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[fallenDC]

Friday, June 15: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/dd.jpg

 

On Friday the yen strengthens against its major counterparts after the Bank of Japan left its monetary policy unchanged. On June 21, however, Japan may elect two dovish policy council members, what may influence the regulator’s policy.

 

EUR/USD is consolidating around the $1.26 area, supported by the speculation that the Fed may ease the policy on a next meeting. According to yesterday’s release, the number of unemployment claims increased to 386K, while CPI fell by 0.3% on the back of the decline in energy prices.

 

The sterling declined after the BoE Governor Mervyn King said additional stimulus in the U.K becomes more and more likely. In addition to looser policy, the regulator may activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating within weeks to boost lending in the economy.

 

The MSCI Asia Pacific Index (MXAP) of stocks added 0.6% today. The Aussie and the loonie weaken, while the kiwi moves upward, though for now the daily change is small.

 

Events to watch:

 

Euro zone: The ECB President Mario Draghi speaks.

Canada: Manufacturing sales, a leading indicator of economic health, are expected to go up by 2.2% in April after a 1.9% growth in March.

Great Britain: Britain’s trade deficit is expected to decline slightly to 8.5B.

U.S.: Empire State Manufacturing Index in June is to decline to 14.1 from the previous 17.1 print, while the industrial production in May is likely to increase by 0.1% vs. a 1.1% growth in April. Capacity utilization rate, a leading indicator of consumer inflation, is expected to remain at 79.2%. Economists forecast the preliminary UoM consumer sentiment index to decline to 77.5 in June. In May the key indicator of the consumer spending reached its highest level in four years (79.3), what is a good sign for the U.S. economy.

 

 

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[fallenDC]

Сapital flows out of the euro area

 

According to analysts at Nomura Securities, in recent months there is an evident capital flight from the euro zone. If the trend continues, the single currency will trade much lower as it was a traditional emerging market currency crisis.

 

Specialists believe that on this matter the Europe’s debt crisis may be divided on three phases. In their view, during the first phase (April 2010-June 2011) investors sold assets from peripheral countries and tied up capital in the safe countries. In the second phase (July 2011-January 2012) the investors concerns on Spain and Italy started to grow. However, according to analysts, big amounts of money were still repatriated back to the euro zone.

 

These days the economy is in the third phase, when huge amounts of money are draining abroad. Meanwhile, Switzerland and Denmark are making efforts to retain control on their strong national currencies.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/mim-foreign-inflows-into-euro-zone2.gif

 

 

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[fallenDC]

AUD/USD: prospects for growth

 

The AUD/USD cross managed to fix above the parity level on Thursday and continues extending its gains on Friday.

 

Specialists seem to be rather optimistic. Analysts at Westpac believe the pair will surge in case of a clear win of the pro-bailout New Democracy and Pasok parties on Greek elections on Sunday. According to strategists at RBS, the pair has good prospects for growth if it breaks the tough resistance, created by the Fibonacci levels and the 10- and 21-day MAs. Specialists at Commerzbank expect the cross to strengthen to $1.0146 in a short-term.

 

Support:

 

0.9397 (October 2011 minimum);

0.9667 (Nov. 2011 minimum);

0.9881 (Dec. 19 minimum).

 

Resistance:

 

1.0077 (38.2% Fibonacci retracement from the Oct. 2011 – Nov. 2012 range);

1.0146 (Jan. 2012 minimum)

1.0207 (50% Fibonacci retracement from the Oct. 2011 – Nov. 2012 range).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/daily_audusd_15.06.12.gif

 

 

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[fallenDC]

Draghi: ECB ready to rescue banks

 

The European Central Bank President Mario Draghi said on Friday that the regulator is ready to take all the necessary measures to support the euro zone’s economy in conditions of increased uncertainty.

 

Draghi told that the ECB will continue providing liquidity to solvent banks. The EU monetary authorities, therefore, leave the door open for the further policy easing. Last week the ECB left its key interest rate at 1.0%, but a few members of the governing council voted for a rate cut. The ECB President also underlined that these days the EU officials are working out proposals on how to resolve the situation with minimal damage and will present the results on the EU summit on June 28-29.

 

Mario Draghi’s comments are especially important ahead of the Greek parliamentary elections, upcoming on Sunday. The vote is likely to determine the future of Greece in or out of the EU and of the single currency itself. Moreover, on Sunday the second round of the French parliamentary elections takes place.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/draghi_2107213b.jpg

 

 

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[fallenDC]

US Dollar Index declines

 

The US dollar index declines for the fourth consecutive day on the back of the lackluster data released this week. The next week is expected to be intensive for the greenback: investors are looking forward to the first FOMC meeting (June 20) after the Greek elections (June 17).

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/pva.jpg

 

Table. US data (June, 15)

Source: forexfactory.com

 

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/15_06_12/pva0r899.jpg

 

Chart. US Dollar Index

 

 

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[fallenDC]

EUR is up on Greek election results

 

Greek elections finally came and went. The results of the vote give hope that the nation’s policymakers will now be able to act efficiently to get the country out of the crisis.

 

As almost all votes are counted, the conservative New Democracy party will get 129 seats in the 300-seat parliament and its potential ally socialist Pasok party 33 seats. This is quite enough to ensure a workable majority and form a coalition government which will put all its efforts to keep Greece in the euro area and renegotiate the terms of the bailout. The latter will be vital as the austerity program is pushing the nation deeper in recession. The talks of on forming a government will likely start today.

 

The left forces opposing the bailout got in the minority with the total 121 seats, including 71 to be occupied by the Radical Left Coalition’s (Syriza) deputies.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/greece-elections.jpg

 

Photo Nikolas Giakoumidis/AP

 

 

EUR/USD has another week of opening with a gap on the upside at $1.2693, above 38.2% retracement of the May decline.

 

Barclays Capital: “We continue to think the pressure on euro will be lower as weak growth will imply continued monetary policy easing by the ECB in the future. There has been some knee-jerk buying, which may have more to go. We would prefer to fade the rally than buying into it.”

 

Westpac: EUR/USD will rise to $1.2825/50 (May 21 maximum), but the potential for further advance isn’t high. The specialists note that Germany won’t easily agree to change the bailout conditions.

 

Standard Chartered: “The result has probably bought some time for Spain and Italy. But questions over the Spanish banking-sector bailout will persist, with clarification this week on how much will be requested.”

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/daily_eurusd_10-22.gif

 

Chart. Daily EUR/USD

 

 

All eyes are now on G20 summit in Mexico.

 

 

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[fallenDC]

G20 leaders meet in Mexico

 

A two-day G20 summit started in Los Cabos, Mexico on Monday. It should come as no surprise that the European issues are on the top of the agenda: the stabilization of the global economy and the reinforcement of the financial system.

 

The pro-bailout choice of Greek voters has brought a sign of relief to the markets. However, the effect is not expected to be long-lasting: Spain and Italy moved into the limelight. The G-20 countries are expected to confirm the IMF's planned $430 billion firewall to help the IMF to protect the indebted countries. The IMF chief Christine Lagarde, however, may insist on extending the firewall straight to $500 billion.

 

The G20 leaders are also to give high priority to the problem of the global food price spikes and to work out mechanisms for their rapid stabilization.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/mexico-g20.jpg

 

 

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[fallenDC]

CFTC traders positioning data

 

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that during the week to June 12 speculators’ positioning changed the following way:

 

EUR: the net short positions decreased to 195K contracts from the previous week’s total of 214.4K contracts on June 5th.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/eur.bmp

 

 

GBP: the net short positions increased to 23K contracts following a total of 3K contracts the previous week.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/gbp.bmp

 

 

JPY: the net long positions went up to 2.3K contracts following a previous total of 12K contracts.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/jpy.bmp

 

 

CHF: the net short positions decreased to 33K contracts following a total of 33.6K contracts the previous week.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/chf.bmp

 

 

CAD: the net long positions fell to 9.6K contracts from the previous week’s total of 14.9K contracts.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/cad.bmp

 

 

AUD: the net short positions decreased to 45.5K contracts after falling to 51.2 contracts on June 5th. In the past week, the Aussie's speculative positions were at the lowest level since 2009.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/aud.bmp

 

 

USD: the value of the net long position fell to $38.77 billion in the week ended June 12 from $39.65 billion the previous week.

 

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.

 

Data from CFTC

 

 

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[fallenDC]

Easing by the Fed seems likely

 

On June 19-20 market participants will focus on the FOMC meeting, the interest rate decision and the new economic projections. How will the monetary authorities behave on the back of the disappointing US data releases and the increased financial stress in euro zone?

 

The interest rate is forecasted to remain at a 0.25% low. However, according to many specialists, a zero-bound funds rate is not enough to combat a sluggish recovery and high unemployment; the US policymakers may need some “insurance” in the form of additional easing.

 

According to Janet Yellen, the Fed’s vice chairman, the FOMC could begin another round of bond purchases or extend its portfolio maturity further if the economic expansion proceeds at an “insufficient pace.”

 

Credit Agricole: We believe that the FOMC will find it prudent to increase current policy accommodation in June with a modest $200 billion increase in its maturity extension program (Operation Twist).

 

UBS: The US monetary authorities are expected to adopt a wait-and-see approach, holding out for further developments in Europe. In a longer term an extension of Operation Twist cannot be ruled out.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/bernanke_1581523c.jpg

 

Photo: AP

 

 

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[fallenDC]

CAD down on oil price drop

 

The Canadian dollar weakens against the greenback on the back of Spain’s debt woes and a drop in crude oil prices (Canada is the largest crude supplier to the US). The loonie declines even though the positive data was released today: foreign securities purchases exceeded the estimates of $3.4B and reached $10.2B.

 

Most analysts expect the economic data released this week to show growth in the world’s 10th-largest economy is slowing (wholesale and retail sales, CPI). Moreover, market participants are increasing bets that the Bank of Canada will reduce interest rates from the current 1.0% due to euro zone’s headwinds on a next meeting.

 

Resistance for USD/CAD lies at 1.0278 and 1.0301, while support - at 1.0237, 1.0173, 1.0150 and 1.0109.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/usdcad.gif

 

Chart. Daily USD/CAD

 

 

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[fallenDC]

Analysts: outlook for EUR/USD

 

On Monday the EUR/USD cross strengthened to $1.2747 on the back of the pro-bailout parties’ victory, but then quickly dropped to $1.2575 on concerns about critically high Spanish borrowing costs. What to expect from the common currency in a longer term?

 

Wells Fargo: There is still scope for a near-term euro bounce, although we see the euro slipping back to $1.20 in the next twelve months.

 

Danske Bank: EUR/USD will trade at $1.24 in 3M, $1.26 in 6M and $1.30 in 12M. The upward trend on a 12-month horizon reflects expectations of a significant monetary easing from the Fed on the back of the US economic slowdown.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/eurusd.gif

 

Chart. Weekly EUR/USD

 

 

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[fallenDC]

Tueasday, June 19: economy and currencies

 

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EUR/USD reached the $1.26 level early Tuesday but still remains below the weekly close Friday. Despite the positive Greek election outcome, the single currency is still weighed by the worsening situation in Spain. Spain’s bond yields reached 7.3% on Monday on the back of uncertainty whether the country will need a sovereign bailout. The next Spain’s auctions are scheduled on Tuesday and Thursday. The G20 meeting continues for a second consecutive day in Mexico: according to the IMF Chief Christine Lagarde, the member-countries agreed a total of $456bn for the new crisis fund. The policymakers increase pressure on German Chancellor Angela Merkel to expand the rescue measures. Merkel, however, insists that budget discipline cannot be replaced by the Eurobonds.

 

The US dollar declines vs. the euro and the yen ahead of the FOMC meeting (June 19-20) amid speculation that the Fed will ease monetary policy in order to stimulate the US economic growth. Most analysts expect the Fed to extend the program “operation Twist”. The Fed officials will also make new economic projections and discuss the local and global problems.

 

The MSCI Asia Pacific Index (MXAP) of shares declined 0.3% today. JPY strengthens against its major peers as the increased financial stress in the euro zone has supported demand for JPY as a safe currency. However, the risk sentiment is not so bad: AUD and CAD keep strengthening vs. USD. The Reserve Bank of Australia released today the June 5 meeting minutes. According to RBA, the recent rate cut was caused by the world economic slowdown, while the local conditions remain positive. NZD/USD opened the day with growth, but now demonstrates weakness.

 

Today watch out for important data from Great Britain (CPI is to remain at 3.0%), euro zone (German ZEW economic sentiment is expected to worsen), Canada (wholesale sales growth may remain at 0.4%) and US (building permits, housing starts).

 

 

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[fallenDC]

JPY grows on Spain's woes

 

USD/JPY has declined below 79.0 yen today after a Monday’s growth. Investors choose the safe Japanese currency amid concerns on the Spain’s economy. Is the yen likely to strengthen further?

 

According to the BoJ Governor Masaaki Shirakawa, the BoJ is ready to inject liquidity into the markets if necessary. Shirakawa underlined that the euro zone’s crisis remains extremely dangerous for the Japan’s economy: it spurs demand for the yen, hurts exports and could influence the banking sector.

 

Standard Chartered: The BoJ may intervene in the FX market in order to weaken the national currency if the Fed eases monetary policy on Wednesday.

 

USD/JPY remains in a downward channel since late March. The pair trades above the 200-day MA, but below the 50- and 100-day MAs and the daily Ichimoku cloud. USD/JPY sees a strong resistance at 79.16 (61.8% of Fibonacci retracement from a Feb.-March rally). The bearish sentiment will be likely to increase if the pair manages to break the 78.65 support level.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/19_06_12/daily_usdjpy_19.06._13-30.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

GBP up after CPI release

 

The British pound strengthens against the greenback after the UK inflation figures were released. CPI growth slowed to 2.8% in May from 3.0% in April, what is the BoE's top end of the target range.

 

BNP Paribas: UK inflation is likely to continue declining in 2012. Last week Mervyn King hinted on additional QE and the inflation figures give necessary room for the easing.

 

In a short term, however, the cable is likely to continue the upward movement. According to Commerzbank strategists, a slide below 1.5600 is needed to reverse the current trend. Specialists at Societe Generale also note that these days the sterling is the most undervalued G10 currency, while the US dollar is under pressure ahead of the FOMC monetary policy decision.

 

Resistance:

1.5752 (200-day MA);

1.5782 (50% Fibonacci retracement from an April –May decline);

1.5876 (55-week MA).

 

Support:

1.5600 (March low);

1.5407 (June 8 minimum);

1.5235 (2012 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/19_06_12/daily_gbpusd_19.06._16-00.gif

 

Chart. Daily GBP/USD

 

 

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[fallenDC]

Will EUR growth continue?

 

The single currency strengthens against the US dollar amid speculation that the Fed may ease monetary policy on Wednesday. The strength of the euro is limited by the deep problems in the currency block. However, many analysts believe that in a short term EUR/USD may keep moving up.

 

On Tuesday the euro climbed above $1.26 even despite the negative German ZEW Economic Sentiment (index declined by 16.9 in June after a 10.8 growth in May). The Spain’s 10-year bond yields edged down to 7.09% (0.10 % down from yesterday’s high), but still remain excessive.

 

US released mixed construction data today. Number of new building permits exceeded the forecasts and reached 0.78M, while number of new housing starts declined to 0.71M.

 

BBH: Technical factors warn that the correction from the sharp losses in May is not complete, and further dollar corrections may be supported by easing from the Fed. The next retracement objective is near $1.2670 (61.8% Fibonacci retracement from May slide).

 

Danske Bank: EUR/USD movement will depend on the relative monetary policy response between the Fed and the ECB. If the Fed delivers strong monetary easing this could trigger a trend reversal in EUR/USD – but just an extension of Operation Twist is not enough.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/19_06_12/daily_eurusd_19.06._17-40.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Societe Generale: comments on AUD/USD

 

Analysts at Societe Generale believe that the overall trend for AUD/USD still remains bearish, despite the fact that the Aussie strengthens for the fourth consecutive day. They explain the strength of the Australian currency with hopes of stabilization in Europe and a smaller-than-expected RBA rate cut. It is necessary to note that AUD was the worst-performing G10 currency since March until early June.

 

Specialists expect the RBA to cut rates by further 50 b.p. by the end of 2012 due to the dim global growth prospects. They admit that the national economy remains resilient, but underline that it is highly dependent on China – Australia’s biggest trading partner. China’s GDP growth is forecasted to slow down to 7.9% in 2012.

 

Some market participants perceive the Aussie as a safe currency – foreign investors raised their holdings of Australian bonds to a record high of 79% in Q1 2012. Societe Generale specialists disagree: in their view, AUD remains very dependent on the risk sentiment.

 

In current global economic conditions analysts expect the cross to trade at $0.78 by the end of 2012 (these days the pair is overvalued). They recommend going short on AUD/USD, bearing in mind that the dollar’s weakness won’t last long.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/19_06_12/daily_audusd_19.06._19-02.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

Wednesday, June 20: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/20_06_12/utro_eng.jpg

 

On Wednesday EUR/USD trades in the $1.2680 area. The factors, influencing the cross, are controversial: on the one hand, the greenback remains under pressure ahead of the FOMC meeting held today (Bloomberg survey of 64 economists shows 37 expect the Fed to announce an extension of Operation Twist today). Greece is finally close to forming a coalition: according to Pasok leader Evangelos Venizelos, a new government could be ready by midday today. The G20 statement calls Europe for integration and doesn’t mention any easing measures. On the other hand, the euro’s growth has many constraints: the euro zone’s problems are here to stay, investors remain concerned about Spain’s and Italy’s borrowing costs.

 

USD/JPY continues a downward movement today. Japan’s trade deficit in May increased to 907B compared with the 544B yen deficit expected (second-worst since 2009), even though the exports improved. The minutes of the May 22-23 meeting were released early Wednesday: a few BoJ members said the regulator must be ready to act if risks materialize from Europe. According to BoJ’s Governor Masaaki Shirakawa, the economy starts to pick up moderately.

 

The MSCI Asia Pacific (MXAP) Index gained 1.1% on Wednesday. The Aussie strengthens for the fifth consecutive day despite the negative data releases (CB Leading Index, Housing Starts). New Zealand and Canadian dollar, however, demonstrate a downward movement. NZD current account deficit declined in Q1, but was still bigger than forecasted.

 

Events to watch today:

• Great Britain: claimant count change, MPC meeting minutes, unemployment rate

• US: FOMC meeting, crude oil inventories

 

 

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[fallenDC]

Barclays Capital: bearish on EUR/CAD

 

Analysts at Barclays Capital recommend selling the euro against the Canadian dollar ahead of the FOMC meeting on Wednesday where the Fed is likely to extend the Operation Twist program.

 

Despite the fact that the dovish FOMC statement will weaken the greenback and the “neighboring” currencies, analysts expect the loonie to grow vs. the common currency due to its high-beta properties. A switch to the Canadian dollar will help to avoid direct losses, connected with the Fed’s easing measures.

 

Specialists believe that the global risk sentiment is likely to remain high in the medium term on the back of the positive outcome of the Greek elections and the seeming readiness of the central banks to support the national economies. The ECB is expected to cut rates by 50 b.p., while the Bank of England – to extend the asset purchases program by 50 billion pounds in July. The demand for high-yield currencies, therefore, is likely to edge up, even if the situation in the euro zone worsens.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/20_06_12/daily_eurcad_20.06._13-09.gif

 

Chart. Daily EUR/CAD

 

 

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[fallenDC]

GBP weakens on UK data

 

The sterling weakens against the euro on the back of a bunch of negative data released in UK on Wednesday. The cable, however, goes up on the prospects of the Fed’s policy easing.

 

Minutes of the Bank of England’s June 6-7 meeting showed 4 of 9 MPC members voted for the expansion of the bond purchase program. Therefore, the likeliness of the additional policy easing increased sharply. Moreover, jobless-benefit claims rocketed to 8.1K in May after a drop of 12.8K in April (forecast – a 3.1K decline), while unemployment rate remained unchanged at 8.2%.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/20_06_12/daily_gbpusd_20.06._14-13.gif

 

Chart. Daily GBP/USD

 

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/20_06_12/daily_gbpusd_20.06._14-15.gif

 

Chart. Daily EUR/GBP

 

 

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[fallenDC]

Greece: new government, old problems

 

According to Pasok leader Evangelos Venizelos, three Greek political parties finally managed to form a parliamentary coalition.

 

In the new government the right-centered New Democracy Party, the winner of the June 17 election, will hold 129 seats, the socialist Pasok – 33 seats and the Democratic Left – 17 seats. All in all, they will control 179 seats in the 300-member parliament. Antonis Samaras, leader of the New Democracy, will become a prime-minister. The opposition radical-left Syriza Party (71 seat) refused to join the pro-bailout government.

 

Analysts at Wells Fargo point that the euro zone’s crisis is far from over. Greece made a step towards the partnership with the EU and the IMF, but it still remains unclear if the country manages to fulfill conditions set by its lenders.

 

Citigroup: Despite the election results the Greek exit possibility still remains high (50-75% in a 18-month period). The growing success of the leftist Syriza Party signals major challenges ahead.

 

Moreover, many economists note the Greek problems pales in comparison to the debt pit in which Spain slides.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/20_06_12/antonis-samaras-008.jpg

 

Antonis Samaras, the conservative New Democracy leader

Photograph: Panagiotis Tzamaros/AFP/Getty Images

 

 

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[fallenDC]

Thursday, June 21: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/21_06_12/utro_eng.jpg

 

On Thursday the FX market switched to a completely risk-off mode, sapping demand for the commodity and emerging currencies. The US dollar strengthens against all major counterparts (except NZD) on the back of the FOMC meeting results. The Fed announced yesterday it will prolong the Operation Twist program until the end of 2012 by selling $267 billion of shorter-term securities and buying the same amount of longer-term debt. The MSCI Asia Pacific Index (MXAP) of shares declined 0.6% on Thursday. The commodity prices fell to a lowest level since 2010.

 

The Australian dollar was also influenced by the today’s Chinese data. HSBC flash manufacturing PMI dropped to 48.1 in June compared with 48.4 in May, raising the probability of further policy steps aimed at supporting the China's growth.

 

The New Zealand dollar is the only exception from the today’s market tendency: the kiwi goes up against the US dollar after the GDP report showed the New Zealand’s economy unexpectedly grew by 1.1% in Q1 compared with a 0.4% growth in Q4.

 

Events to watch today:

• Euro zone: manufacturing and services PMI’s, ECB president Mario Draghi speaks;

• Great Britain: retail sales, 10-year bond auction;

• Canada: retail sales, BOC governor Carney speaks;

• US: unemployment claims, existing home sales, Philly Fed manufacturing index.

 

 

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[fallenDC]

FOMC: what are they aiming at?

 

On Wednesday the analysts' expectations were realized: the Federal Open Market Committee prolonged the Operation Twist program until the end of 2012 by selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in attempt to lower borrowing costs and to stimulate the sluggish recovery. The Federal funds rate remained unchanged at a zero-bound level.

 

One has the impression that the widely expected US economic rebound is still awhile away from now. The US officials lowered their 2012 growth forecasts to 1.9-2.4% from 2.4-2.9% forecasted in April. The unemployment expectations for 2012 increased to 8-8.2% from 7.8-8% in April. The Fed’s Chairman Ben Bernanke said at a press conference yesterday that the US monetary authorities will take additional measures if the labor market doesn’t improve in the nearest future.

 

What do analysts make of the extension of Operation Twist? For the most part, they believe that the FOMC decision is a kind of a prelude to the next round of quantitative easing (QE3). The deterioration of the labor market data and the escalation of concerns about the euro zone’s future is likely to push the Fed to launch QE3. Some specialists, however, doubt that the easing steps are possible before the US presidential election in November.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/21_06_12/fernan1.jpg

 

Photo: ITAR-TASS

 

 

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[fallenDC]

Deutsche Bank: USD may remain strong in medium term

 

Analysts at Deutsche Bank don’t think that the extension of the Fed’s Operation Twist program would have much negative impact on the greenback.

 

The specialists say that in the short-term revived risk sentiment will make investors go short on US dollar versus its Australian and Canadian counterparts. In the medium term, however, American currency “has nothing to fear from balance sheet neutral actions like Operation Twist.” In addition, if lower long term rates boost commercial lending and borrowing, US economy will benefit. “Operation Twist has been associated with lower long-term rates, and a flatter yield curve that is generally consistent with USD strength.”

 

Operation Twist is a program under which the Federal Reserve is selling short-term debt and uses the money to purchase longer-term one.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/us-dollar-pyramid.jpg

 

 

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[fallenDC]

TD Securities: watch IFO figures

 

Analysts at TD Securities recommend paying great attention to German IFO business climate release tomorrow. In their view, the index may surprise the markets to the upside.

 

Consensus forecast is 106.2in June, slightly down from May’s figure of 106.9.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/ifo_(1).png

 

 

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[fallenDC]

EUR/JPY: trading recommendations

 

The EUR/JPY pair keeps strengthening for a third consecutive day and now trades near to 101.4 (38.2% Fibonacci retracement from an April-May decline). The cross remains in an upward channel since early June and now is at a highest level since May 23.

 

In general, the sentiment towards the single currency has improved recently: Greece finally formed a coalition on Wednesday, while Spain managed to raise 2.2 billion euro in a debt auction today (the borrowing costs, however, soared). Later today the independent audit report about Spanish banking recapitalization will be released.

 

On the contrary, demand for the Japanese currency was sapped today on the speculation that the Japanese government will vote for tax hikes in attempt to give the BoJ more room to monetary policy easing. The minutes of the May 22-23 meeting were released early Wednesday: a few BoJ members said the regulator must be ready to act. Japan’s trade deficit increased in May: BoJ’s officials underline that the strong yen hurts the exports badly.

 

It makes sense to go long on EUR/JPY at the current levels, targeting at 101.85 and with a stop at 98.50. Resistance for the pair lies at 102.00 102.30 (50-day MA) and at 103.35 (50% Fibonacci retracement), while support – at 100.55 (today’s minimum), 99.85 (June 20 minimum) and 99.25 (23.6% Fibonacci retracement).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/21_06_12/daily_eurjpy_21.06._17-27.gif

 

Chart. Daily EUR/JPY

 

 

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