Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

Analysts expect RBA to cut rates tomorrow

 

Expectations for a rate cut changed dramatically in the past month from just two economists forecasting a cut until a few days back.

 

The latest Reuters poll shows that the majority of experts (60%) expect the Reserve Bank of Australia to cut interest rates tomorrow. Wall Street Journal survey shows that 10 of 20 economists expect 25 bps cut, 6 expect a 50 bps cut, and 4 expect no change.

 

Many economists have adjusted their forecast after the weak US Non-Farm Payrolls figures were released on Friday.

 

Here are some of the forecasts for the RBA rate:

 

 

Outcome Looking Ahead

ANZ -25bps Another 50bps by year-end

NAB -25bps Another 25bps cut

JP Morgan -25bps Another 50bps by year-end

HSBC -25bps

TD Securities Hold

UBS -25bps

StanChart Hold

Westpac -25bps Another 75bps cut

Citigroup Hold

CommSec -25bps

Deutsche Bank -50bps

AMP Capital -50bps Several cuts ahead

Moody's -25bps

Barclays -25bps

St George Hold

Macquarie Hold

RBC Capital -25bps Another 50bps by year-end

Goldman Sachs -25bps Another 25bps cut

BankAm-ML Hold

RaboBank -25bps

RBS Hold

 

AUD/USD lost 5% in May as the demand for riskier assets fell due to the European debt problems, concerns about China’s economic slowdown and US jobless rate. Australian dollar went up to the levels around $0.9700 versus its US counterpart today after $0.9627 in Asia.

 

Resistance: 0.9770 (May 31 maximum), 0.9800 (May 29 minimum) and 0.9900 (May 29 maximum).

Support: 0.9579 (June 1 minimum), 0.9488 (October 5 minimum), 0.9388 (October 4 minimum) and 0.9313 (September 14 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/daily_audusd_15-31.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

UBS: short- & longer-term comments

 

EUR/USD: neutral in the short-term. Recovery is likely. Resistance lies at $1.2650 (38% retracement of the May decline). Support is at $1.2288.

 

GBP/USD: neutral in the short-term. Upward correction may continue in the summing days. Resistance is at $1.5410. Support lies at $1.5235.

 

Analysts at UBS claim that the recent weaker than expected data in the US could make the market expect the Federal Reserve to launch the third round of quantitative easing. At the same time, the specialists still favor the safe-haven dollar amongst the major currencies as the Fed’s actions are surrounded with uncertainty, while the rest of the main central banks could resume their stimulus as the crisis in the euro area remains unsolved.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/daily_eurusd_16-15.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

CFTC traders positioning data

 

The latest Commitments of Traders (COT) report for the week to May 29, released on Friday by the Commodity Futures Trading Commission (CFTC), showed the following changes in traders’ positioning in comparison with what was at the week to May 22:

 

• The net long US dollar positions against other major currencies rose by 7.4% to $37.97 billion, the maximal level since at least 2007.

• The net short euro positions rose from 195K to the new record maximum of 203K contracts.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/eur.png

 

 

• The net long pound positions declined last week from 11K to 1.5K contracts. This is the third consecutive week of declines from the maximal level in over a year on May 8.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/gbp.png

 

 

• The net short yen positions decreased from 18K to 11K contracts improving for the seventh week in a row due to the market’s risk aversion.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/yen.png

 

 

• The net short Swiss franc positions declined from 35K to 31K contracts.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/chf.png

 

 

• The net long Canadian dollar positions declined from 39K to 34K contracts.

• The net short Australian dollar rose from 17K to 35K contracts, the most bearish level since 2009. Aussie bears are increasing positions for the fourth week in a row.

 

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

 

 

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[fallenDC]

Expectations ahead of the ECB meeting

 

This week is packed with the major central bank meetings. We’ve already pointed out that the expectations for the RBS rate cut have significantly strengthened in the recent days, what about the ECB?

 

Policymakers of the European Central Bank are meeting on Wednesday, June 6. In May the central bank left kept the interest rates unchanged at the record minimum of 1% for the fourth month in a row.

 

Analysts at IHS Global Insight think that the ECB will take a wait-and-see approach. In their view, European monetary authorities would like to wait for the results of Greek elections on June 17 as well as some economic growth figures. The specialists think that the ECB will slash the borrowing costs in Q3, probably in July.

 

Deutsche Bank points out that the ECB may decide to accelerate a possible policy response before the next Bank Lending Survey in July due to the weaker European economic data, especially the last flash PMIs indicating a significant slowdown in Q2 output after Q1’s flat print. At the same time, the ECB reiterated that the final responsibility for crisis resolution rests on Europe’s politicians. Economists see a cut in the refinancing rate or, less likely, another 3-year LTRO as possible outcomes.

 

Strategists at BNY Mellon expect no change in the ECB’s rates or stance. However, the specialists think that the central bank may signal that it’s ready to do more. In their view, Draghi is a tricky character to judge so it impossible to know whether he is susceptible to political pressure to cut rates. The bank says the market hasn’t positioned itself towards any solid expectations for the decision, “otherwise the euro would be trading higher.” But there are bets at the margins so the bank expects the euro to strengthen on any remedial action by ECB such as a liquidity injection.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/04_06_12/ecb.png

 

Photo from crackerjackfinance.com

 

 

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[fallenDC]

June 5: economy, policy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/rus.jpg

 

Today is quite eventful.

 

Finance ministers and central bankers from the G7 nations will hold an emergency conference call today to discuss the euro zone’s debt crisis.

 

Traders covered euro shorts in case the policymakers arrive to some new measures. However, investors will keep selling the single currency on its advance. For now EUR/USD dipped below today’s opening price sliding to $1.2490 after testing resistance at $1.2540 earlier today.

 

Demand for higher-yielding assets improved, Asian equities went up making US dollar and Japanese yen lose versus the majority of their peers. The MSCI Asia Pacific Index of shares added 1% after declining for 4 days in a row.

 

As it was expected, the Reserve Bank of Australia cut its benchmark interest rate by 25 bps to 3.50%, the lowest level since 2009. Australian Q1 current account deficit came in line with expectations (AUD$14.9 billion). AUD/USD gained after the RBA’s announcement as the markets were ready for bigger cut.

 

Data to watch today:

 

9:00 a.m. GMT – euro zone’s retail sales, forecast: -0.1% m/m in April after +0.3% in March.

 

1:00 p.m. GMT – Bank of Canada’s rate decision: the borrowing costs are seen unchanged at 1%.

 

2:00 p.m. GMT – ISM Non-Manufacturing PMI: May readings are seen almost unchanged from April level (53.5).

 

 

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[fallenDC]

USD/JPY remains under pressure

 

There's a talk that Japan conducted stealth intervention on June 1 to weaken the national currency and support the pair USD/JPY which spiked below 78 yen hitting fresh 4-month low at 77.64 yen. Analysts at Totan Research, however, don’t think that the nation has sold yen last week citing their analysis of the Bank of Japan’s current-account balances.

 

Analysts at Bank of America claim that US dollar may slide to 75.56 yen (October 31 minimum) as risk aversion will likely keep prevailing at the markets.

 

USD/JPY lost about 150 pips last week. The greenback managed to close last week above the lower border of the weekly Ichimoku Cloud. However, Tenkan-sen has crossed Kijun-sen upside-down - bearish signal. In addition, the prices have fallen below the 50-week MA, which is now playing the role of resistance. The daily Ichimoku chart oints at the downtrend.

 

At the same time, specialists at Westpac claim that “dips in the pair towards the low 78.00 region are likely to be well supported. Moreover, we are not too far away from previous intervention levels and if risk appetite does improve/stabilize we suspect the recent run of JPY strength can come to an end.” FBS thinks that the pair will have chance for recovery only above 78.72 (June 1 maximum) and 79.00.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/weekly_usdjpy_12-41.gif

 

Chart. Weekly USD/JPY

 

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/daily_usdjpy_12-40.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

SocGen: forex majors in the short-term

 

-EUR/USD: there are offers at 1.2540/50. Focus on G7 meeting and ISM non-manufacturing PMI ahead of the ECB meeting on Wednesday. Sell EUR/USD on rallies.

 

-GBP/USD: UK markets still closed for the Queen’s Diamond Jubilee holidays, so sterling will remain driven by external forces today ahead of Thursday's Bank of England’s meeting.

 

-USD/JPY and EUR/JPY may get lower after G7 meeting.

 

-AUD/USD: although Aussie didn’t suffer from the Reserve bank of Australia’s rate cut as some investors feared that the central bank may reduce the borrowing costs more, the dovish RBA statement may make the pair revisit its recent minimums in the 0.9600 area after the G7 meeting.

 

-USD/CAD: the Bank of Canada will likely leave the benchmark rate unchanged at 1.0%. This may provide support for loonie for some time.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/what_is_forex_currency_trading.jpg

 

Image from andlestickcourse.blogspot.com

 

 

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[fallenDC]

BOC may sound more dovish

 

The Bank of Canada interest rate decision is an important item on today’s agenda. The consensus forecast is that the central bank will leave the key rate unchanged at 1.0% without signaling higher borrowing costs in the near future as the European debt crisis is reducing global growth and demand for Canadian raw-material exports.

 

Analysts at RBS claim that there’s the risk that the BOC statement will be much more dovish. Note that at the end of April the BOC governor Mark Carney said that interest-rate rises may be necessary to contain inflation – today we’ll find out whether Carney’s position has changed.

 

According to Bloomberg calculations on overnight index swaps, there’s an 81% chance of at least one quarter-percentage point cut this year.

 

Such expectations made Canadian dollar weaken versus its US counterpart. The pair USD/CAD reached 6-month maximums in the 1.0450 area. Analysts at BMO think that the greenback may climb towards 1.5000 on the announcement. Technical outlook for the pair will remain bullish until it closes the day below the parity level. It would be sensible to buy USD/CAD on the bounces from support at 1.03 and 1.01.

 

Canadian economy in figures

 

GDP: +1.9% q/q in Q1.

CPI inflation: down from 3.7% in may 2011 to 2% y/y in April 2012.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/daily_usdcad_4-15-04.gif

 

Chart. Daily USD/CAD

 

 

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Edited June 5, 2012 by fallenDC

[fallenDC]

GBP/USD: technical & fundamental comments

 

The pair GBP/USD has survived 5 weeks of losses from April 30 maximum of $1.6300.

 

British pound is currently consolidating below $1.5400 versus the greenback after losing more than 300 pips last week in the decline from $1.5690 to $1.5360.

 

The key support lies at $1.5267 (June 1 minimum, support from 2009). Higher sterling will be supported at $1.5320 (today’s minimum). Resistance for pound lies at $1.5416 (yesterday’s maximum), $1.5526/30 (May 31 maximum, 10-day MA) and $1.5600 (March 12 minimum).

 

On the fundamental basis important day for the pair is Thursday: the Fed’s Chairman Bernanke will testify after discouraging May NFP data, while the Bank of England will hold its monthly meeting. In both nations the monetary authorities may incline towards more monetary stimulus. In addition, watch UK Services PMI release.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/05_06_12/daily_gbpusd_16-48.gif

 

Chart. Daily GBP/USD

 

 

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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: $1.2350, $1.2400, $1.2425, $1.2450 (large), $1.2500, $1.2650, $1.2670;

 

AUD/USD: $0.9600, $0.9750, $0.9800;

 

USD/JPY: 78.25, 78.50, 80.00, 80.80;

 

EUR/JPY: 98.00;

 

EUR/GBP: 0.8060, 0.8110.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/flatline.jpg

 

 

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[fallenDC]

June 6: risk sentiment has improved

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/angl.jpg

 

Yesterday’s emergency conference of G7 finance ministers and central bankers passed without big headlines: the officials agreed “to monitor developments closely ahead of the G20 summit in Los Cabos.” The market took an optimistic view thinking that the policymakers are preparing some major developments for 18-19 June 2012.

 

Risk sentiment improved, Asian stocks gained (MSCI Asia Pacific Index +1.2%), US dollar and Japanese yen weakened versus the most of their counterparts. The greenback was also affected as Chicago FRB President Charles Evans said that “extremely strong accommodation” is needed taking into account the poor economic data released in the US so far.

 

Australian GDP added 1.3% in the first 3 months of the year vs. 0.5% advance expected. AUD/USD rose by more than 100 pips. USD/JPY went up for the third day in a row as Japan’s finance minister Jun Azumi Japan’s indicated that G7 nations remain supportive of intervention to address extreme currency moves.

 

Important events today:

 

- Euro area: the ECB meeting results. The majority of experts think that the central bank will leave its benchmark rate unchanged at 1%. If the ECB does cut rates, euro will get a blow.

- US: beige book will give us more hints on the current economic conditions in the United States ahead of the FOMC meeting on June 19-20.

 

 

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[fallenDC]

Commerzbank: EUR/USD may break higher

 

The single currency recovered versus the greenback from June1 minimum at $1.2288 and is currently trying to overcome resistance at $1.2515 (23.6% Fibonacci retracement of euro’s decline in May, downtrend resistance).

 

Technical analysts at Commerzbank think that EUR/USD will break downtrend channel within which it has been trading since the beginning of last month. The next resistance for the pair will be found at $1.2624 (January 13 minimum). If euro manages to rise above this point, downward pressure will significantly subside. Note the positive signals from daily MACD and RSI.

 

On the other hand, the specialists warn that if EUR/USD breached support of $1.2288, it will become vulnerable for a decline to $1.2058 (200-month MA) and $1.2000 (psychological level).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/daily_eurusd_12-52.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

BNP Paribas: bearish view on EUR/GBP

 

Analysts at BNP Paribas expect the single currency to decline versus the British pound in the medium term. The specialists think that the recent rise of EUR/GBP provides a good opportunity to go short.

 

According to BNP Paribas, 2 interest-rate cuts by the European Central Bank in November and December of last year have foiled euro’s value. “Further rate cuts by the ECB in the third quarter are likely to further erode the euro’s yields and drive EUR/GBP lower,” the analysts say.

 

The bank underlines that data from the Swiss National Bank show that reserves in pound have doubled this year. The specialists believe that such allocation strategy that could be used by other banks giving sterling more strength against euro.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/daily_eurugbp_12-3-20.gif

 

Chart. Daily EUR/GBP

 

 

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[fallenDC]

RBS: bullish on AUD/USD

 

Analysts at RBS recommend buying Australian dollar versus its US counterpart at the current levels stopping in case of the close below the 10-day MA ($0.9765) and targeting $1.0095 and then $1.0240.

 

The specialists give the following reasons for being bullish on Aussie: the market based around a previous minimum at $0.9667, MACD indicator gave a buy signal in overbought territory and the market has now broken both its 10- and 21-day MAs.

 

According to RBS, resistance levels for AUD/USD lie at $0.9861 (December 2011 minimum), $0.9934 (May 22 maximum) and $1.0000, while support for the pair is found at $0.9667 (November 2011 minimum) and $0.9397 (October 2011 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/daily_audusd_14-29.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

Will the Fed incline to more easing?

 

The FOMC’s meeting will take place on June 19-20. The odds that the Federal Reserve will do more stimulus increased due to the disappointing US economic data and continuing concerns about the euro zone’s debt crisis. At the same time, the Fed may refrain from active actions this month taking the wait-and-see approach in order to have better understanding of the economic situation. In addition, the proposals to add easing will surely face resistance from some Fed’s officials.

 

The Fed has different options:

 

- doing nothing and continuing to assess the economic outlook;

 

- more strongly signaling a willingness to act later if the outlook more clearly worsens;

 

- small precautionary measures like extending for a short period its Operation Twist as the $400-billion program is set to end this month (selling short-term securities and using the proceeds to buy long-term ones);

 

- bolder action such as launching another large round of bond purchases in case of significant slowdown.

 

The path chosen by the Fed will depend on its assessment of US economic conditions. An important thing will be whether the FOMC members downgrade their economic forecasts after slightly improving outlook in April. For now recession is not seen as a threat, the main source of concern is the pace economic growth – it should be high enough for the unemployment to keep lowering. In May US jobless rate rose to 8.2%, some experts say though that this is a temporary increase after unusually intense hiring in winter provoked by warmer weather. The Fed’s policymakers may worry about the seasonal adjustments which complicate their estimates.

 

The opinions in the Fed are divided. Chicago FRB President Charles Evans said that “extremely strong accommodation” is needed. Cleveland FRB President Sandra Pianalto, however, claimed that she wasn't yet convinced that the outlook had significantly darkened. There are those among the FOMC officials who doubt the effectiveness of buying more bonds when interest rates are already very low or worry about higher inflation.

 

Preparing for the Fed’s meeting later this month, don’t miss important comments: the Fed’s Chairman Bernanke will testify on Thursday, June 7, before the Joint Economic Committee of Congress. The Fed’s Vice Chairwoman Janet Yellen is speaking tonight.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/18314_a.png

 

 

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[fallenDC]

ECB leaves key rate unchanged

 

The European Central Bank left its benchmark rate unchanged at 1% – such outcome was predicted by the majority of the economists, although some experts were looking forward to 25-bps rate cut.

 

Remember last week the ECB president Mario Draghi said that the central bank can’t “fill the vacuum” created by politicians’ inactivity. The ECB is also refraining from reactivating its government bond-buying program to help lower Spain’s borrowing costs and from more LTROs (unlimited three-year loans to banks).

 

Declining inflationary pressures and weakening activity could have justified an interest rate cut. However, the central bank left door open for more aggressive response after Greek and French parliamentary elections in June and European leaders’ summit on June 28.

 

EUR/USD has steadied after the initial decline on the announcement below $1.2500. Below support at $1.2440 euro will be vulnerable for decline to the levels around $1.2380. If the pair overcomes weekly maximums in the $1.2545 area, it will be able to move up to $1.2600/20 and $1.2624 (January minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/h1_eurusd_17-15.gif

 

Chart. H1 EUR/USD

 

 

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[fallenDC]

Spain admitted that its banks need help

 

Spain has finally stopped its unbending rejection of external funding to assist the bank recapitalization. Rumor has it that the indebted country’s government is currently negotiating with EU leaders. This week Germany has nearly forced Spain to accept help from the European Stability Facility to support its banking system. Both Germany and Spain stand for the creation of a banking union within a framework of which the European stability funds will be able to finance the banks directly.

 

However, according to Spanish Economy Minister Luis de Guindos, Spain is not planning to request a bailout of its banks before the results of an IMF report (June 11) and further reports from independent auditors (end of June). On basis of this information the Spanish government will take further anti-recessionary actions.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/06_06_12/bankia_2215348b.jpg

 

Photo: Reuters

 

 

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[fallenDC]

June 7: economic background and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/angl.jpg

 

The risk sentiment was rather positive. Asian stocks rose (MSCI Asia Pacific Index +1.5%). Japanese yen has broadly weakened on lower demand for safe havens.

 

Australia has made a contribution to reviving the risk appetite. The nation’s economy added 38.9K jobs in May after a 2.2K contraction in April and a 7K growth forecast. Unemployment rate increased in line with expectations to 5.1% from 5.0%. Aussie is strengthening for the fourth consecutive day. In general the country’s recent economic data is positive for the currency: the rate cut on Tuesday was less than some expected, while nation’s GDP surprisingly grew by 1.3%.

 

The greenback is under pressure ahead of Ben Bernanke’s testimony as many think that the Fed's Chairman may signal further stimulus in order to help US economy recover. The Federal Reserve’s Vice Chairman Janet Yellen, a well-known dove, claimed yesterday that American economy “remains vulnerable to setbacks” due to slowing job growth and deteriorating financial-market conditions and may warrant additional monetary stimulus. San Francisco’s FRB president John Williams and Atlanta’s Dennis Lockhart also talked about possible need for an action, saying his level of concern had risen since the Fed's April meeting. Read more on the Fed’s policy here.

 

The single currency has managed to break out of May downtrend channel and settle above $1.2500 as the short-term players trimmed euro shorts on the hopes of more policy action, both in Europe and the United States. EUR/USD rose to $1.2585, about 2.3% above 2-year minimum of $1.2288 hit last week.

 

However, trading will remain quite volatile, with risk assets vulnerable to declines. Uncertainty will stay high until there’s a solution of banking and sovereign solvency problems.

 

Events to watch today:

 

Britain: Bank of England’s MPC meeting.

Euro area: Spanish and French 10-year bond auctions.

US: unemployment claims.

 

 

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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: $1.2420, $1.2420, $1.2500, $1.2525 (large);

EUR/GBP: 0.8040, 0.8050, 0.8060, 0.8100;

USD/JPY: 78.50, 78.70, 79.00, 79.50;

EUR/JPY: 99.00;

AUD/USD: $0.9800.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/flatline.jpg

 

 

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[fallenDC]

Scotiabank: short- and long-term outlook for loonie

 

Analysts at Scotiabank revised down the near-term outlook for Canadian dollar due to deteriorated growth prospects of China and India and euro zone’s debt problems. According to the bank, the pair USD/CAD will keep gaining towards the end of the month and current quarter.

 

However, the specialists think that in the longer term the outlook for loonie will significantly improve once risk aversion and the rapid flow into US dollar denominated assets subside.

 

In their view, CAD will strengthen against its US counterpart in the second half of 2012. Scotiabank underlines that the Bank of Canada is likely to hike interest rates long before the Fed, the ECB or the Bank of Japan. In addition, Canada still has top credit rating and developed bond market – these factors will support demand for loonie. The analysts expect USD/CAD to slide to 0.9900and by the year-end.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/daily_usdcad_12-50.gif

 

Chart. Daily USD/CAD

 

 

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[fallenDC]

RBC, Westpac: RBA rates and forecast for Aussie

 

The Reserve Bank of Australia cut its benchmark interest rate by 25 bps to 3.5% this week getting close to the 3% level set after the global financial crisis has hit the fan. Many analysts expect the RBS to reduce the borrowing costs more this year citing deteriorating global economic prospects.

 

RBC: “We’re looking for at least one more cut, but our rates outlook is under review at the moment … and clearly the risk is that terminal cash ends up below 3.25% [by the end of the year].”

 

Westpac: the RBA would cut rates again in July, in August and in December, taking the cash rate to 2.75% by the year-end. “Relative to the May [cuts], there has been a series of observations … that suggest to us that the [Reserve] Bank is prepared to cut rates significantly further.”

 

Westpac expects AUD/USD to slide to 0.9600 by September before returning above the parity by the end of 2012 line with a pull-back in the USD index due to the monetary stimulus policies in Europe, China and the US, particularly in Q4. “The combined effects will reverse the negative dynamics current swirling around Aussie,” say the specialists. According to the bank, AUD/USD will reach $1.0200 by the end of the year and moving even higher in early 2013, before leveling out at mid-year in the $1.0500/0600 area.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/daily_audusd_13-29.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

EUR: how long will the strength last?

 

The EUR/USD cross bounced from its two-year low (June 1) and broke through the strong $1.25 resistance level. The pair is pushed up by the prospects of the additional QE in the US, the words of the ECB President Mario Draghi that the market underestimated the political decision of the EU to preserve the currency block and the results of the Spanish and French bond auctions.

 

Strategists at BMO forecast the EUR/USD to reach $1.2625 (Jan. low), while analysts at Nomura expect the pair to bounce to $1.2700. The nearest resistance for the pair lies at $1.2600 (psychological level) and $1.2690 (38.2% retracement of May 1-June 1 drop).

 

However, in long-term most analysts remain bearish on the prospects of the common currency. The euro is expected to decline against the greenback as the EU leaders struggle to resolve the crisis. Moreover, economists expect that Germany will finally agree on the Eurobonds issue in order to support the peripheral countries. In case European politicians fail to compromise, the market situation will definitely worsen: massive outflow of capital out of the region is expected. Draghi said the ECB will continue to supply euro zone banks with the liquidity they ask for in the refinancing operations at least until early 2013.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/daily_eurusd_07.06_13.51.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

SocGen, RBS: comments on EUR/GBP

 

Analysts at Societe Generale note that the single currency has made something like a U-turn 2 weeks ago as it rose from 0.7950 (May 16 minimum) to the levels in the 0.8100 area this week. The specialists point out, however, that EUR/GBP is facing resistance at 0.8130 (50-day MA). If the Bank of England doesn’t deliver monetary stimulus today, euro may get under renewed selling pressure. In addition, the bank underlines that the pair isn’t oversold now, while there will likely be more negative news from the euro area. As a result, SocGen regards bearish risks as quite high.

 

Strategists at RBS claim that EUR/GBP may get stuck in the 0.7950/0.8221 area. In their view, resistance for the pair lies at 0.8142 (May 3, June 5 maximums), 0.8192/97 (May 1 maximum) and 0.8222 (April 25 maximum), while support is found at 0.8063 (gap opening), 0.7950 (2012 minimum) and 0.7695 (2010 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/daily_eurgbp_14-25.gif

 

Chart. Daily EUR/GBP

 

 

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[fallenDC]

SNB increased currency reserves

 

According to the Swiss National Bank statement, the SNB’s foreign currency reserves reached a record high in May (303.8 billion Swiss francs from previous 237.6 billion francs).

 

The regulator attempts to defense the franc floor under the conditions of the uncertainty in the euro zone. It is necessary to note, that the 1.20 threshold protects the franc from excessive strength as a safe haven currency and supports the Swiss economy.

 

Analysts at Bank Sarasin underline that the SNB will be forced to intervene if the euro zone’s situation worsens. However, according to analysts at ING Group, for the moment there is no reason to believe that the floor could be broken even under higher pressure.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/swiss-franc.jpg

 

 

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[fallenDC]

BoE left policy unchanged… for now

 

The Bank of England decided to leave its monetary policy unchanged: the benchmark rate remained at 0.5%, while the size of the asset purchase program was left at 325 billion pounds.

 

UK central bank was under serious pressure to do more stimulus as British economy has entered official recession and is affected by the European debt crisis. The nation’s GDP contracted by 0.3% in the first 3 months of the year. In addition, manufacturing activity plunged in May in the sharpest fall since November 2008. So, the market had reasons to expect more easing from the BoE.

 

At the same time, the story isn’t clearly over yet: there are a lot of events ahead which concern Europe, Britain’s main trading partner. The matter is about Greek elections and the decisions which the region’s authorities will have to make afterwards. So, as with the European Central Bank the focus turns to the next BoE meeting in July and analysts at ING Bank expect further stimulus.

 

British pound showed the second day of solid gains versus the greenback and retraced more than 50% of last week’s slump. GBP/USD rose from Friday’s minimum at $1.5233 to the levels in the $1.5670 area, above the previous weekly maximum of $1.5515.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/07_06_12/daily_gbpusd_16-17.gif

 

Chart. Daily GBP/USD

 

 

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