Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

May 25: economic background

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/rus.jpg

 

EUR/USD fell by 2.5% this week amid the renewed concerns about Greece. New round of risk aversion weighs on the high-yielding currencies and supports the US dollar as a “safe haven”: AUD/USD dropped by 0.7%, NZD/USD declined by 0.3% and USD/CAD grew by 0.4%. GBP/USD went down by 0.9% on concerns that Britain’s monetary policy may become more “dovish”. USD/JPY strengthened by 0.6% despite the overall trend remains downward. USD/CHF added 1.6% this week.

 

Italian Prime Minister Mario Monti claimed yesterday that the majority of EU leaders approved the idea of common euro-area bonds at this week’s summit and that and Italy can help persuade Germany which is currently against this proposal. From the first sight Monti’s comments look inspiring, but Luxembourg Prime Minister Jean-Claude Juncker said quite the opposite thing after the meeting: joint Eurobonds didn’t find much support. To describe the situation we need one word – uncertainty.

 

German Gfk consumer climate released today came unchanged this month at 5.7 in line with forecasts. Consumer views on economic conditions remain stable. The same can’t be said about business climate and activity – remember poor data released yesterday.

 

Japanese National Core CPI rose by 0.2% in March – still below 1% target set by the Bank of Japan. That means that deflation risks remain and more QE is likely. That’s confirmed by Tokyo CPI which contracted in April by 0.8% (vs. -0.6% expected and -0.5% in March). Yen weaken against US dollar after the release.

 

Asian stocks fell – MSCI Asia Pacific Index lost 0.5%. There was an earthquake in New Zealand, but with no damage reported market’s reaction wasn’t strong.

 

There are no major news releases today. For more information consult FBS economic calendar.

 

 

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[fallenDC]

EUR/USD: what’s next?

 

The single currency hit 2-year minimum this week on the concerns that Greece may leave the euro area – how long the bears have been waiting for this to happen! What’s next?

 

After the parliamentary elections the indebted country is closer to the exit from the euro zone than ever before. The uncertainty is likely to dominate the market before the new elections on June 17. In the beginning of the week market participants looked to the EU summit; however, on Wednesday EU leaders didn’t reach any agreement on the question of Eurobonds. Nevertheless, they underlined that they want Greece to stay in the euro zone. On Thursday euro zone released a bunch of negative PMI data.

 

Analysts at BBH underline that the market sentiment is still very fragile. In the longer term EUR/USD needs improvement of the euro zone’s economic figures. In the short term, however, there’s room for correction on short covering. Bank of Tokyo-Mitsubishi UFJ also look forward to some consolidation in the $1.25 area.

 

Analysts at Scotia Capital note that euro’s RSI is at 21, so the currency is oversold and may temporarily recover, especially as markets have already priced in much of the negative scenario for Greece. The specialists underline that they don’t believe that EUR/USD may show any sustained advance. The bank sees the pair ending 2012 at $1.25 expecting no collapse of the European currency.

 

Despite this talk about some retracement higher, analysts do think that EUR/USD will breach $1.2500 (option barrier) and start descending to $1.1875 (June 2010 minimum). Societe Generale proposes to go short at $1.2600 stopping at $1.2750 and targeting $1.2100.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/weekly_eurusd_11-19.gif

 

Chart. Weekly EUR/USD

 

 

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[fallenDC]

AUD and NZD retreated from 6-month lows

 

Australian and New Zealand’s dollars which have been rapidly falling against the greenback this month due to the market’s risk aversion are recovering versus their US counterpart for the second day.

 

AUD/USD hit this week 6-month minimum at $0.9690 losing 6.2% in May. Support for the pair lies at $0.9663 (November minimum). Resistance for Aussie is found at $0.9814 (yesterday’s maximum) and $0.9850 (the 10-day MA).

 

AUD was helped by advance of commodities and stocks

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/daily_audusd_13-30.gif

 

Chart. Daily AUD/USD

 

 

NZD/USD hit this week 6-month minimum at $0.7458 losing 8% in May. Support for the pair lies at $0.7460 (May 23 minimum) and $0.7369 (November minimum). Resistance for kiwi is found at $0.7574 (yesterday’s maximum).

 

Many analysts claim that NZD’s rising as it has been oversold so far. Another positive factor is that Moody’s Investors Service reaffirmed the nation’s AAA credit rating.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/daily_nzdusd_13-31.gif

 

Chart. Daily NZD/USD

 

At the same time, note that Australian and New Zealand’s will likely remain under pressure due to the European uncertainty.

 

 

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[fallenDC]

USD/JPY: technical comments

 

USD/JPY weakens on Friday and has already managed to offset yesterday’s growth. On Wednesday the pair tested the key 80.00 resistance, but then started sliding. After a three-month rally (Jan-March) the cross trades in a downward channel.

 

However, according to analysts at Commerzbank, the further USD/JPY rally can’t be ruled out. Break through the 80.00 resistance could let the pair grow to 80.60 in a near-term. Specialists at RBS recommend going long on USD/JPY at current levels with a stop at 77.90 and a target at 84.00.

 

As can be seen from the H4 chart, now USD/JPY stays below the downward 200, 100 and 55 MAs, indicating bearish market sentiment. Weekly close below 80.00 will extend the chances for a further downtrend.

 

Support:

79.33 (May 25 low);

79.20 (61.8% Fibonacci retracement from a Jan – March rally);

79.00 (May 18 low);

78.50 (200-day MA).

 

Resistance:

79.81 (today’s high);

80.00 (psychological);

80.13 (50% Fibonacci retracement);

80.60 (neckline of a head-and-shoulders pattern).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/daily_usdjpy_25.05_13.56.gif

 

Chart. Daily USD/JPY.

 

 

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[fallenDC]

Danske Bank: reasons for CHF decline

 

EUR/CHF rocketed yesterday to 1.2075 Swiss francs after trading in a tight sideways channel since early April. What were the reasons for such an unexpected depreciation of a Swiss franc?

 

According to analysts at Danske Bank, the cross went up due to unconfirmed data that the SNB might introduce a tax on deposits in order to make the Swiss currency less attractive for the investors. However, some analysts believe in the likeliness of an intervention by the Swiss National bank. The SNB refused to comment the first speculation and denied the second.

 

On Friday the EUR/CHF cross returned to its comfort zone around 1.2015, but is still a little bit higher than it was during the last weeks. Analysts at Danske Bank believe the spike has provided some breathing room for the franc, which has been pressed up against the EUR/CHF floor at 1.20 set by the SNB. Specialists doubt that the lift of the threshold is likely to happen in the near-term.

 

Support for the pair lies at 1.2008, 1.2007 (21-day MA), 1.2000 (SNB Target Sep.6) and 1.1990 (Apr.5 minimum), while resistance – at 1.2075 (May 25 maximum), 1.2081 (Mar.16 maximum), 1.2100 (psychological) and 1.2108 (200-day MA).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/daily_eurchf_25.05_16.09.gif

 

Chart. Daily EUR/CHF

 

 

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[fallenDC]

Nomura: euro’s doomed for decline

 

Analysts at Nomura are rather pessimistic about the prospects of the euro area and single currency. The bank expects a “decisive moment” for Europe in the second or third quarter of 2012.

 

In their view, the pair EUR/USD risks hitting $1.20 in case of Greek exit scenario which, in their opinion, looks quite likely now. The analysts warn that euro may slide to the level mentioned above even before Greek elections on June 17. The markets concerns escalate and the methods the ECB (when the situation gets worse – and it will – the central bank will have to start QE taking sovereign debt assets away from the banks in order to cleanse their exposures to troubled sovereigns; Nomura doesn’t believe in the success of other suggestions such as another LTRO or Eurobonds) will take to solve it will make euro sink fast.

 

In addition, Nomura draws attention of its clients to the capital outflows from Europe: European investors have significantly increased their demand for foreign assets so far.

According to Nomura, even if pro-bailout parties successfully take control of the Greek government, the ability of EUR/USD to strengthen will be limited: even $1.30 seems unlikely.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/weekly_eurusd_18-04.gif

 

Chart. Weekly EUR/USD

 

 

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[fallenDC]

EUR is up on Greek polls

 

The single currency opened with a gap up versus the greenback after setting new 2-year minimum at $1.2495 on Friday. Today EUR/USD managed to strengthen to $1.2600.

 

The market’s sentiment improved as the polls showed that the pro-bailout party (New Democracy) in Greece was 5.7 percentage points over Syriza, the main opposition force to the bailout ahead of the second elections due on June 17.

 

According to data from CFTC (Commodity Futures Trading Commission), the number of shorts on EUR/USD reached the highest level since 1999 of 195K. That means that speculators may trim short positions on any sighs that Greek political situations improved.

 

The uncertainty, however, remains high, so the baseline scenario is still for euro to slide to $1.20.

 

Resistance: $1.2620 (May 24 maximum), $1.2820 (May 22 maximum).

 

Support: $1.2495 (May 25 minimum), $1.2483 and $1.2442.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/25_05_12/daily_eurusd_11-03.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

BOTMUFJ: bearish on EUR/JPY

 

The single currency maintained last week its bearish bias versus Japanese yen bottoming at 99.35.

 

Analysts at Bank of Tokyo-Mitsubishi UFJ are bearish on EUR/JPY.

 

The specialists point out that euro breached 76.4% Fibonacci retracement of its advance from the January minimum and March maximum in 100 yen area.

 

In their view, the pair may slide to 97.04 (January minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_eurjpy_11-56.gif

 

Chart. Daily EUR/JPY

 

 

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[fallenDC]

Westpac: advises for trading NFP

 

May Non-Farm Payrolls release is approaching (Friday, June 1, 12:30 p.m. GMT). The report will be especially closely watched taking into account weak US economic rebound.

 

Consensus forecast is +150K after +115K in April.

 

Analysts at Westpac say that if NFP exceeds 150K one should sell USD/CAD. If the readings come in around 115K or lower, the trade should be quite the opposite as the greenback will strengthen on its safe haven status.

 

The specialists think that the odds of the first outcome are higher. The bank underlines that manufacturing that usually precedes the payroll data will not be coming out, increasing the chances that forecasters will not be able to adjust for an upside shift. As a result, Westpac recommends selling USD/CAD at 1.0320, stopping 1.0450 and targeting 1.0075 (200-day MA). However, we would recommend you to be really careful out there as USD/CAD looks rather strong from the technical perspective.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_usdcad_12-27.gif

 

Chart. Daily USD/CAD

 

 

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[fallenDC]

Euro: is there any cope for rebound?

 

Bank of Tokyo-Mitsubishi UFJ insist that the fact that euro’s is now so oversold can provoke a rebound to $1.2640, $1.2680/85 and possibly to $1.2720 if the bulls manage to push EUR/USD above $1.2610. At the same time, the specialists can’t help admitting that the resolute progress is Europe is unlikely anytime soon. The recovery, if there is such, will certainly remain a correction. BOTMUFJ still see euro sliding to $1.28 by the end of Q2, to $1.25 – by the end of Q3, to $1.23 – by the year-end and to $1.18 by the end of Q1, 2013.

 

Nomura specialists underline that the overall economic weakness and political crisis ought to be enough to weigh on euro. The specialists warn that there’s evidence that euro zone investors are exiting themselves and buying other currencies such as US dollar. In their view, euro’s ability to rebound will be limited, so one better sell around $1.26 stopping at $1.2850 and looking for a move to $1.20.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_eurusd_13-14.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

May 28 - June 1: main events of the week

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/week_ahead.jpg

 

Monday, May 28 – Tuesday, May 29

 

Japan: According to analysts, Japan’s household spending in April may increase by 2.5% vs. a 3.4% growth in March. April retail sales are expected to grow by 6.2% after a 10.3% growth in March.

 

US: CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.

 

Euro zone: Italy holds a T-bill auction.

 

Wednesday, May 30

 

Australia: Seasonally adjusted retail sales growth may slow down to 0.2% in April after a 0.9% increase in March, indicating decreased consumer spending. Construction work done in Q1 is forecasted to grow by 3.1% after a 4.6% decline in Q4 (lowest since 2001).

 

Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.

 

Euro zone: Italy holds a 10-year bond auction; the previous bond auction, which was held a couple of weeks ago, went well, but the rate reached 5.66%. Later in the day ECB

 

President Mario Draghi will be speaking in Brussels with the potential for a hint toward the ECB's actions in front of the following week's rate decision.

 

US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March. U.S. holds a T-bill auction.

 

Thursday, May 31

 

New Zealand: NBNZ business confidence for May index is released (in April index reached 35.8). Most analysts expect the economic conditions to improve in May due to a surge in retail and services sectors. However, strong national currency keeps bugging exporters.

 

Australia: Building approvals in April to increase by 0.7% after a 7.4% growth in March. Private capital expenditure in Q1 may surge by 4.1% after a 0.3% contraction in Q4, indicating an improved economic health.

 

US: A bunch of important US data will be released. ADP estimate of US non-farm payrolls in May is expected to reach 139K after 119K in April. Preliminary GDP release is expected to show a 1.9% growth in Q1 compared with a 2.2% growth in Q4, indicating that the US economy is not strong enough to drive global growth on its own. Chicago PMI in May is forecasted to increase to 56.8 vs. 56.2 in April. A small decline in unemployment claims during the last week is expected (369K vs. 370K).

 

Euro zone: German retail sales in April are expected to increase by 0.2% after a 1.6% surge in March; number of unemployed people in April may decline by 7K. French consumer spending in April may grow by 0.3% after a sharp decline in March. Euro Area Flash Estimate of Annual Inflation in May is expected to decline slightly to 2.5%. If the inflation rate estimate will change direction and increase, it may lower the chances of the ECB interest rate to remain low. Ireland holds a referendum on EU fiscal compact. The vote is crucial as it determines a crossroad for Ireland: the ‘Yes’ vote to the treaty could bring economic progress and financial stability together with unavoidable austerity measures. The ‘No’ vote will enhance downward pressure on the common currency.

 

Friday, June 1

 

China: Manufacturing PMI is forecasted to drop to 52.1 in May from 53.3 in April (reading above 50 indicates industry expansion).

 

Switzerland: Retail sales growth may slow down to 3.6% compared with a 4.2% growth in April.

 

Great Britain: According to forecasts, manufacturing PMI will decrease to 49.7 in May from 50.5 in April, indicating industry contraction and augmenting concerns on the U.K. economic conditions. Great Britain holds a 10-year bond auction.

 

Canada: GDP in March is expected to grow by 0.3% after the Canadian economy unexpectedly contracted by 0.2% in February.

 

US: Analysts expect the U.S. non-farm payrolls to increase by 152K. However, in April the labor market didn’t fulfill expectations rising only by 115K, far below the 172K consensus forecast. The March unemployment rate is predicted to remain unchanged at 8.1%. The unemployment declined to 8.1% in April from 8.2% in March, despite lower NFP job gains. The ISM manufacturing PMI in May is expected to drop slightly to 54.1 compared with 54.8 in April. However, the Markit index showed a slide to 53.9 in May.

 

 

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[fallenDC]

Hopes for BOJ near-term easing are dashed

 

The greenback declined versus Japanese yen recoiling down from the downtrend resistance line. It happened as the minutes of the Bank of Japan’s April 27 meeting (when Asset Purchase Program was increased) ruined the speculation that the central bank will boost monetary easing.

 

The BOJ is carefully trying to tell markets that the large-scale stimulus measures in February and April were exceptional and won't be easily repeated. The central bank acted to decrease expectations of frequent easing, though as yen surged reacting at the news, so that Governor Masaaki Shirakawa had to emphasize that there was no change to the bank's powerful easing stance.

 

The Bank of Japan has to buy 20 trillion yen more of government bonds by June 2013. This month, however, Japanese monetary authorities failed to meet their asset-buying targets. This means that it may be difficult for the central bank to prop up the APP as often as earlier. In addition, even though the inflation goal of 1% is still far away (consumer prices added 0.2% in March y/y), the interest rates are already extremely low, while the markets are drowned with cash, so the odds are additional easing won’t be much of a help.

 

Analysts at Credit Suisse claim that the BOJ actions confuse the markets: “What markets want to hear is not what Shirakawa thinks is right but the BOJ's strong determination to beat deflation.”

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_usdjpy_14-41.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

Commerzbank: comments on EUR/USD

 

Here’s another piece of bearish comments about EUR/USD.

 

Technical analysts at Commerzbank point out that the single currency closed last week at below the 78.6% Fibonacci retracement of its move from June 2010 minimum to 2011 May maximum. The specialists also note that one may spot some divergence of the daily RSI. All this means that that there will be a decline after a slight rebound.

 

Resistance for EUR/USD is found at $1.2681 and $1.2796/1.2825 (interim maximum and Fibonacci retracement of advance from January minimums to February maximums). Support lies at $1.2490 and $1.2067 (55-month MA). In the longer term euro could target $1.1876 (2010 minimum) and $1.1641 (2005 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_eurusd_15-59.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

BBH: Aussie’s prospects may improve

 

Today Australian dollar bounced versus its US counterpart on improved risk sentiment.

 

Analysts at Brown Brothers Harriman claim that Australian dollar has poor prospects on the fundamental part as the markets remain all in all in the risk-aversion mode and expect more easing by the Reserve Bank of Australia.

 

At the same time, the specialists underline that AUD/USD didn’t breached support provided by November minimums in the 0.9660 area, although euro hit 2-year low an equities declined. If Aussie manages to hold for a while, the outlook for the pair will become better as some technical indicators may turn in its favor.

 

Resistance for AUD lies in the 0.9930 zone (May 22 maximum). There’s also resistance at 0.9875 (Ichimoku Cloud at H4 chart).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/28_05_2012/daily_audusd_17-37_(2).gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

May 29: currencies in focus

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/rus.jpg

 

Today’s trading day began with risk aversion. EUR/USD is testing $1.2500 on the downside staying close to 2-year minimum which was hit on Friday.

 

GBP/USD is consolidating in the $1.5630/5730 area after last week’s sharp decline.

 

AUD/USD dipped to 0.9800 as Australian markets fell, but then managed to return to 0.9860 during the Asian session.

 

USD/JPY edged a bit higher once again approaching downtrend resistance line. A bunch of important data was released early Tuesday in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).

 

CHF retains its strength despite the SNB’s President Thomas Jordan yesterday hinted at the possibility of introducing capital controls on foreign deposits, a measure which hasn't been used since the 1970s. This means that despite the threats of the nation’s monetary authorities traders still want to hold Swiss currency.

 

Events to watch:

 

Euro zone: Germany will announce key inflation results for May: experts anticipate 0.1% decline. Italy holds a T-bill auction (the market will be also awaiting Italian 10-year bond auction tomorrow).

 

Britain: CBI index of retail sales may fall from -6 in April to -7 in May.

 

US: Case-Shiller HPI is seen losing 2.7% in March (y/y). CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.

 

 

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[fallenDC]

Citigroup: trading GBP/AUD

 

Analysts at Citigroup recommend going long on the sterling against the Australian dollar. In their view, GBP/AUD may fall to A$1.53 (50% Fibonacci retracement from Feb. 15 - May 23 rally).

 

According to specialists, the Aussie is currently oversold due to risk aversion (last week number of short positions on AUD/USD reached its maximum since September 2008). Analysts underline that before the selloff, started on May 23, market participants went long, but now the situation seems to change.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/daily_gbpaud_29.05_11.01.gif

 

Chart. Daily GBP/AUD

 

 

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[fallenDC]

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).

 

Here are the key options expiring today:

 

EUR/USD: $1.2500 (large), $1.2550, $1.2625, $1.2630, $1.2650, $1.2700;

USD/JPY: 79.00, 79.25, 79.30, 80.00, 81.00;

EUR/GBP: 0.8000;

AUD/USD: 0.9860, 0.9865, 0.9875, 0.9900, 0.9950;

USD/CAD: 1.0230.

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/2012-04-06t134030z_3_cbre83418ap00_rtroptp_3_business-us-markets-stocks.photoblog500.jpg

 

Photo from Reuters

 

 

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[fallenDC]

Standard Chartered lowered forecast for EUR

 

Economists at Standard Chartered claim that Greece is now more likely to leave the euro area than to stay in it. In their view, that means that the current recession in Europe may deepen.

 

Such assumptions made the specialists revise down their forecasts for EUR/USD by the year-end from $1.32 to $1.18. According to the bank, euro will hit this mark if Greece is the only nation to leave the currency bloc. If other problem nations depart, the single currency may slump to $1.08 by the end of 2012.

 

At the same time, Standard Chartered still believes that the latter won’t happen as the European Central Bank and other member countries will come up with an effective firewall to stop the contagion after Greece quits euro. The analysts think that the ECB would respond to a Greek exit through significant monetary easing, so euro will surely keep depreciating.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/weekly_eurusd_12-36.gif

 

Chart. Weekly EUR/USD

 

 

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[fallenDC]

GBP/JPY may keep declining

 

Technical analysts at Gaitame.com Research Institute expect British pound to lose more versus Japanese yen.

 

The specialists point out that GBP/JPY is now hovering right above 200-day MA in the 124.20 area.

 

If sterling breaches this support, the pair will drift down to 123.48 (61.8% Fibonacci retracement of the advance from January 13 minimum to March 21 maximum) and 122.77 (December 22 maximum).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/daily_gbpjpy_13-23.gif

 

Chart. Daily GBP/JPY

 

 

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[fallenDC]

Markets keep choosing US dollar

 

The greenback has risen against its 16 major counterparts from last year low in July. These days CDS on the U.S. debt are trading less than 100 b.p., indicating the risk is close to zero. The greenback remains resilient even despite the two rounds of quantitative easing, launched by the Fed between December 2008 and June 2011.

 

However, the main driver for the U.S. dollar’s strength is the sharp decline of the single currency. The resumed uncertainty in the euro zone saps the demand for euro-denominated debt on account of the low quality of the assets. Moreover, the need of the financial institutions to comply with Basel III standards also supports the greenback.

 

In the last quarter of 2011 the dollars share in the global foreign-exchange reserves surged to 62% (maximum since June 2010). According to analysts, euro may rebound before June 17 (Greek elections), because these days it is strongly oversold. However, in a longer period EUR/USD is expected to resume the downtrend.

 

http://static3.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/cofer_dollars.png

 

Chart. Allocated foreign exchange reserves in US dollars

 

 

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[fallenDC]

RBS: trading GBP/USD

 

Analysts at RBS recommend going long on GBP/USD targeting at $1.5820/1.5929 and with a stop at $1.5606.

 

In their view, the downtrend of the cable has definitely slowed down. According to specialists, it’s too early to tell the trend has become bullish, because the signs of improvement are too modest. However, a close above $1.5674 (current level and a 5-day МА) would indicate a trend reversal.

 

Support:

1.5666 (38.2% Fibonacci retracement from a Jan.-Feb. rally);

1.5606 (March minimum);

1.5580 (50% Fibonacci retracement);

1.5504 (61.8% Fibonacci retracement).

 

Resistance:

1.5767 (23.6% Fibonacci retracement);

1.5820 (strong March support);

1.6000 (psychological).

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/daily_gbpusd_29.05_15.55.gif

 

Chart. Daily GBP/USD

 

 

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[fallenDC]

USD/JPY: technical comments

 

The USD/JPY cross keeps trading on a downside despite the fact that today it edged a bit higher once again. Analysts at Standard Chartered expect USD/JPY to stay between 79.00 and 81.00 yen until the risk sentiment improves. In their view, the pair may rise to 83.00 yen on positive Greek vote results, improved U.S. economic data and a monetary policy easing from Bank of Japan. Strategists at UBS opine the Bank may intervene if USD/JPY falls below 78.00.

 

Support:

79.35 (May 24 minimum);

79.21 (May 23 minimum);

79.16 (61.8% Fibonacci retracement from Jan. – Feb. rally);

79.06 (May 21 minimum).

 

Resistance:

79.83 (May 25 maximum);

80.08 (May 23 maximum);

80.15 (May 22 maximum).

 

Early Tuesday a bunch of important data was released in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).

 

Later this week watch for Japan’s data releases:

• Wednesday: manufacturing PMI; BoJ Governor M.Shirakawa speaks

• Thursday: preliminary industrial production; housing starts

• Friday: capital spending

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/daily_usdjpy_29.05_17.21.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

May 30: economic background

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/30_05_12/rus.jpg

 

The pair EUR/USD has once again renewed 2-year minimum versus the greenback and tested today the levels below $1.2500. The market’s focus has slightly shifted from Greece to Spain.

 

The Financial Times reported citing unidentified officials that the ECB rejected the plan of Spanish government to recapitalize BFA-Bankia, the nation’s third- biggest lender, which has been nationalized earlier this month through an injection of treasury debt instead of cash. Spanish 10-year bond yields rose yesterday to the maximal level since November getting close to the critical level of 7%.

 

Risk sentiment was also affected by the fact that Chinese authorities have no plan to introduce large-scale stimulus measures to support growth. AUD/USD dipped below $0.9800. Aussie was also hurt by discouraging retail sales data (-0.2% m/m in April). USD/JPY is little changed for the second day trading just under downtrend resistance line.

 

Events to watch today:

 

Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.

 

Euro zone: Italy holds a 10-year bond auction. The previous one, which took place a couple of weeks ago, went well, but the interest rate reached 5.66%. Later in the day ECB President Mario Draghi will be speaking in Brussels and may unveil the central bank's position ahead of the rate decision next week.

 

US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March.

 

 

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[fallenDC]

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).

 

Here are the key options expiring today:

 

EUR/USD: $1.2450, $1.2475, $1.2600, $1.2675 and $1.2700;

USD/JPY: 79.50 and 80.00;

EUR/JPY: 100.00;

AUD/USD: $0.9705 and $0.9800;

GBP/USD: $1.5650, $1.5735 and $1.5800;

EUR/GBP: 0.8000;

USD/CAD: 1.0200.

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/29_05_12/2012-04-06t134030z_3_cbre83418ap00_rtroptp_3_business-us-markets-stocks.photoblog500.jpg

 

Photo by Reuters

 

 

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[fallenDC]

Gloomy days for the euro area

 

The fundamentals for the single currency remain bad and the majority of experts see EUR/USD declining to $1.20 or even to the parity level. For example, Commerzbank targets 55-month MA at $1.2067.

 

Euro tries to edge up this week as the Greece's pro-bailout parties regained an opinion poll lead ahead of the elections on June 17, but failed to overcome resistance at $1.2625 (January minimums) showing that the bulls are extremely weak. More negative news added to the poor sentiment such as the problems with Spanish banks recapitalization and the nation’s downgrade by Egan-Jones Ratings.

 

Some specialists say that there may be some positive developments at EU summit on June 13, just a few days ahead of the Greek elections, as the European authorities will feel the need to something to persuade Greeks say ‘yes’. Most Greeks want to see the terms of an international financial rescue revised even as they acknowledge that not abiding by austerity measures required for the funds may lead to the country leaving the euro area.

 

Societe Generale notes that the situation in Greece is already terrible: unemployment reached 21.7%, while GDP is contracting by 7.7%. The biggest Greek lender NBG claims that is the nation leaves the currency union, its GDP will contract by at least 22%, jobless rate – rise to 34%, inflation – climb to 32% and lending rates – surge to 37% with new drachma devalued by around 65%.

 

In the nearer term the markets will be looking at ECB’s meeting next week. Analysts at Standard Chartered claim that the central bank to cut its benchmark rate one more time by 25 bps to 0.75% in Q3 before going on hold.

 

http://static1.fbs.com/sites/default/files/image/analysis/May2012/30_05_12/daily_eurusd_30-05.gif

 

Chart. Weekly EUR/USD

 

 

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