treasury-dept-photo2.jpg

 

Photo by Reuters

[fallenDC]

EUR/USD: prospects remain unclear

 

On Monday, April 9, activity on the European markets remains weak due to Easter holidays in Germany, France, Switzerland, Italy and Great Britain. Given the rising Spanish bonds yield and increasing uncertainty about the country’s prospects, the future of the euro doesn't look bright.

 

On the other hand, data on U.S. labor market, released on Friday, also seems to be negative (non-farm payrolls rose by 120K versus the expected 207K). However, most analysts believe the U.S. labor market data won’t have a significant effect on the market.

 

BNP Paribas: The NFP data are quite comforting, since the cuts that occurred in March are very likely to be reversed afterwards.

 

SunbirdFX: The euro may strengthen from the $1.300 strong support level to $1.315 or break the Head & Shoulders pattern lying above the support and slide to $1.280.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_eurusd_09.04_18-30.gif

[fallenDC]

US and Asian sessions briefly

 

US:

 

The Fed’s Chairman Ben Bernanke didn’t mention monetary policy in his speech, though noted that American economy is far from a complete recovery which was taken by the market as an argument for further easing. As a result, the greenback weakened versus the majority of its counterparts.

 

Speeches are also scheduled for Dallas Fed President Richard Fisher, Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Narayana Kocherlakota.

 

Asia:

 

Bank of Japan’s meeting: rates unchanged at 0.1%, no new easing measures announced.

 

Although such decision was in line with the forecasts, USD/JPY fell by about 25 pips after the announcement from Asian session high at 81.86 yen.

 

Morgan Stanley MUFG Securities, Mizuho Securities and SMBC Nikko: the BOJ will expand asset purchases when it next meets on April 27.

 

China: trade balance +$5.3 billion; imports +5.3% (y/y), exports +8.9% (y/y).

Australia: NAB business confidence rose, job advertisements +1% (m/m).

Stock markets show mixed performance.

 

http://www.fbs.com/sites/default/files/image/analysis/April2012/09_04_12/daily_usdjpy_11-22.gif

[fallenDC]

EUR/USD: bears vs. bulls

 

Bearish outlook

 

The common currency grew 2.95% in the first quarter on the back of the approval of a second bailout package for Greece after a debt-swap with the country’s private-sector investors. The worries of the market participants about the new wave of the crisis declined due to the operation.

 

In the second quarter, according to Westpac analysts, the austerity measures, deleveraging and poor growth are steadily driving the economy into a recession. “The ECB may need more QE and the Fed is basically on hold, and that should mean interest-rate differentials move in the dollar’s favor”, analysts say.

 

BBH: Political risk ahead of the French and Greek upcoming elections and eventual weakening economic reports in the Euro zone should push the EUR/USD below the $1.297/1.300 range. Eyes will be on the Italian bond auction on April 12.

 

Bullish outlook

 

However, some analysts are positive on the prospects of the common currency. In their view, the EU policymakers possess enough financial mechanisms to help indebted countries to surpass the crisis. Spain and Italy are unlikely to require financial aid and the U.S. isn’t growing fast enough for the Fed to start raising interest rates.

 

HSBC: EUR/USD is expected to trade in the range $1.30/35. There are no signs at the market that Spain alone can push the pair below $1.3000. However, if something extraordinary happens and the euro breaks this level, the next support line lies at $1.2600.

 

Rabobank: euro may climb to $1.35 in 9 months and to $1.40 a year from now as the Fed keeps interest rates at a record low and the U.S. moves to cut its budget deficit after presidential elections in November.

 

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EUR/USD: economic news and technical levels

 

The single currency rose to $1.3145 earlier today, but then slid to $1.3095 area.

 

German trade balance in February was right as analysts expected with surplus of 13.6 billion euro. At least there’s no disappointment here. The nation’s exports added 1.6% surpassing the forecast of +0.4%. French industrial production rose in February slightly higher than expected (+0.3% vs. +0.2% forecast). Sentix investor confidence is another important release for today.

 

Euro was helped by the speculation about more QE in the US after yesterday’s Bernanke speech (though the Fed’s Chairman only said that there’s no recovery yet without going into details and specking about monetary policy). More members of FOMC will speak this week and Bernanke will appear in public one more time on Friday. So, don’t miss the comments and consult our economic calendar for the exact schedule (Fisher, Lockhart and Kocherlakota are to speak today).

 

EUR/USD’s upward correction looks shallow. There will be many shorts at $1.3165 (April 5 maximum). If the pair manages to overcome this resistance, it will be able to get to the top of the daily Ichimoku Cloud at $1.3263. Support lies at $1.3060, $1.3030, $1.3000 (March 15 minimum) and $1.2974 (February 16 minimum).

 

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The outlook for AUD/USD

 

Today’s dynamics

 

On the upside Australian dollar was helped by Bernanke’s comments that American economy is far from a complete recovery which was taken by the market as the sign of more easing coming, especially after payrolls increased less than expected in March. In addition, Chinese data released today has positively surprised the market: the nation posted $5.35-billion trade surplus last month vs. the forecast of $3.15-billion deficit (Bloomberg). There was also a private report which showed that business confidence in Australia rebounded.

 

On the downside Aussie was discouraged (especially against yen) after the Bank of Japan kept the monetary policy unchanged, while the market has been pricing in more easing. Asian stocks fell and Australia’s bonds surged driving the yields to the lowest since February 7.

 

Technical levels

 

The pair AUD/USD keeps trading within downtrend channel aiming to $1.0145 (January 9 minimum).

 

Resistance: $1.0355 (today’s maximum) and $1.0462 (April 3 maximum).

 

Support: $1.0043 (December 29 minimum) and 0.9865 (December 15 minimum).

 

Data to watch

 

Barclays Capital:

 

- Australian employment data (April 12): Barclays’ forecast is employment change of 0K and unemployment rate of 5.3%. Any sign of weakness in labor market would likely add to the concerns about domestic economy and additional AUD negative.

- Australian CPI figures (April 23).

 

The RBA opened the door for further easing at next meeting in May and the data releases mentioned above will determine the central bank’s decision.

 

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U.S. companies earnings expected to drop in Q1

 

On Tuesday, April 10, U.S. companies start to announce their first-quarter earnings.

 

According to FactSet analysts, earnings for S&P 500 companies are expected to decrease by 0.1% in the first quarter compared to a year ago. It may serve as a negative signal for the U.S. economy as a whole, because earnings had been rising for the previous nine quarters. Year-over-year earnings growth has been at least 10% for all but the last period, when it was 6%. Three months ago the forecast for the first quarter was 3% earnings growth.

 

The slowdown may be caused by European debt crisis or by mathematical growth constraints. In any case, the unsteady growth shows the economy is still weak and vulnerable.

 

Analysts at Barclays Capital believe the negative earnings results in the short term may weigh on risky currencies, for example, on the Aussie. Funding currencies like the Swiss franc and the yen will temporarily strengthen against the greenback.

 

The first data release to watch is scheduled on Tuesday: the U.S. aluminum giant Alcoa will post its quarterly report.

 

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Bank's forecasts for FX majors

 

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Data were submitted on April 5

 

Source: FX Week

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Commerzbank: comments on EUR/JPY

 

Technical analysts at Commerzbank claim that the single currency may rebound versus Japanese yen from support in the 105.93/65 area (200-day MA, 38.2% Fibonacci retracement of EUR/JPY’s advance in 2012). There’s also an upper border of the Ichimoku Cloud at 106.15 yen.

 

The specialists think that the pair may rise to resistance at 108.07/65 from where it will start suffering from negative pressure. In their view, euro’s sell off may begin at 111.13 (April 2 maximum) and the pair may decline to the lower border of the Cloud at 103.50.

 

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