Comments and forex-analytics from FBS Brokerage Company

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Pound up on CPI data

 

The cable strengthened to $1.5953 level on Tuesday after the benign inflation figures were released.

 

The March consumer price index (CPI) rose in line with expectations by 3.5% after increasing 3.4% the previous month, reducing concerns on further QE.

 

Technical analysts at Commerzbank remain bearish on the GBP/USD prospects. In their view, the pair won’t break through the strong resistance at $1.6000.

 

Resistance lies at $1.5985 (high Apr.12), $16000, $1.6063 (high Apr.2) and $1.6095 (high Nov.14), while support – at $1.5843 (200-day MA), $1.5836 (55-day MA), $1.5808 (low Apr.10) and $1.5801 (low Mar.26).

 

This week watch out for important data on claimant count, Monetary Policy Committee meeting minutes and monthly retail sales. The MPC “dove” Adam Posen will give a speech today.

 

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Westpac: trading AUD/JPY

 

Analysts at Westpac Institutional Bank believe that Chinese authorities wouldn’t have widened yuan’s trading range unless they expected national economy to recover in the second half of the year.

 

The specialists say that in the longer Australian dollar will benefit from better economic situation in China as the 2 economies have close trading connections. In the near term, however, Aussie’s rate will depend more on the RBA’s monetary policy.

 

Westpac expects Australian central bank to cut borrowing costs in May, so AUD will get under negative pressure. According to the analysts, one should sell AUD/JPY around 83.50 targeting 81.20 (200-day MA) and stopping at 84.60 as Japanese yen will enjoy safe haven demand as a refuge from European woes.

 

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Barclays Capital: bullish view on AUD/USD

 

Analysts at Barclays Capital expect Australian dollar to strengthen versus its New Zealand’s counterpart.

 

The specialists draw investors’ attention to relative commodity price performance in recent weeks and the fact that Australia will benefit more from growth in the US and China.

 

In addition, BarCap thinks that the market is already pricing in a 90% probability of a 25-bp RBA rate cut on 1 May and an aggressive 80bp of cuts by year-end.

 

From the technical point of view, Aussie’s advance above $1.2670 will make the pair AUD/NZD rise to $1.2725 and $1.2765/70 on the short squeeze.

 

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USD/CAD plummets after BoC statement

 

The USD/CAD reached a 2-week low after the Bank of Canada announced the overnight rate remains at 1.0%, but said in its statement that easy monetary policy may be coming to an end. The central bank expects the Canada’s economy to grow by 2.4% in both 2012 and 2013.

 

"In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the BoC said.

 

USD/CAD plummeted to C$0.9889, with the support at C$0.9867 (low Mar.20) and C$0.9859 (low Mar.19). The resistance lies at C$0.9958 (prior intraday support), C$1.0031 (high Apr.16) and C$1.0051 (high Apr.11).

 

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Yen’s declining: reasons and technical comments

 

Japanese yen eased down versus its main counterparts. The pair USD/JPY rose from Monday’s minimum at 80.28 to 81.40 today.

 

Among the reasons of such move we may cite:

 

- Risk appetite improved due to positive news seen yesterday: high earning from companies such as Coca-Cola, Spain's successful debt auction and unexpectedly strong German investor confidence;

- The IMF raised yesterday 2012 and 2013 forecast of global economic growth from 3.3% and 4% to 3.5% and 4.1%.

- S&P 500 gained 1.5% and MSCI Asia Pacific Index of shares added 1.2%,

- US jobless claims may have declined from 380K to 370K (data released tomorrow at 12:30 GMT);

- Nikkei newspaper: the Bank of Japan may increase its 2012 core inflation forecasts from 0.1% to 0-0.5%. The BOJ is expected to announce additional monetary on April 27, while the Fed may refrain from the hints on more easing.

- Japan’s trade balance (released on Thursday) may have switched to deficit in March after a small surplus in February.

 

RBS thinks that there will be “some strength in a range of currencies against the yen.” Union Bank NA warns, however, that “if nothing is announced, USD/JPY is more likely to drop below 80.”

 

Wells Fargo claims that the technical outlook for the pair is bullish (20-day MA above 50-day MA). Resistance is found at 83.30 yen (April maximum) and 84.18 yen (March maximum).

 

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GBP: watch MPC Meeting Minutes

 

On Wednesday the Bank of England will publish the minutes of MPC meeting, held on April, 5, when the policymakers agreed to leave its QE program 325 billion pounds. The previous minutes released on March 21 showed two policymakers still think additional QE is required.

 

The March consumer price index (CPI) rose in line with expectations by 3.5% after increasing 3.4% the previous month, reducing concerns on further QE.

 

BNP Paribas: The surprisingly dovish minutes put the GBP in harm’s way. The April minutes may highlight a different tune.

 

Societe Generale: As UK economic data have been a bit less worrying of late, the need for further QE may have lessened. Any low vote in favor of further QE would be GBP-positive versus AUD.

 

Bank of America: The pound needs to climb above $1.5986 (the right shoulder of the so-called head-and-shoulders pattern) to invalidate further weakness.

 

Analysts at BMO Capital believe that if today’s data come out more dovish, the sterling will weaken. In this case analysts recommend selling the cable with a stop at $1.6025 and a target of $1.5650.

 

Today also watch out for important labor market data: the claimant count (forecast 6.6K in March vs. 7.2K in Feb.) and the unemployment rate (expected to remain at 8.4%).

 

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RBS reduced forecasts for AUD/USD

 

Analysts at RBS reduced forecasts for Australian dollar versus the greenback for Q2, Q3 and Q4 from $1.05 to $1.02, from $1.08 to $1.05 and from $1.10 to $1.08.

 

The specialists explained the revision by the fact that strong Aussie has a negative impact on the nation’s economy causing political and economic uncertainty. Australia may face in the near future declining trade volumes, increasing budget deficit and the possibility of shrinking capital expenses.

 

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The IMF: Australia's in the forefront

 

According to the International Monetary Fund (IMF), Australia has the strongest economy in the developed world is expected to outperform the other countries for at least the next two years.

 

The IMF also forecasts the Australia's unemployment rate to remain low at 5.2% in both 2012 and 2013.

 

Australia’s economy is expected to grow by 3% this year on the back of easing economic woes in Europe and the U.S. However, the economy may be hurt in case if tensions in the Middle-East lead to new commodity price hikes.

 

"The IMF's confirmation of Australia's strong economic fundamentals - with solid growth and low unemployment - further underscores the importance of returning the budget to surplus, and giving the Reserve Bank maximum flexibility to cut interest rates if it considers that is necessary," the deputy prime minister of Australia Wayne Swan said.

 

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Photo by Robyn Mackenzie

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Sterling’s supported by positive data

 

So, MPC meeting minutes is releases. The vote to keep the benchmark rate unchanged at 0.5% was, as expected, unanimous.

 

As for the Asset Purchase program, only David Miles called for its increase from 325 to 350 billion pounds, while Adam Posen who voted for more easing last month has changed his mind.

 

Also note that British unemployment rate fell from 8.4% in January to 8.3% in February. The claimant count change (change in the number of people claiming unemployment-related benefits) dropped from 4.5 in February to 3.6K in March.

 

The pair GBP/USD managed to climb to $1.5990 on the news and is now testing resistance in this area. Bulls will also face resistance at $1.6015 (upper Bollinger) and $1.6063 (April 2 maximum). Support lies at $1.5842 (200-day MA). Note that the 55-day MA approached the 200-day one and may cross it bottom-up – positive signal.

 

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Germany sells 2-years with record low yield

 

Germany sold today 4.206 billion euro in 2-year bonds out of the 5.0 billion euro target. Average yield was at record low of 0.14% from previous 0.31%.

 

Rabobank: “Investor demand for core paper remains firm with the background threat of crisis tensions ratcheting yet higher underpinning an overriding desire for capital preservation”.

 

Investors were watching the sale with great attention after the unsuccessful launch of a new 10-year German bond last week.

 

In secondary markets German yields remain very low as the nation’s debt is still perceived as a refuge

 

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Photo by Markus Schreiber/AP

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EUR/CHF: Will the SNB rise the 1.20 floor?

 

Swiss ZEW economic expectations index released today indicates optimism (2.1 in March vs. 0.0 in Feb.). Due to this month’s unexpected improvement some analysts expect franc to strengthen. Moreover, franc may remain “safe haven” from Europe’s debt woes which have resurfaced: demand for Swiss assets remains high even despite the negative 6-month bill yield. HSBC thinks, for example, that all attempts of the SNB to weaken the Swiss franc won’t work.

 

On the previous SNB meetings, Swiss policymakers disappointed the market by not raising the EUR/CHF floor from the current boundary of 1.20, provoking a steep appreciation of the franc to this level.

 

Analysts at UBS claim that if EUR/CHF does test 1.20 again, stronger intervention by the SNB would be welcomed by the investors who remain nervous of a broader decline through the figure. Market expects the floor to be lifted to 1.25 francs at least.

 

EUR/CHF strengthened today to 1.2029 (above the Ichimoku cloud on the H4 chart).

 

Watch the release of Swiss trade balance for March on April 24. Trade surplus increased from 1.5 billion francs in January to 2.68 billion francs in February.

 

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Commerzbank: USD/CAD technical

 

The pair USD/CAD is trading almost unchanged from today’s opening price.

 

Analysts at Commerzbank think that “Tuesday’s sharp drop to 0.9864 looks to be impulsive, however, thus increasing the odds of support at 0.9841 (March 1 minimum) giving way within the weeks ahead, provided, of course that 1.0052 (April 11 maximum) continues to cap”. The specialists claim that if USD/CAD closes below 0.9842, it will slide to 0.9786 and then 0.9726.

 

If the pair closes the day above 1.0052, it will be able to start rising to 2011-12 resistance line at 1.0161.

 

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USD/CHF: technical comments

 

The currency pair USD/CHF is moving sideways since the beginning of January, creating a triangle. The cross is clamped between the 50- and 100-day MAs. Moreover, on a daily Ichimoku chart Kijun-sen and Tenkan-sen are lying horizontally in the Cloud, also pointing at a flat market. The trend may be breached both on the upside and on the downside. Breakthrough the levels 0.9330 и 0.8930 will confirm the reversal.

 

The pair USD/CHF climbed to 0.9197 today, finding the nearest resistance at 0.9229 (100-day MA), 0.9251 (high Apr.16) and 0.9254 (high Mar.16). Support lies at 0.9120 (21-day MA), 0.9092 (low Apr.13) and 0.9050 (hourly high Apr.3).

 

As for the news, Thomas Jordan was named as permanent president of the Swiss Central Bank today. He became interim SNB chairman on Jan. 9 when his predecessor Philipp Hildebrand resigned after a trading scandal involving his wife.

 

Swiss ZEW economic expectations index released today indicates optimism (2.1 in March vs. 0.0 in Feb.).

 

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Yen down on BOJ comments

 

The yen weakened today against most of its peers on the back of the Bank of Japan’s officials “dovish” comments and the unexpectedly wide trade deficit.

 

On Wednesday the BOJ Governor Masaaki Shirakawa said in the central bank is “committed” to adding monetary stimulus. Deputy Governor Kiyohiko Nishimura confirmed that the bank is ready to implement additional easing if necessary. The next BOJ meeting will be held on April, 27.

 

Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted 223.2 billion yen deficit.

 

Mitsubishi UFJ: Markets are pricing in additional easing by the BOJ. A trade deficit is a negative catalyst for the yen.

 

The USD/JPY is strengthening for the third consecutive day and climbed to 81.51 yen, after reaching 81.57 yesterday, the highest level since April 10. The EUR/JPY rose to 106.92 yen today.

 

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Wells Fargo: bearish outlook on EUR/USD

 

According to analysts at Wells Fargo, the euro will reach 1.24 against the dollar by early 2013, and continue slipping to 1.22 from there.

In their view, the debt problems are flourishing and economic activity in the region remains weak. Analysts expect the ECB to cut rates to stimulate the economy.

Moreover, Wells Fargo analysts note that the technical forecast on EUR/USD also remains bearish (20-day MA lies below the 50-day MA).

 

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Commerzbank: trading EUR/GBP

 

Analysts at Commerzbank are bearish on EUR/GBP in the long term and recommend entering the trade at current levels with a stop at 0.8277 (April high) and targeting at 0.8067 (2010 low).

 

On Wednesday the cross closed the day below 0.8221 (Jan. 9 low), reaching a new 20-month low. According to analysts, the market is viewed as having recently broken down from a 3 month consolidation.

 

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BMO: trading EUR/USD on Spain's woes

 

Spain issues as much as 2.5 billion euros in 2- and 10-year government bonds on Thursday, trying to cut budget deficit. The country struggles to prove its ability to finance itself without begging for external financial support.

 

On Wednesday Spanish 10-year yields were down 1.8 b.p. to 5.89%. However, the investors are getting nervous again ahead of the auction.

 

According to analysts at BMO Capital, the EUR/USD is creating lower highs and lower lows. If the euro becomes weaker against the greenback after the auction, strategists recommend entering the trade right around $1.3130 with a stop at $1.3230 and targeting at $1.2850 or $1.2830.

 

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Key options expiring today

 

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).

 

EUR/USD: $1.3025, $1.3070, $1.3100, $1.3210 (large);

EUR/JPY: 106.25;

USD/JPY: 81.00, 81.15, 81.25, 81.50;

GBP/USD: $1.5960, $1.5990, $1.6000;

EUR/GBP: 0.8175, 0.8200;

AUD/USD: $1.0300, $1.0415, $1.0435, $1.0450;

USD/CHF: 0.9150.

 

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Photo Reuters

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EUR/USD: economic news and comments

 

Spain and France conducted bond auctions today. Spain sold 2.54 billion euro in 2- and 10-year bonds slightly exceeding the planned volume. Borrowing costs rose as the nation’s struggling to meet deficit targets. France borrowed 8 billion euro ($10.5 billion).

 

The yields were higher due to the risks associated with approaching French presidential election.

 

The 10-year spread between Spanish, French, Italian bonds and German ones widened as the effects of the LTRO conducted by the ECB is fading.

 

In the US jobless claims also posted the reading higher than expected: 386K vs. the forecast of 370K for the week to April 14. Earnings reports were more optimistic: Bank of America reported first-quarter earnings that beat expectations as well as Travelers and Verizon Communications.

 

EUR/USD keeps trading in range between $1.3030 and $1.3210, within which it settled after the slide from $1.3380/3250 in early April.

 

Analysts at UBS are bearish on the single currency. In their view, support for the pair lies in the $1.2974/54 zone (below these levels bearish momentum will increase), while resistance is situated at $1.3213.

 

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Standard Chartered: on ECB and the Fed’s rates

 

The baseline scenario of analysts at Standard Chartered is that the European Central Bank will remain on hold until the first quarter of 2014. The specialists say that if the ECB does decide to cut one more time, it will reduce borrowing costs by 25 bps by the end of June and then remain on hold for the rest of this year and in 2013.

 

As for the United States, the bank expects disappointing data. “Weak income growth in Q1 should result in disappointing consumer spending data in Q2 which will weigh on growth. Real earnings were up just 0.2% m/m in January and February, and the increase seen in total earnings growth has been as a result of an increase in the number of people working and hours worked, rather than actual wages. There is little evidence of consumer spending being fuelled by credit growth. The decline in core durable goods reinforces the idea that the business community is reluctant to make additional capital investment.” Economists think that the Fed to announce further QE by the end of the second quarter.

 

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Image from theglobeandmail.com

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Danske Bank, MIG Bank: buy GBP/JPY

 

Analysts at Danske Bank recommend buying British pound versus Japanese yen as the British and Japanese central banks have 2 different approaches to monetary policy: while the Bank of Japan keeps trying to weaken the national currency, the latest minutes of the Bank of England suggest that the policymakers are moving away from further easing as UK economy is performing better than expected.

 

In addition, there are many comments from the BOJ official which are weighting yen. One should also mention that Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted deficit of 223.2 billion yen.

 

The technical picture for GBP/JPY is also optimistic enough. The pair bounced up from bullish Ichimoku Cloud and the 38.2% Fibonacci retracement from this year’s advance aiming at resistance around 133.30 yen (maximums of April 2, March 27 and 22).

 

Analysts at MIG Bank say that if sterling gets above 133.49 yen, it will be able to follow an uptrend to 160.00 yen. The specialists say that on the downside, below 126.55, GBP/JPY will risk declining to 121.69 and 120 yen (psychological level).

 

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Economic events to watch today

 

Data to watch today:

 

• Europe: April German Ifo Business Climate index is forecasted to decrease to 109.6 from 109.8 in March.

 

In addition, there will be the annual spring meeting of the International Monetary Fund/World Bank (through April 22) and the extended deadline for some Greek foreign-law bond holdouts (to tender their bonds and for second leg of debt-restructuring accord).

 

The pair EUR/USD remains in range between $1.3050 and $1.3200. There are stops below and above these levels.

 

• Britain: March retail sales data is expected to show an appreciable 0.4% growth after suffering a sharp decline in February. Retail sales volumes fell 0.8% in February after rising 0.3% in January and 0.7% in December. “If March retail sales do see significant growth, it will significantly boost the likelihood that overall consumer spending was positive in the first quarter and helped the overall economy return to growth after GDP contracted by 0.3% quarter-on-quarter in the fourth quarter of 2011”, analysts at IHS Global Insight say.

 

The pair GBP/USD is rising for the fifths day in a row. Yesterday sterling reached the maximal level since November 2011 at $1.6078.

 

• Canada: the growth pace of Core CPI may decline from 0.4% in February to 0.3% in March. The nation’s annualized headline inflation rate is expected to drop to 2.0% in March from 2.6% in February. The data will provide more information about inflationary pressures in the country's economy, and could help justify the recent hawkish tone from the Bank of Canada.

 

The pair USD/CAD keeps trading between 0.9845 and 1.0050 within staying in this range since the end of January.

 

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Image from http://cold-fusion.ca

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USD/JPY weak ahead of BoJ meeting

 

The yen keeps weakening against most of its peers on the back of yesterdays BoJ officials’ “dovish” comments and the unexpectedly wide trade deficit.

 

On Wednesday the BOJ Governor Masaaki Shirakawa said in the central bank is “committed” to adding monetary stimulus. Deputy Governor Kiyohiko Nishimura confirmed that the bank is ready to implement additional easing if necessary. The next BOJ meeting will be held on April, 27.

 

Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted 223.2 billion yen deficit.

Mitsubishi UFJ: Markets are pricing in additional easing by the BOJ. A trade deficit is a negative catalyst for the yen.

 

The USD/JPY trades in the 81.57 area above the daily Ichimoku cloud. The traders see resistance at 81.87 (21-day MA) and at 82.24 (Kijun-sen). A strong impulse may cause a break through 83.30 (high April 2). Support lies at 80.10 (Ichimoku cloud bottom), 79.84, 79.21 and 78.98. The cross strengthened 0.9% this week.

 

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EUR/USD: analyzing today’s trade

 

German PPI rose by 0.6% in March vs. the forecast of 0.5%. The market’s now waiting for April German Ifo Business Climate index which is forecasted to decrease to 109.6 from 109.8 in March.

 

The single currency didn’t show significant advance on the news as traders were selling “on facts”. As technical indicators remain slightly bullish one may do buying on the dips today, though no strong growth of EUR/USD is expected. It seems wise to take profit on the pair’s advance to $1.3225.

 

ING Groep: if euro closes above resistance 50-day MA, it will be able to rise to $1.3265 (longer-term downtrend line). MACD (moving average convergence/divergence) rose above the signal line hinting on the possibility of euro’s advance. Support for the European currency is provided by the 100-day MA at $1.3120.

 

Danske Bank: buy EUR/USD in the $1.3097 area targeting $1.3213 and stopping at $1.3024.

 

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Analysts: trading GBP/USD

 

According to Commerzbank analysts, the pair GBP/USD is unlikely to close the day above $1.6062/67 resistance, despite the intraday breach. The further resistance is seen at $1.6077 (high April 19), from where the cross would target $1.6170 (high Oct. 2011 and 61.8% Fib. of the 2011-2012 move). In their view, support lies at $1.5856 (low April 17), $1.5844 (55 – and 200-day MAs intersection), $1.5600 (March low) and $1.5412 (78.6% retracement seen this year).

 

However, analysts at Societe Generale expect the sterling to strengthen against the greenback. They recommend entering the trade at $1.6000 with a stop at $1.5800 and a target of $1.6500.

 

Britain’s monthly retail sales data in March grew by 1.8% vs. forecasted 0.4% growth and 0.8% decline in February.

 

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