Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

Westpac: another strategy for EUR bears

 

Here’s another euro selling recommendation. Analysts at Westpac advise investors to go short on EUR/USD on the break of $1.2440 targeting $1.2000 and stopping at $1.2580.

 

The specialists are preparing themselves for the “frustrating news” on the EU summit.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/daily_eurusd_15-04.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Commerzbank: bearish view on NZD

 

Technical analysts at Commerzbank are bearish on New Zealand’s dollar versus the greenback. In their view, NZD/USD will breach support of $0.7844 (38.2% Fibonacci retracement of this year’s decline) and decline to $0.7774 (January 6 minimum), $0.7736 (50% Fibonacci retracement of the pair’s advance in June) and $0.7677/70 (May 22 maximum and 61.8% Fibonacci retracement).

 

The long-term negative targets are $0.7469/0.7371 (October, November and December minimums) and $0.7186 (200-week MA) and $0.7116 (2011 minimum)

 

According to the bank, the outlook for the pair will remain bearish as long as it’s trading below $0.8017 (last week’s maximum). Key resistance for the pair lies at $0.8059/85 (March and April lows, 61.8% Fibonacci retracement and 4-month resistance line).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/daily_nzdusd_15-39.gif

 

Chart. Daily NZD/USD

 

 

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[fallenDC]

GBP/USD: technical comments

 

GBP/USD weakens on Wednesday after touching 1.5640 during the Asian session. Most analysts expect the sterling to continue a downward movement: in their view, the BoE talks on policy easing and increased May public sector net borrowing will weigh on the sterling.

 

On Tuesday the BoE governor Mervin King warned that Britain isn't even half way through the crisis and said the nation probably won't recover for at least five years. King added that the rate cuts are less effective stimulus for the economy than the QE. Specialists at TD Securities expect a new monetary easing in July.

 

Commerzbank analysts remain bearish on GBP/USD: in their view, in a short-term a slide to 1.5407 (Jun-8 low) is likely. Further decline would lead to 1.5269/35 (recent low and 2012 low). Analysts at RBS also recommend going short on GBP/USD, targeting to 1.5050 and with a stop at 1.6075.

 

Resistance:

1.5660 (23.6% Fibonacci retracement from June rally);

1.5734 (June 21 maximum);

1.5747 (200-day MA);

1.5778 (June 20 maximum).

 

Support:

1.5583 (38.2% Fibonacci retracement);

1.5538 (June 25 minimum);

1.5523 (50% Fibonacci retracement);

1.5463 (61.8% Fibonacci retracement).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/daily_gbpusd_27.06._16-17.gif

 

Chart. Daily GBP/USD

 

 

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[fallenDC]

EUR/GBP: not very bright prospects

 

This week the single currency has breached the flag formation within which it has been trading versus British pound. In addition, EUR/GBP fell below 0.8000, the level above which it was consolidating all June. This looks like quite bearish signal.

 

On the daily Ichimoku chat one may see that the bearish Cloud didn’t let the bulls inside acting as resistance. MACD is also negative. The weekly bearish Ichimoku Cloud is getting wider and wider – the downtrend from late June 2011 is still in place.

 

On the fundamental part euro is weakened by the concerns about the EU summit. If the market isn’t reassured enough after the European leaders’ meeting finished, euro’s slide will continue. Note that there has to be some breakthrough in negotiations between Germany and other euro zone members for investors to be satisfied.

 

As a result, we would refrain from buying the pair these days. Currently EUR/GBP is trading just under 0.8000.

 

Resistance:

 

0.8000;

 

0.8011 (June 12 minimum);

 

0.8040 (June 25 maximum)

 

0.8055 (lower border of daily Ichimoku Cloud).

 

Support:

 

0.7980/70 (late May minimums);

 

0.7950 (May 16 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/daily_eurgbp_16-30.gif

 

Chart. Daily EUR/GBP

 

 

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[fallenDC]

JP Morgan: outlook for USD

 

According to analysts at JP Morgan, the US dollar is likely to weaken if the Fed launches QE, China announces monetary and fiscal easing and the EU leaders will work out a detailed plan for a banking union. On the other hand the greenback is to move on the upside if a US economic slowdown continues (we don’t have to forget about the huge US budget deficit), Greek new government doesn’t satisfy the lender’s demands, borrowing costs in Italy soar and China’s economy growth doesn’t accelarate in Q3 2012.

 

In the second half of 2012 the greenback is expected to move predominantly sideways after strength in Q1 on hopes for the economic rebound. In 2011 the US currency went up only by 1.5% trade-weighted amid concerns regarding the global economy and the euro zone’s debt problems. The last time the greenback moved up so unsteadily the early 1990s (recession in the US and the ERM fail).

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/27_06_12/54769-as-100-dollar-bill-is-seen.jpg

 

Photo: Reuters

 

 

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[fallenDC]

June 28: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/28_06_12/utro_eng.jpg

 

The most expected event on Thursday is the EU leaders meeting in Brussels where the key euro zone’s problems are to be discussed. EUR/USD declines for a fourth consecutive day ahead of the Italian bond auction and the EU summit. Most investors say that the widely discussed banking union is premature: nations are not ready to share debt. GBP/USD plunges on low EU summit expectations. Early Thursday the risky currencies demonstrated growth, but now are mostly in the red. Kiwi falls on the data that the NBNZ Business Confidence index halved in June, the Aussie and the loonie drop. USD/JPY goes down on Japan’s better than expected retail sales data. The MSCI Asia Pacific Index of shares climbed 1.1% after the Standard & Poor’s 500 Index advanced 0.9% on Wednesday.

 

Events to watch:

 

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.

 

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.

 

 

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[fallenDC]

RBS turned bearish on AUD/USD

 

Analysts at RBS recommend selling Australian dollar versus its US counterpart stopping at $1.0250 (200-day MA) and targeting $0.9579 (2012 minimum). The specialists have finally given up optimism on Aussie.

 

Support:

 

$1.0029 (50-day MA);

 

$0.9924 (June 14 minimum, 38.2% Fibo retracement of the decline October to November);

 

$0.9881 (23.6% Fibo retracement of the decline from February to June);

 

$0.9794/9803 (May 18 minimum, June 5 maximum).

 

Resistance

 

$1.0141 (June 6 maximum);

 

$1.0208/15 (50% Fibo retracement of the decline from October to November and the slide from February to June).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/28_06_12/daily_audusd_14-20.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

Long-term forecasts for CAD

 

Analysts at Capital Economics believe that the greenback will keep strengthening versus its Canadian counterpart this year to 1.0870 by the end of 2012 and to 1.1630 in 2013. The specialists expect loonie to weaken due to declining commodity prices and no Bank of Canada’s interest rate hike this year. Brent crude oil has so far tested the levels below $90 a barrel and Capital Economics forecasts it to end the year at $85 a barrel, while “business investment prospects already look less sure than a month ago.” In addition, the recent revision to mortgage rules in Canada is likely to curb housing activity which accounts for a considerable share of the nation’s GDP. For loonie downside risks outweigh the upside risks, say the analysts.

 

Specialists at Scotiabank, however, aren’t that bearish on loonie. On the other hand, they believe that USD/CAD will finish 2012 at parity and then hover there in 2013. According to the bank, the expectations of the BOC rate hikes may return later in the year if global economic sentiment improves. Among other factors positive for CAD Scotia names China’s monetary stimulus efforts, which may prop up commodity prices by the end of the year, and weakening US inflation, which could boost spending, lifting Canadian exports.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/28_06_12/weekly_usdcad_15-40.gif

 

Chart. Weekly USD/CAD

 

 

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[fallenDC]

Euro area: the relief – at last!

 

That wasn’t a bad start of the day for EUR/USD: the pair soared by 175 pips in 2 hours – the biggest advance in 8 months – to the maximal level since June 21 of $1.2627 before consolidating around $1.2586 on the hourly chart. Euro also went up against Japanese yen. All in all, risk sentiment improved making the higher-yielding assets and currencies like Aussie and kiwi gain.

 

French President Francois Hollande is calling for an immediate relief for the troubled euro zone’s economies. He even put French backing of a German-inspired deficit-control treaty on hold. Italy and Spain which are in desperate need of funding delivered an ultimatum saying they won’t approve a 120 billion-euro growth-boosting package unless Germany authorized steps to calm their bond markets. As a result, German Chancellor Angela Merkel gave in on expanded steps to stem the debt crisis and euro-area leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on possible help for Italy.

 

European leaders dropped the condition that the emergency loans from Europe’s bailout fund to Spanish banks will have preferred creditor status compared to the money of private bond holders. Such step should help to reduce Spanish yields, say the experts. EU President Herman Van Rompuy said this was a “breakthrough.”

 

According to the statement, European leaders aim to “break the vicious circle between banks and sovereigns” and will present proposals for joint bank supervision “shortly,” “by the end of 2012.” Once an “effective” system is set up, the ESM could, “following a regular decision, have the possibility to recapitalize banks directly.” As for the pooling of euro-area debt, the measure sought by Spain and Italy and strongly opposed by Germany, it wasn’t mentioned.

 

Amid all the optimism I’s necessary to note that the EU’s 2 rescue funds may only amount to about 20% of the outstanding debt of Italy and Spain. As a result, it probably won’t be able to generate significantly lower borrowing costs.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/eu-summit.jpg

 

Photo from findingoutabout.com

 

 

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[fallenDC]

All eyes are on German parliament

 

Although there are still issues of confrontation among the European policymakers including joint debt, euro bonds, the region’s policymakers have managed to show their resolve in combating the debt crisis.

 

All eyes are now on the parliamentary vote in Germany tonight on whether to ratify the ESM Treaty and the Fiscal Compact Treaty.

 

Germany was forced to give up and allow easing conditions on Spanish banks’ rescue and potential Italian bailout. The Chancellor Angela Merkel said after that she was “very satisfied that we took good decisions on growth.” Now she will have to explain the deal to German lawmakers.

 

The debate will begin at 15:00 GMT. The demand for safer assets will get some support on the news.

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/plenary_326.jpg

 

Photo: German Bundestag/Müller

 

 

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[fallenDC]

EU summit: analysts aren’t entirely happy

 

All the talk is about EU summit. Here are the analysts’ comments on the issue.

 

UBS: the innovation of an “effective single supervisory mechanism” and the ESM being able to recapitalize banks directly “will likely come far too late to be of immediate use during the recapitalization of the Spanish banking system.” “Any funding provided to recapitalize Spanish banks over the coming months is still very likely to inflate the Spanish sovereign debt levels.”

 

Lloyds Bank: “It is one step on a very long road. But we don't have any details, and arguably the detail is where the risk lies, because the market will start to pick holes in it as we've seen previously.”

 

BOTMUFJ: among questions the market will ask is whether the firepower available to the rescue funds will be enough to stabilize the 2.5 trillion euro Spanish and Italian bond markets, and how easy will it be to agree on the banking supervisory mechanism. “Our initial view is this deal is no game-changer, and any EUR/USD rally will simply offer attractive levels to sell”.

 

Westpac: “Definitely some good news for risk markets here, though it is not the ‘big bazooka’.”

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/dcb9a__euro-summit.gi.top.jpg

 

Image from todayheads.com

 

 

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[fallenDC]

ECB may cut rates next week

 

The European Central Bank meets on Thursday, July 5. The single currency may find support ahead of the meeting on the expectations of the interest rate cut and more long-term liquidity injections. Either of those would be mildly supportive for the euro.

 

According to Reuters, 48 out of 71 economists surveyed think that the ECB will reduce the borrowing costs next week.

 

Analysts at Standard Chartered forecast a 25bps rate cut claiming that “the European Central Bank is best suited for post-summit fire-fighting at short notice.”

 

Consumer prices in the euro area added 2.4% in June in line with consensus forecast. Commerzbank underlines that “there’s no obstacle to an ECB rate cut from the side of inflation”.

 

Earlier ECB President Mario Draghi has urged European governments to act resolving the crisis. Now as the politicians have made some progress, the central bank may decide to join and help to revive the depressed economy of the euro area.

 

Here’s the sum-up from BNP Paribas: “At 11%, the unemployment rate has reached its highest level since the launch of euro. Under the current economic environment, labor market conditions will continue to deteriorate. The conditions for further interest rates cuts over the coming months are therefore in place. The refi rate might be reduced by 50bp before the end of Q3. However, interest rates are already extremely low, and this will reduce the impact of further cuts. Nevertheless, many credit institutions are still highly dependent on ECB liquidity. Cutting the interest rate will therefore reduce their liquidity costs. An interest rate cut could reduce somewhat tensions in the market. Nevertheless, ECB actions cannot solve euro zone underlying problems. Structural problems require structural solutions which can be provided only by national authorities and EU leaders.”

 

http://static2.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/get.jpg

 

Photo: Reuters In English

 

 

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[fallenDC]

EUR/USD: technical comments

 

EUR/USD advanced more than 1% on Friday after the positive announcements at the EU Summit. It seems the EU leaders have finally got a sense of how complicated the situation is and are ready to make concessions. Most analysts, however, don’t believe the euro’s rally will last long.

 

Analysts at RBS remain bearish on EUR/USD despite the current strength of the single currency. They point at a strongly-marked bearish flag on a daily chart (the pattern started early May), what informs us of a potential downward movement of the cross. In the medium-term RBS strategists recommend selling EUR/USD at current levels, targeting at $1.1880 and with a stop at $1.2775/85.

 

Commerzbank specialists expect the current rally to end at $1.2746 (June 20 and 18 maximum). In their view, the pair is likely to pull back to $1.2463. Perhaps, the market is not ready to break down yet if it didn’t manage to break below $1.2435.

 

Specialists at SEB expect the cross to decline as long as it trades below $1.3005. They call attention to the $1.2626 level (the middle of the long bearish candle formed on June 21), which may serve as a resistance in a short term.

 

Resistance:

1.2626 (today’s maximum, the middle of the long bearish candle formed on June 21 and Jan. 2012 minimum);

1.2670 (38.2% Fibonacci retracement from the May-June decline);

1.2735/46 (50-day MA , June 20 and 18 maximum);

1.2785 (50% Fibonacci retracement);

1.3005 (strong support broken early May).

 

Support:

1.2521 (23.6% Fibonacci retracement);

1.2432 (today’s and June 8 minimum);

1.2405 (June 28 minimum);

1.2290 (2012 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/daily_eurusd_29.06._16-02.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

BarCap: bearish on EUR

 

Analysts at Barclays Capital think that market players will remain cautious and the risk premium on euro will remain high. In addition, euro zone’s economic growth outlook seems gloomy, while the effects of structural reforms will become visible only after some time.

 

The specialists still expect the ECB to keep monetary policy very loose and reduce rates by 50bp next week. In their view, such move isn’t fully priced in by the market.

 

According to Barclays, EUR/USD will be slowly crawling down to $1.15 during a year from now.

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/weekly_eurusd_16-44.gif

 

Chart. Weekly EUR/USD

 

 

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[fallenDC]

BBH: bulls on USD/JPY

 

On Friday USD/JPY strengthens but still remains in a sideways channel (since June 26). The cross follows the EUR/JPY’s rally: risk sentiment improved significantly on the EU Summit results. The greenback is up even despite the today’s negative US data releases (personal spending, consumer sentiment, PCE price index).

 

According to analysts at BBH, the greenback is likely to strengthen further against the Japanese currency: in their view, the combination of fiscal tightening and a weakening economy supports the case for further policy easing. Today Japan released rather negative data: industrial output dropped the most since the March 2011 earthquake and the consumer prices declined. Specialists at BBH believe the next move may come at the next BoJ meeting (July 12).

 

Support:

79.67 (50-day MA);

79.20 (23.6% Fibonacci retracement);

79.00 (psychological level);

78.80 (June 20 minimum);

78.61 (June 15 minimum).

 

Resistance:

80.12 (38.2% Fibonacci retracement);

80.61 (June 25 maximum, 100-day MA);

80.91 (50% Fibonacci retracement).

 

http://static1.fbs.com/sites/default/files/image/analysis/June2012/29_06_12/daily_usdjpy_29.06._19-38.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

July 2: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/utro_eng.jpg

 

On Monday EUR/USD weakens after an impressive growth on Friday on the positive EU Summit results (euro leaders eased terms on loans to Spanish banks). Today the single currency is under pressure of expectations that the regional unemployment may reach record 11.1% in May, while manufacturing PMI – to decline to 44.8 in June. The market, therefore, expects the ECB to cut interest rates to 0.75% on the forthcoming meeting (July 5). According to analysts at UBS, the latest EU summit has clearly bought time for the euro, but it still does not remove the bearish case for the currency.

 

USD/JPY declines today: both Tankan manufacturing and non-manufacturing PMI indices exceeded the previous prints and the expectations (-1 and 8 respectively). However, most analysts still expect the BoJ to expand its asset purchases on a meeting on July 11-12. The Tankan is probably up because the low commodity prices improved the sentiment. AUD/USD weakens; however, the Aussie remains near to an almost two-month high on bets RBA will leave interest rates on hold at 3.5% tomorrow. NZD/USD maintained its biggest gain in three weeks vs. the greenback as Asian stocks extended a global rally. The MSCI Asia Pacific Index (MXAP) gained 0.3% today. The S& P 500 Index rose 2.5% on June 29, after Stoxx Europe 600 Index climbed 2.7% following the EU Summit.

 

Events to watch today:

 

Canada: Bank holiday

Switzerland: Retail sales are likely to increase by 0.9% in May after a 0.1% growth in April.

Great Britain: Manufacturing PMI is to grow to 46.7 from 45.9. However, the indicator still remains below 50, what indicates industry contraction.

Euro zone: Analysts expect the Italian manufacturing PMI to decline to 44.6 from 44.8. Unemployment rate in the region is to increase to 11.1% in May from 11.0%.

US: ISM manufacturing PMI is forecasted to decline to 52.1 from 53.5. Later investors will pay attention to FOMC member Williams speech.

 

 

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[fallenDC]

BMO: trading EUR/USD ahead of ECB

 

These days, after the EU leaders demonstrated readiness to act to resolve the crisis, the market participants are trying to guess where will the euro move now and what to wait from the ECB on July 5.

 

Strategists at BMO Capital Markets recommend going long on EUR/USD at the current levels, targeting at 1.2825 and with a stop at 1.2425. Specialists believe it will make sense to buy all the risky assets including the euro, the Aussie and the kiwi if the currency block holds out. According to analysts, the ECB is likely to reward political leaders by cutting the interest rate. This action could help to ease economic conditions and to reduce risk.

 

http://static1.fbs.com/sites/default/files/image/analysis/July2012/daily_eurusd_02.07._12-14.gif

 

Chart. Daily EUR/USD

 

 

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[fallenDC]

Analysts: outlook for GBP/USD

 

GBP/USD jumped more than 1% on Friday after the EU leaders agreed on measures to ease concerns over the sovereign debt crisis in the euro zone, boosting risk appetite. On Monday the sterling keeps strengthening vs. the US dollar; however, it seems that the initial euphoria which greeted new fades amid uncertainty over how the plans are to be implemented.

 

The latest economic indicators suggest the Britain’s economy may have contracted in Q2 for a third successive quarter. On Monday, however, Britain’s manufacturing PMI release cheered the investors up: the index increased from 45.9 in May to 48.6 in June, beating the expectations.

 

Many analysts expect the Bank of England to launch a QE3 round on a meeting on Thursday (July 5). It is necessary to note that the BoE’s policy is already unprecedentedly loose (interest rates at a record 0.5% low since March 2009 and £325 billion QE program).

 

According to analysts at Citigroup, the MPC may expand the QE to a total of £500 billion in reaction to the persistent weakness of the UK economy, easing inflation worries and ongoing European Monetary Union crisis. UBS specialists expect a more modest easing: in their view, the asset purchase program is likely to augment to £400 billion.

 

BBH: Strong resistance for the cross lies at the $1.5770-$1.5800; the next target is near $1.5900. Support is seen in the $1.5600-30 area. It would not be surprising to see the euro lead sterling higher in this corrective phase.

 

http://static1.fbs.com/sites/default/files/image/analysis/July2012/daily_gbpusd_02.07._13-24.gif

 

Chart. Daily GBP/USD

 

 

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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 26 speculators’ positioning changed the following way:

 

EUR: the net short positions increased to 160K contracts on June 26 from the previous week’s total of 141K contracts. Euro positions had improved for two consecutive weeks and reached the best level since May 1 on June 19 before falling on June 26.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/eur.jpg

 

 

GBP: the net short positions plummeted to 758 net short contracts following a total of 17K contracts the previous week.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/gbp.jpg

 

 

JPY: the net long yen positions fell to a total of 4.5K contracts following a total of 15K contracts on June 19.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/jpy.jpg

 

 

CAD: the net long positions edged higher to a total of 9K contracts as of June 26 following a total of 8.2K contracts reported for June 19.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/cad.jpg

 

 

AUD: the net short positions improved to 2K contracts after rising to 3.5K contracts as of June 19.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/aud.jpg

 

 

USD: the value of the net long positions increased to $26.73 billion on June 26 from a total long position of $22.13 billion on June 19.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/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]

EUR/USD is retreating from Friday’s highs

 

So, it’s another week with our inimitable EUR/USD. The pair’s drifting lover from Friday’s maximums in the $1.2690 area. In addition, euro’s weakening versus the majority of its other peers. Italian and Spanish 10-year yields slipped on Monday but their funding costs remain high in historical terms.

 

Demand for the single currency was heart by the news that euro-zone unemployment rose to the record high of 11.1% in May. Spain and Greece showed the worst readings near the 25%. Moreover, fiscally strong Finland and the Netherlands opposed a plan for the euro zone’s bailout fund to buy government bonds in the secondary market.

 

Analysts at Nomura commented on the situation saying that “now the market is recognizing the reality” after the initial “euphoria”. The specialists expect trading to be quite volatile this week (oh, really?) with euro under pressure ahead of the ECB meeting on

 

Thursday when the central bank is expected to cut its benchmark rate by 0.25 percentage point to 0.75% and probably announce some stimulus measures. At the same time, if the ECB doesn’t announce measures to support economy, euro may plunge.

 

We see consolidation above daily minimum in the $1.2610 area on the H1 chart. Support lies at $1.2570 (23.6% retracement of 2012 decline) and $1.2520. Resistance is at $1.2680/90 and $1.2745 (June maximum).

 

http://static1.fbs.com/sites/default/files/image/analysis/July2012/02_07_12/h1_eurusd_15-51.gif

 

Chart. H1 EUR/USD

 

 

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[fallenDC]

BoA: discouraging PMI figures

 

The last of June manufacturing PMIs were released today. Analysts at Bank of America decided to look at the whole picture.

 

17 out of 24 countries in the list below saw their PMI readings below the critical level of 50 pointing at contraction of industry. The PMIs of 14 nations deteriorated last month.

 

A majority of the below-50 PMI indices are located in the euro area. The economists conclude that the negative impact from the European debt crisis has started to spread all over the world.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/02_07_12/global_pmi_summary.jpg

 

 

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[fallenDC]

BOTMUFJ on ECB rates, EUR outlook

 

Analysts at Bank of Tokyo-Mitsubishi UFJ also think that the ECB will cut borrowing costs by 25bps on Thursday.

 

The specialists say that they understand the argument for a potential 50bps cut – the central bank may decide to solve the problem once and for all and be done without having to take into account the market’s speculation of another 25bps reduction – but regard the chances of such outcome as small.

 

The BOTMUFJ specialists don’t think that the ECB will do more than lowering rates. The extraordinary measures used in the past to support financial markets “will be kept for another day”.

 

As for euro’s surge at the end of last week, the analysts say that it was due to the low expectations ahead of the EU summit. Timing played its rose as well affecting the monetary flows: it was the end of month, quarter and half of a year.

 

The markets are already concerned with the size of the European bailout funds and there will be actually more pressure from this side from now on. The EMS has been initially created with the option for future buying bond at the secondary market – that was its difference from the EFSF, so that’s not a new development.

 

All in all, the specialists are bearish on euro. In their view, EUR/JPY which has bounced above 100 yen may slide to low 90ies in the next 1-2 months. In terms of EUR/USD, it’s not that clear as there will be a lot of data from the United States in the near future – people are talking about the slowdown and that may temper the enthusiasm for US dollar. However, BOTMUFJ is almost sure: whenever the markets are severe, investors will always come back to the greenback. The baseline scenario is that US currency will keep appreciating the second half of this year and then we’ll see some weakness in 2013 (remember US fiscal cliff). If not enough is done politically, the Fed may have to step up.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/02_07_12/ss_safestbanks_jpn.jpg

 

 

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[fallenDC]

AUD/USD: prospects for growth

 

On Monday the Australian dollar edged a bit higher versus the greenback getting above Friday’s maximum setting new 2-month high. Aussie was helped by the residual optimism created by the EU Summit results and the bets that the RBA will leave interest rates on hold at 3.5% tomorrow. According to analysts at Bank of America Merrill Lynch, the central bank will stay on hold until November.

 

At the same time, the bulls were really unsure: though AUD/USD remains strong enough, it has been trading mainly in red all day long. Investors are in a wait-and-see mode ahead of the RBA announcement and the US data releases later today.

 

Most analysts expect the Aussie to gain further, especially if the ECB takes new measures on Thursday to support the weakened euro zone’s economy. AUD will be also influenced by the Bank of England’s monetary policy decision the same day.

 

It makes sense to buy AUD/USD at current levels targeting $1.0300 and stopping at $1.0085. Aussie is currently trading near the strong resistance at $1.0250 (78.6% Fibonacci retracement from a May drop and an intersection of a 100- and 200-day MAs). If the AUD/USD manages to overcome this level, a break to $1.0316 and $1.0409 will become likely. Support for the cross lies at $1.0225 (June 20 maximum), $1.0208 (today’s minimum), $1.0128 (61.8% Fibonacci retracement), $1.0085(June 15 maximum), 0.9965 (June 25 minimum).

 

http://static1.fbs.com/sites/default/files/image/analysis/July2012/daily_audusd_02.07._17-45.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

July 3: economy and currencies

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/03_07_12/angl.jpg

 

The risk sentiment revived today. US dollar and Japanese yen are weakening versus its peers, while commodity currencies go up. Asian stocks rose for a fifth day in a row. The MSCI Asia Pacific Index (MXAP) had added 0.8% today after gaining 2.7% last week.

 

As expected, the Reserve Bank of Australia decided to stay on hold leaving its benchmark rate at 3.5%. Australian building approvals increased by 27.3% in May (vs. the forecast of only +5.1%). China also cheered investors up: non-manufacturing PMI rose from 55.2 in May to 56.7 in June (3-month maximum). AUD/USD renewed 2-month maximum.

 

Events to watch today:

 

Britain: Construction PMI in June is expected to fall to 53.1 after a 54.4 in May. Analysts expect the net lending to individuals to slide from 1.4B in April to 1.1B pounds in May showing that the banks are less willing to lend money to consumers.

 

US: Factory orders, a leading indicator of production, may turn out to be weak. This, together with poor June ISM manufacturing PMI released yesterday and the coming labor market data on Friday may fuel the speculation of more easing from the Fed. Don’t forget that the market is pricing in a rate cut by the ECB on Thursday – the market seems hopeful for monetary stimulus here and there that curbs demand for safe havens.

 

 

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[fallenDC]

European crisis echoes in the US

 

According to yesterday’s release, the US manufacturing unexpectedly contracted in June for the first time since the end of the recession (July 2009). The ISM manufacturing index dropped to 49.7 from 53.5 in May, while economists forecasted a slight decline to 52.1. A reading below 50 indicates the industry contracts.

 

The release drew a big response from the investors and analysts: there’s a growing concern that the crisis in the euro zone and Asia influences the US economy. According to specialists at Capital Economics, the fall in ISM index is the surest sign that the economy is slowing down. Analysts at Bank of Tokyo-Mitsubishi disappointedly state that the largest economy in the world “is going nowhere”. Specialists at ITG Investment believe that all the policy easing measures taken by the Fed are senseless: these days the issue is an insufficient demand for credit rather than an insufficient supply.

 

Analysts at IHS Global Insight, however, remain more optimistic: they point that the recessions are usually accompanied by ISM readings in the low-40s. The construction industry is recovering (construction spending rose in May by 0.9%, reaching the highest level in two years). Moreover, the US manufacturing is still stronger in comparison to the other countries. Specialists at Barclays Capital agree: even though the Europe’s problems influence the US economy, the increasing domestic demand is likely to keep the overall economy growing.

 

http://static2.fbs.com/sites/default/files/image/analysis/July2012/03_07_12/ism-manufacturing.gi.top.jpg

 

Photo: Getty Images

 

 

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