Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

EUR/USD: technical levels

 

The single currency has been trading quite volatile today fluctuation on the news. EUR/USD fell to the daily minimum on the news of the scheduled publication of the independent audit on Spanish banks. US jobless claims contracted less than expected sliding to 387K vs. 381K expected.

 

At the same time, the pair remains within an uptrend channel slowly moving towards 50% Fibonacci retracement of May decline at $1.2875.

 

BBH says support for the pair lies at $1.2600 (trend line support), while resistance is in the $1.2745/50 area (recent maximums). MIG Bank warns that euro’s slide below $1.2520 would switch the picture to the bearish side.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/18_06_12/daily_eurusd_17-51.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Friday, June 22: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/utro_eng.jpg

 

EUR/USD moves down on Friday after yesterday’s sharp fall on the back of the FOMC decision and the Spanish news. However, the demand for the single currency remains limited: according to the IMF today’s report, the euro zone’s crisis reached a critical stage; economists, therefore, believe that the Eurobonds are the only effective solution to revive the currency block. Moody’s rating agency downgraded 15 international banking giants today. Later the day the German business confidence is forecasted to decline, raising demand for the safe currencies. The US dollar for now is weaker in comparison to yesterday growth.

 

The MSCI Asia Pacific Index dropped by 1.1% today. The Japanese yen weakens for the third consecutive day as the market participants expect the BoJ to ease monetary policy in the nearest future. The Australian, the New Zealand and the Canadian dollar are up today on the speculation that the Fed will take additional measures to support the US economy.

 

Events to watch today:

• Euro zone: German Ifo business climate, ECOFIN meetings, Belgium NBB business climate

• Canada: CPI

 

 

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[fallenDC]

RBC: AUD in short and longer terms

 

Analysts at RBC Capital Markets claim that Australian dollar has a number of safe haven features in the long term. There are reasons for such assumption:

 

- Australia has the top credit rating;

- Australia is reach with commodities;

- Australia is strongly connected to the Chinese economy, known for its fastest growth in the world.

 

However, the specialists warn investors about being too eager on AUD/USD in the short term. Australian dollar is extremely vulnerable to shifts in the risk sentiment moving in line with stock markets since 2008. In addition, daily turnover in Aussie is much lower than in US dollar, euro, or yen and Australian bond market seems small in comparison with the US, European and Japanese one.

 

The conclusion is: now it’s especially important to be very attentive to the time horizons while developing a trading strategy.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_audusd_11-08.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

Spain: looming risk of ‘total’ bailout

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/display_image.php.jpg

 

Photo: AFP/File - Philippe Huguen

 

 

As many analysts have foreseen, the situation in Spain is really becoming more and more heated. There has been a lot of talk about the problems of Spanish banking sector contaminated with toxic loans and assets from the collapse of the country’s property market in 2008.

 

It turned out that the suspicions haven’t been groundless: independent auditors hired by Spanish government claimed that the nation’s banks could need 62 billion euro ($78.6 billion) in new capital to protect themselves from economic shocks in the worst-case scenario.

 

Of course, this sum isn’t striking as European authorizes agreed to lend 100 billion euro to Spanish banks this month, so the financing needs may be fully covered. However, the figure proves that Spanish banks are in trouble. Spain will apply to EU for a bank bailout loan on the basis of the auditors’ report no later than Monday, said the head of Eurogroup Jean-Claude Juncker.

 

What worries the markets is that Spain’s debt burned will keep mounting. Spanish 2-year bond yields jumped to 4.7% from 2.1% in March. The nation’s 10-year yields reached record 7.285% this week getting above the critical 7% level – other indebted euro zone nations have asked for help at this point. So, the risk that Spain will join Greece, Ireland and Portugal in seeking a rescue loan for not just the banks but the whole country seems high.

 

The risk sentiment has turned sour on the news and EUR/USD breached trend line support of $1.2600 yesterday. For now the bears got constrained by 23.6% Fibonacci retracement of euro’s decline in May.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_eurusd_11-46.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Aspen Trading: recommendations for EUR/USD

 

Aspen Trading Group, one of the leading providers of actionable analysis and trading strategies in the currency markets, recommends going short on EUR/USD at 1.2600 level, targeting at 1.2300 and with a stop at 1.2700.

 

According to specialists, selling the euro on a pullback is the most appropriate strategy these days, because the seeming improvement of the situation is superficial. Today the newly formed Greek government announced it needs two more years to meet the budget target. The US dollar, on the contrary, is likely to strengthen in the nearest future due to the extension of the Operation Twist.

 

EUR/USD breached trend line support of $1.2600 yesterday. For now the bears got constrained by 23.6% Fibonacci retracement of euro’s decline in May.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_eurusd_22.06._12-17.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

SocGen: NZD/JPY may rally

 

Analysts at Societe Generale propose buying New Zealand versus Japanese yen.

 

The specialists point out that New Zealand’s fundamentals seem really good: first quarter GDP growth was surprisingly high (+1.1% q/q), May jobs advertisements figures were also quite encouraging. In their view, this is not enough to ensure sustainable kiwi’s growth, but able to make it more attractive than Aussie.

 

As for Japan, yen has weakened since the Fed’s decision to expand the Operation Twist program which brought shorter-term Treasury yields higher. Remember that USD/JPY is correlated with spread between 2-year American and Japanese debt.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_nzdjpy_12-59.gif

 

Chart. Daily NZD/JPY

 

 

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[fallenDC]

Danske Bank: sell EUR/GBP

 

Analysts at Danske Bank note that the pair EUR/GBP has stabilized today after yesterday’s slide of both euro and pound versus the greenback in the 0.8040 area. The bank says that euro and pound will likely remain under pressure against USD in the coming days.

 

The specialists recommend selling the single currency versus the greenback on recovery to 0.8112 in the targeting levels in the 0.7989 zone and placing very tight stops.

 

According to Danske Bank, resistance for EUR/GBP lies at 0.8058, 0.8090, 0.8100 and 0.8112, while support is found at 0.8023, 0.8012, 0.7989 and 0.7971.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_eurgbp_14-48.gif

 

Chart. Daily EUR/GBP

 

 

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[fallenDC]

USD/JPY: technical levels

 

The USD/JPY cross strengthens for a third consecutive day after a trade in a downward channel since March until early June. This week the Japanese yen is one of the worst performers among the other key currencies. The reason for the current weakness of the JPY is that the BoJ is expected to expand the asset purchase program at the next policy meeting (July 12).

 

According to analysts at Credit Suisse, USD/JPY targets growth after a break through a strong 80.00 resistance on Thursday even despite the strongly negative Philly Fed index. Specialists expect the cross to consolidate at current levels for some time, but then to continue upward movement to the 84.00 area. However, if the pair falls below the 78.79 support, a decline to 77.65 will become likely.

 

Specialists at Societe Generale, however, doubt that the investors, bullish on the yen, will give ground quickly without any weighty reasons (for example, German yields growth or Spain’s yields decline). Today we witness a fierce fight between bulls and bears.

 

Resistance:

80.56 (May 16 maximum);

80.61 (May 2 maximum);

80.44 (100-day MA);

81.00 (psychological level);

81.07 (38.2% Fibonacci retracement from Jan.-March rally);

81.45 (April 27 maximum).

 

Support:

80.00 (June 22 minimum);

80.10 (50% Fibonacci retracement);

79.82 (50-day MA);

79.16 (61.8% Fibonacci retracement);

78.79 (200-day MA);

77.65 (June 1 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/daily_usdjpy_22.06._16-41.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

JPMorgan: SNB’s very exposed to European crisis

 

Analysts at JPMorgan Chase claim that the euro zone debt crisis may deepen. In their view, this poses risks for EUR/CHF floor set by the Swiss National Bank.

 

The SNB revealed today that its foreign-exchange reserves rose to 70% of GDP. When the central bank abandoned its previous currency-intervention policy in May 2010, the reserves accounted for 56% of GDP.

 

This means that the SNB is now extremely vulnerable to euro’s depreciation versus the greenback. “The merits of accruing so much exposure to the euro will look increasingly suspect if the sovereign crisis intensifies and euro-dollar collapses in a high-volatility fashion, thus anchoring Swiss monetary policy to an imploding asset,” says JPMorgan Chase.

 

SNB’s Danthine said today that franc’s ceiling is “absolutely necessary” and cap could be maintained for a “rather long-time”.

 

EUR/CHF keeps its monotonous crawling just above 1.2000.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/22_06_12/h4_eurchf_16-30.gif

 

Chart. H4 EUR/CHF

 

 

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[fallenDC]

Monday, June 25: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/25_06_12/utro_eng.jpg

 

EUR/USD weakens on Monday ahead of the Italy’s and Spain’s debt auctions scheduled on Tuesday. Spain is to sell 3- and 6-month bills tomorrow, while Italy will auction inflation-linked securities maturing in 2016 and 2026, as well as up to 3 billion euro in zero-coupon bonds. At the end of the last week Spain’s bond yields declined to 6.38% after overcoming the critical 7% level. Investors fear that the euro zone’s crisis will contaminate bigger economies. The EU leaders meeting in Brussels on June 28-29 is likely to become one of the most important events of the week: politicians will discuss measures towards a regional banking union, tight fiscal integration and the possibility of a debt redemption.

 

The MSCI Asia Pacific Index (MXAP) of shares slid 0.3%: the market switched into a risk-off mode with an increased demand for safe-havens. AUD/USD and NZD/USD fell on speculation the euro zone’s borrowing costs will continue to grow. USD/JPY demonstrates a downward movement after three days of a consecutive growth.

 

Event to watch today: the US new home sales in May are expected to climb to 347K from 343K in April.

 

 

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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, $1.2580, $1.2650, $1.2700;

 

USD/JPY: 79.00, 79.50, 80.25, 80.35, 80.50;

 

GBP/USD: $1.5600, $1.5800;

 

AUD/USD: $0.9850, $0.9965, $1.0030, $1.0200;

 

USD/CAD: 1.0110.

 

http://static2.fbs.com/sites/default/files/image/analysis/May2012/31_05_12/flatline.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 19 speculators’ positioning changed the following way:

 

EUR: the net short positions decreased to 141K contracts from the previous week’s total of 195K contracts on June 12th. The speculator sentiment towards the single currency improved last week: the shorts reached their minimum since May 1.

 

http://static2.fbs.com/sites/default/files/25_06_12/eur.jpg

 

 

GBP: the net short positions went down to 17K contracts following a total of 23K contracts the previous week. Sterling positions improved last week for the first time in six weeks.

 

http://static2.fbs.com/sites/default/files/25_06_12/gbp.jpg

 

 

JPY: the net long yen positions totaled 15K contracts following a total of 12.3K contracts on June 12th. Yen's positions remain positive on the long side for three consecutive weeks.

 

http://static2.fbs.com/sites/default/files/25_06_12/jpy.jpg

 

 

CHF: the net short positions declined to 7K contracts following a total of 33.3K contracts (the best showing since December 2011).

 

http://static2.fbs.com/sites/default/files/25_06_12/chf.jpg

 

 

CAD: the net long positions fell to a total of 8.2K contracts from a previous week's total of 9.6K contracts (the lowest level since Feb. 6).

 

http://static2.fbs.com/sites/default/files/25_06_12/cad.jpg

 

 

AUD: the net short positions shrank to a total amount of 3.5K contracts from 45.5K contracts.

 

http://static2.fbs.com/sites/default/files/25_06_12/aud.jpg

 

 

NZD: the net short positions declined to a total of 2K contracts following a total of 3.8K contracts on June 12th.

 

http://static2.fbs.com/sites/default/files/25_06_12/nzd.jpg

 

 

USD: the value of the net long positions fell to $22.13 billion on June 19th from a total of $38.77 billion on June 12th.

 

http://static2.fbs.com/sites/default/files/25_06_12/usd.jpg

 

 

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]

Credit Suisse: comments on EUR/JPY

 

The EUR/JPY cross declines on Monday in conditions of an increased risk aversion on the currency markets. However, the pair remains in an upward channel since early June.

 

According to analysts at Credit Suisse, the single currency may keep weakening after it failed to overcome the strong resistance lying at 101.50 (38.2% Fibonacci retracement of April-May decline). Specialists believe that the current bullish trend may reverse and the pair may slide to 95.59 (June 1 minimum, lowest since Nov. 2000). The nearest support for the pair lies at 99.23 (23.5% Fibonacci retracement).

 

http://static1.fbs.com/sites/default/files/25_06_12/daily_eurjpy_25.06._13-25.gif

 

Chart. Daily EUR/JPY

 

 

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[fallenDC]

EU summit: who knows what tomorrow holds?

 

This week the currency market is looking ahead of the crucial EU summit that will take place on June 28-29 in Brussels. We have already heard a lot about the questions on top of the agenda: closer fiscal integration within the currency block, a cross-border banking union and the issue of joint EU bonds. Will the EU leaders manage to reach any final agreements on these key issues? The general analyst’s sentiment is negative: there is lack of confidence and consensus for more aggressive and innovative actions.

 

At the moment the euro zone’s banking system triggers the biggest concern, that is why the idea of Eurobonds is seen as an emergency exit for the debt-stricken region. However, the German Chancellor Angela Merkel last week resisted the attempts by the leaders of France, Italy and Spain to persuade Germany to agree to joint euro-bloc bonds or bills.

 

Specialists at RBS expect Germany to remain adamant about rejecting debt mutualization or any sort of common bond. UBS analysts, however, are slightly more optimistic: in their view, Merkel will not give her consent to joint bonds until she gets enough control on how the EU governments conduct the fiscal policy. Analysts add that the German support of the EU members in hot water will weaken as fast as the election in Germany in October 2013 will be nearing.

 

Specialists at ING expect that the ECB will be bound to take the heat if the summit will bring no solutions: in their view, expectations for further rate cuts at the 5 July meeting are high. However, it’s obvious that the dovish monetary measures cannot support the region’s economy forever. According to analysts at Standard Chartered, a full breakup of the euro zone is not a myth and may happen if the political will for the union is lost. Never the less, they believe that it can be avoided if the currency block quickly moves towards a tighter integration.

 

It seems the investors can’t put up with the never-ending uncertainty in Europe any longer. As a result, the common currency is likely to weaken further if the EU summit will not make strong progress on core questions.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/25_06_12/afp.jpg

 

Image: AFP

 

 

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[fallenDC]

June 26-29: main economic events

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/25_06_12/week_ahead.jpg

 

Tuesday, June 26

 

Euro area: GfK German consumer climate in June is likely to remain unchanged at 5.7. Italy will offer inflation-linked securities maturing in 2016 and 2026 and 3 billion euro ($3.8 billion) of zero-coupon bonds. Spain will sell 3- and 6-month bills.

 

Britain: Public sector net borrowing in May is forecasted to rise to 13.1B after a 18.8B decline in April. Later in the day the inflation report hearings will take place.

 

US: S&P house price index is expected to decline by 2.4% y/y in April (the contraction will be less than in March). CB consumer confidence index in June is to decline to 64.0 vs. 64.9 in May on the back of the deteriorating labor market conditions.

 

Wednesday, June 27

 

Germany: Preliminary CPI in June is forecasted to remain unchanged after a 0.2% decline in May.

 

US: A bunch of positive US data is expected to be released. Core durable goods orders, leading indicator of production, are expected to go up in May by 1.0% m/m compared with a 0.9% decline in April, what will be a positive sign for the economy. Durable goods orders (including transportation items) may increase by 0.5% after a remaining flat in the previous month. Pending home sales in May are to increase by 1.3% m/m vs. a 5.5% drop in April. However, the confidence in the stability of the US housing market is still weak.

 

Japan: Retail sales in May are likely to increase by 3.1% y/y after a 5.7% growth in April.

 

Thursday, June 28

 

Europe: EU Economic Summit will be the first time European leaders meet since the Greek parliamentary elections on June 17. The nation’s new Prime Minister Antonis Samaras who pledged to seek relief from austerity measures imposed on the country while keeping the bailout funds flowing as he has recently undergone surgery to repair a detached retina. Billionaire investor George Soros warns that if the fiscal disagreements aren’t resolved in the next 3 days, the summit could turn out to be a fiasco. In addition, Italy will try to sell 10-year government bonds. The results of the auction will have an extremely strong effect on the market’s sentiment. The yields will be used as a gauge of the market’s confidence of the European policymakers’ resolve to solve the crisis.

 

Britain: The final British GDP figures will likely confirm that the nation’s economy has fallen into recession declining by 0.3% q/q in the first 3 months of 2012 after losing 0.3% in Q4 2011. Although the markets have already priced in the grim news, the release will once again remind investors about UK economic weakness and make them think that the Bank of England will ultimately have to expand its Asset Purchase Program. Also watch Britain’s current account data, BOE credit conditions survey and Nationwide HPI.

 

US: The United States also release the final Q1 GDP readings: in May US economic growth in the first quarter was revised down from 2.2% q/q to 1.9%. No further revision is expected this time, so negative surprise would weight on the greenback. Unemployment claims – the indicator closely watched every week – is seen declining slightly from 387K to 385K.

 

Japan: Here’s a group of important reports which will determine the sentiment during the Asian session. The nation’s core CPI may have risen by only 0.1% y/y in May or even stayed flat compared with the 0.2% y/y increase in April. Tokyo core CPI has been posting negative readings since the short respite last summer. Deflation threat could force the Bank of Japan to do additional easing. Also watch Japanese manufacturing PMI, industrial production, household spending and unemployment data.

 

Friday, June 29

 

Europe: This is the second day of the EU Economic Summit, so main comments and releases will appear today. As for the economic data, the focus will be on German May retail sales and French May consumer spending change – both indicators are forecasted to show weaker growth than before. Euro zone’s CPI is seen unchanged this month at 2.4% y/y.

 

Britain: the BOE will deliver its Financial Stability Report and the Governor Mervyn King will comment on UK financial prospects. The release and King’s speech will be closely watched as the Bank for International Settlements (BIS) has recently warned that the European crisis could infect the UK and the global economy unless governments take urgent action to tackle their problems.

 

Canada: Canada’s economy is expected to add 0.2% in April m/m after gaining 0.1% on March. Advance indicators are mixed: retail sales were discouraging last month, while wholesale trade and housing managed to rise. Moreover, the 58K jobs gain in May was mostly due to the increase in full-time jobs, while aggregate hours worked were flat. Such dynamics may be a warning signal as GDP equals hours worked times labor productivity.

 

US: the University of Michigan will release revised consumer sentiment and inflation expectations data. The outlook of US consumers could see a slight upward revision in June with from the preliminary estimate of 74.1 to 74.3 but remain at 6-month minimum. Also watch US personal spending, personal income and core PCE price index figures as well as Chicago PMI.

 

 

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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, $1.2500, $1.2525, $1.2675;

 

USD/JPY: 79.25, 79.50, 80.00, 80.50;

 

GBP/USD: 1.5600, 1.5650;

 

AUD/USD: $0.9975, $1.0000, $1.0050, $1.0200;

 

USD/CHF: 0.9650.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/flatline.jpg

 

 

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[fallenDC]

Tuesday, June 26: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/utro_eng.jpg

 

The beginning of this week is full of events on the forex front. Below you will find the most important FX news released on Monday and Tuesday that influence today's trade.

 

• Moody’s downgrades 28 Spanish banks. According to the rating agency, it becomes more difficult for the country to support its lenders on the back of the Spanish government's fragile financial position. The announcement came on the same day when Spain officially asked the EU for bailout. The uncertainty is likely to push the borrowing costs up.

• Cyprus announced it will apply for the EU funds right after Spain formally requested support. The country is likely to become the fifth euro zone member to ask for help: it needs to raise at least 1.8 billion euro by the end of the week to recapitalize Cyprus Popular Bank. On Monday Fitch Ratings lowered the nation's credit rating to junk level of BB+.

• Graeme Wheeler was named RBNZ’s next governor. He is to assume office in September, succeeding Alan Bollard, who served in the position for a decade. Analysts at Westpac expect RBNZ to increase rates from a record-low 2.5% in March 2013, when the new governor will settle in. This year the New Zealand dollar is the best-performing G10 currency.

• The market expects China to cut rates in August in attempt to combat the economic downturn.

• Japan's lower house has voted to approve doubling the country's consumption tax to 10% over three years. According to Prime Minister Yoshihiko Noda, the tax hike is needed to cut the budget deficit. However, the decision was not unanimous: opponents believe the hike is premature and will weaken the economy further. Japan’s corporate services price index, a leading indicator of consumer inflation, increased by 0.1% in May vs. 0.3% growth forecasted.

• German consumer climate index in June unexpectedly increased to 5.8.

 

Events to watch today:

 

• Euro area: Italy will offer inflation-linked securities maturing in 2016 and 2026 and 3 billion euro ($3.8 billion) of zero-coupon bonds. Spain will sell 3- and 6-month bills.

• Britain: Public sector net borrowing in May is forecasted to rise to 13.1B after a 18.8B decline in April. Later in the day the inflation report hearings will take place.

• US: S&P house price index is expected to decline by 2.4% y/y in April (the contraction will be less than in March). CB consumer confidence index in June is to decline to 64.0 vs. 64.9 in May on the back of the deteriorating labor market conditions.

 

The market players seem very unsure ahead of Italian and Spanish auctions and the EU summit. The single currency edged a bit higher, but faces resistance at yesterday’s maximum of $1.2560. Bulls and bears fight on USD/JPY intraday chart. Aussie, kiwi and loonie followed euro getting slightly higher on the back of the improved risk sentiment.

 

 

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[fallenDC]

Commerzbank: comments on EUR/USD

 

Technical analysts at Commerzbank expect the single currency to consolidate versus the greenback in the near term. In the longer run, however, the outlook for EUR/USD remains bearish.

 

The specialists underline that euro failed to make a sustainable break above $1.2746, 38.2% Fibonacci retracement of the entire move seen this year, so its short uptrend is over.

 

According to the bank, EUR/USD will slide below $1.2435 (June 8 minimum) to $1.2288 (June 1minimum). Commerzbank says that resistance for the pair lies at $1.2583/1.2610 (June 22 and 13 maximums) and $1.2746.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/daily_eurusd_11-53.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Westpac: trading USD/JPY this week

 

Japan will release CPI report on Thursday. According to consensus forecast, the nation’s core CPI may have risen by only 0.1% y/y in May or even stayed flat compared with the 0.2% y/y increase in April. Tokyo core CPI has been posting negative readings since the short respite last summer.

 

Analysts at Westpac claim that if core CPI comes in stronger than expected, the Bank of Japan will leave policy unchanged. In this case it would be wise to sell USD/JPY. However, if consumer prices are lower than expected, one should do quite the opposite thing as the possibility of more easing from the BOJ will increase and yen will get under bearish pressure.

 

Since the specialists think that the second outcome is more likely, they recommend buying the greenback on the upside breakout at 80.50 stopping at 79.70 and targeting 83.00. According to Westpac, “80.50-80.60 area is the top of a trend line, and if we break, it will break big.”

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/daily_usdjpy_14-32_(1).gif

 

Chart. Daily USD/JPY

 

 

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USD/CAD: technical comments

 

The USD/CAD pair trades sideways for a third consecutive day consolidating between 1.0250 and 1.0300. Today the greenback's trading on the downside.

 

This week the Canadian dollar will depend on the news from euro zone and on the overall market sentiment, which are expected to be negative. In a short term analysts at BMO Capital forecast the cross to go up and to trade in a range of C$1.0250-C$1.0400. It makes sense to sell the Canadian dollar at current levels, targeting at C$1.0400 and with a stop at C$1.0200.

 

On the other hand, the US modest recovery and the stable domestic situation may push the Canadian dollar up. On Friday GDP and raw materials price index releases may support the CAD – the forecasts are rather positive. If the pair breaks below the C$1.0240 support, a further decline to C$1.0200 and C$1.0160 will become likely.

 

Support:

1.0240 (June 22 minimum);

1.0200 (38.2% Fibonacci retracement from a May rally);

1.0160 (June 20 minimum);

1.0123 (50% Fibonacci retracement);

1.0100 (psychological level).

 

Resistance:

1.0292 (23.6% Fibonacci retracement);

1.0320 (June 25 maximum);

1.0382 (June 6 maximum);

1.0400 (psychological level);

1.0440/45 (June1, 4 maximum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/daily_usdcad_26.06._17-43.gif

 

Chart. H4 USD/CAD

 

 

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MIG Bank: trading EUR/JPY

 

Currency analysts at MIG Bank note that EUR/JPY tried to recover from 95.56 (June 1 minimum).

 

The specialists say that the individual outlook for the USD/JPY and EUR/USD shows that the prospects for EUR/JPY are negative. If the pair breaks below 98.54, then the levels around 100.95 will be regarded as lower maximums.

 

According to the bank, it will be possible to say that the major minimum has been formed only if euro rises above 102.13 (May 22 maximum). In such case the single currency will get chance to rise to 104.62 (100-day MA) retracing decline from 111.43 (March 21 maximum).

 

The bank proposed the following trading strategy: place sell limit at 100.05 targeting 99.05/95.50/90.00 and stopping at 101.05.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/daily_eurjpy_18-32.gif

 

Chart. Daily EUR/JPY

 

 

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June 27: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/utro_eng.jpg

 

The market’s in the uncertainty stalemate ahead of EU summit on June 28-29. Investors seem very cautious and are reluctant to make any wagers.

 

Commodity currencies are trading on the downside. Yesterday GBP/USD managed to rise above Friday’s maximums to print daily highs at $1.5650, but failed to sustain gains above and now trades below it. Despite the political issues in Japan yen will be likely driven by the global risk sentiment these days. EUR/JPY is staying close to the opening price of 99.30 after hitting yesterday 2-week minimum at 98.74 yen. USD/JPY edged a bit higher after 2 days of declines staying in the 79.55 area, above support at 78.60. Equities in Asia managed to hold their ground: Japan’s Nikkei Stock, Australia’s S&P/ASX 200 and South Korea’s Kospi rose by 0.46%, 0.74% and 0.06% respectively.

 

As for EUR/USD, it’s just below magnetic $1.2500 level. Yields on Spanish and Italian bonds rose at short-term debt auctions on Tuesday, reflecting investors’ doubts about the ability of the EU leaders to come up with any breakthrough agreements on a forthcoming summit. The market needs rapid actions, but even if some key decisions will be made on a summit, their implementation takes time. European Council President Herman Van Rompuy on Tuesday released a report on a closer fiscal and banking union, planning a euro zone treasury that would issue common debt in the medium term. Meanwhile, the German Chancellor, Angela Merkel, told German law makers yesterday that there would be no shared liability for debt "in her lifetime". With regard to Merkel’s inflexibility, Egan Jones, the small UK-based rating agency, downgraded Germany from AA- to A+ with negative outlook. Greece also should be kept in mind: Greek center of Planning and Economic Research (KEPE) expects the national economy to contract by 9.14% in Q3.

 

As a result, some analysts claim that what we see today may be calm before the storm, so be prepared and don’t say we didn’t warn you.

 

Events to watch today:

 

Germany: Preliminary CPI in June is forecasted to remain unchanged after a 0.2% decline in May.

 

US: A bunch of positive US data is expected to be released. Core durable goods orders, leading indicator of production, are expected to go up in May by 1.0% m/m compared with a 0.9% decline in April, what will be a positive sign for the economy. Durable goods orders (including transportation items) may increase by 0.5% after a remaining flat in the previous month. Pending home sales in May are to increase by 1.3% m/m vs. a 5.5% drop in April. However, the confidence in the stability of the US housing market is still weak.

 

Japan: Retail sales in May are likely to increase by 3.1% y/y after a 5.7% growth in April.

 

 

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Zerohedge: EUR/USD and CB balance sheets

 

Analysts at Zerohedge, US financial blog, point out an interesting thing about EUR/USD.

 

The European Central Bank announced yesterday that in the past week its balance sheet increased by 31 billion euro to a new all time record maximum of 3.058 trillion euro due to the increase in the main refinancing operations (MRO). The Federal Reserve’s balance sheet, on the other hand, continues to be flat, or is even modestly declining.

 

The authors of the blog claim that EUR/USD moves have been based upon balance sheet correlation. However, in recent months this trend got broken as the markets were on the constant guard of more QE from the Fed. Now the fair value of the pair, according to this method, is at $1.1600. Look to the chart below which is the perfect illustration of this relationship.

 

http://static3.fbs.com/sites/default/files/image/analysis/June2012/26_06_12/12345.png

 

Zerohedge points out that there are 2 possible scenarios here.

1. If the Fed keeps refraining from further stimulus and the ECB will do all the unsterilized intervention, EUR/USD will continue its way down.

2. If the Fed announces large-scale asset purchases, EUR/USD will surge by at least 400 pips.

 

“Place your bets,” the bloggers say.

 

 

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Japanese tax hike: pro et contra

 

Japan's lower house has voted to approve doubling the country's consumption tax to 10% over three years. The legislation now goes to the opposition-dominated upper chamber, where it is expected to pass during the current session of parliament ending September. However, the decision was not unanimous: 363 lawmakers voted in favor, while 96 - against.

 

Prime Minister Yoshihiko Noda championed the controversial bill regardless of the objections from his own party. In his view, the tax hike is needed to reduce the snowballing budget deficit (forecasted to reach 214% of GDP in 2012). Japan’s government says that the increase will generate $170 billion a year for the budget. Opponents believe the hike is premature and will weaken the economy further because it will limit the consumption.

 

Analysts at UBS fear that the first tax hike in 2014 could bring the economic recovery after the last year’s earthquake and tsunami to the deadlock. According to the Cabinet Office’s Economic and Social Research Institute, a 1% point increase in the tax will cut GDP growth by 0.32% a year after. In this case a strong economic stimulus will be required to support the rebounding economy.

 

In a short-term, the international investors take the “wait-and-see” approach, because they have already burned many times by trying to trade USD/JPY on Japan’s political events. Specialists at Sumitomo Mitsui Banking Corporation also don’t expect the Japan’s fiscal policy and the internal political differences to be the core factors to specify the yen's direction.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/yoshihiko-noda.jpg

 

Yoshihiko Noda, Prime Minister of Japan, a member of the Democratic Party of Japan

Photo: Franck Robichon/EPA

 

 

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RBC: trading on EUR skepticism

 

Analysts at RBC Capital Markets propose entering euro shorts at $1.2550 stopping at $ 1.2675 and targeting $1.2250.

 

“We're setting ourselves up for a little bit of disappointment out of the summit and think that's the best way to play the euro right now,” say the specialists.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/daily_eurusd_14-35.gif

 

Chart. Daily EUR/USD

 

 

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