Comments and forex-analytics from FBS Brokerage Company

[fallenDC]

EUR/USD: consolidating within downtrend

 

EUR/USD is consolidating in the $1.2130/65 area after yesterday it gained about 80 pips on the ECB’s Nowonty comments about the possibility of giving a banking license to the ESM. Spanish 10-year government bond yields declined from the record highs around 7.75% to the levels near 7.38%.

 

Analysts at Credit Agricole think that any bounce of the single currency will be short-lived. “The ECB is still quite divided on the issue of giving the ESM a banking license”, say the specialists. At the same time, the bank underlines that the single currency will be supported ahead of the Fed’s meeting next week (August 1) on the talk that US central bank may take some easing steps. Speculation about the possibility of such action will strengthen if weak US Q2 GDP is released on Friday. Don’t forget, however, that the central bank extended Operation Twist in June to the end of 2012.

 

Support: $1.2130 (today’s minimums, Monday’s highs, 100-hour MA), $1.2065 (Monday’s minimum), $1.2040 (2-year minimum hit on Tuesday).

 

Resistance: $1.2165 (yesterday’s maximums/July 12/23 minimums), $1.2180/90 (July 16, 17 minimums).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/h1_eurusd_11-08.gif

 

Chart. H1 EUR/USD

 

 

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[fallenDC]

AUD/USD: technical comments

 

On Thursday AUD/USD trades above $1.0300, demonstrating growth for a second consecutive day. As can be seen from the daily chart, today the pair trades close to the lower boundary of an upward channel existing since June. Yesterday the bulls managed to fix above an important 200-day MA. On the H4 chart the pair trades close above the up-directed 200-, 100- and 50-period MAs.

 

Resistance: $1.0400; $1.0443 (July 19 maximum); $1.0450 (April 12-13 double top); $1.0473 (April maximum); $1.0500; $1.0557 (March 27 maximum); $1.0635 (March 19 maximum); $1.0750/60 (Sep. and Oct. 2011 maximums); $1.0855 (2012 maximum)

 

Support: $1.0300/10 (psychological and 50-period MA on the H4 chart); $1.0280 (200-day MA); $1.0264 (100-period MA on the H4 chart); $1.0200 (psychological and a 100-day MA); $1.0168 (200-period MA on the H4 chart); $1.0100 (July 12 minimum); $1.0057 (50-day MA); $0.9968 (June 22 minimum); $0.9579 (June 1 minimum)

 

In our view, a medium-term uptrend looks rather resilient: further advance of the Aussie may lead AUD/USD to $1.0443 (July maximum) and $1.0473 (April maximum). On a downside, a break below the 200-day MA ($1.0280) will pave the ground for a further decline to $1.0176 (July 25 minimum) and to $1.0100 (July 12 minimum).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/daily_audusd_26.07._11-58.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

Westpac: outlook for AUD/USD

 

According to analysts at Westpac, AUD/USD is unlikely to breach the $1.0350-1.0400 area without Fed or ECB intervention.

 

Specialists, however, note the resilience of demand for the Aussie this month. In their view, in a near term $1.0400 levels look a little bit pricey for the pair. They expect AUD/USD to return to similar levels no later than Q4.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/westpac_logo_2011.jpg

 

 

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[fallenDC]

USD/JPY: technical update

 

The outlook for USD/JPY is neutral on the H1 chart where the greenback’s fluctuating in narrow range of 78.00/30 and negative on H4 chart where we the pair remains inside descending channel.

 

The pair will likely stay above 78.00 helped by demand from Japanese importers below this point at the risk of the BOJ intervention. At the same time, from the technical point of view, the next major support is only at 77.65 (June minimum). The bulls will take over the initiative once USD/JPY managed to return above 200-day MA above 79.00.

 

Resistance: 78.27 (yesterday’s maximum), 78.45 (July 20 minimum), 78.80 (July 20 maximum), 79.00.

 

Support: 78.00, 77.65 (June minimum), 77.35 (February 14 minimum, January 6 and 19 maximums).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/h4_usdjpy_12-15.gif

 

Chart. Daily USD/JPY

 

 

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[fallenDC]

Commerzbank: comments on GBP/USD

 

GBP/USD trades on a downside for a second day. The sentiment surrounding the sterling remains anxious: the pair remains under pressure mainly after yesterday’s negative UK GDP release. The data could encourage the BoE to ease monetary policy further, weighing on the British currency.

 

According to technical analysts at Commerzbank, a recent failure to overcome the $1.5736/85 resistance area is likely to bring GBP/USD down to $1.5392 and then to $1.5267.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/daily_gbpusd_26.07._12-56.gif

 

Chart. Daily GBP/USD

 

 

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[fallenDC]

EUR/JPY: short-term technical

 

EUR/JPY has hit 12-year minimum this week at 94.10 on concerns about Greece and Spain.

Japanese currency remains strong despite comments and threats of Japan’s monetary authorities. Risk appetite remains lackluster, so yen will likely continue being investors’ refuge.

 

Some analysts say the level of 94.00 yen may be a kind of a threshold eyed by the Bank of Japan as it’s said about the 78.00 mark for USD/JPY. At the same time, EUR/JPY remains within a clear downtrend and the negative bias here is much stronger than in USD/JPY taking into account the persistent euro zone’s problems. All in all, you may try small shorts below 95.20 as the EUR/JPY will likely revisit the recent lows.

 

Resistance: 95.20 (yesterday’s maximum), 95.40 (Friday’s closing level) and the 95.80 area (200-hour MA).

 

Support: 94.65 (50-hour MA), 94.40 and 94.10 (see the chart below).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/h1_eurjpy_13-00.gif

 

Chart. H1 EUR/JPY

 

 

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[fallenDC]

USD/CAD: comments from Credit Agricole, TD

 

Credit Agricole: in the near term USD/CAD will keep trading sideways between 1.0250 and 1.0065 given the Bank of Canada’s tightening bias on the one hand and no clear resolution on the euro zone crisis and slower growth in the US on the other.

 

TD Securities: USD/CAD failed to deliver on the bull flag formation. The pair may still be consolidating after advance in May/June. As a result, the move higher may eventually resume: the bulls need to break above the channel resistance around 1.0270.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/26_07_12/daily_usdcad_13-28.gif

 

Chart. Daily USD/CAD

 

 

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[fallenDC]

July 27: forex news

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/angl.jpg

 

Investors’ sentiment improved, MSCI Asia Pacific Index added 1.6% today, while S&P 500 rose by 1.7% yesterday. High-yielding currencies like Aussie and kiwi are trading on the upside.

 

EUR/USD edged slightly higher, but its rate little changed during the Asian session and the pair’s hovering below resistance at $1.2300 which has stopped its advance yesterday. Spanish 10-year yields subsided on Thursday by 45 bps to 6.95%.

 

In Japan core CPI fell by 0.2% in June y/y (cons.: 0.0%). Tokyo core CPI, as expected, declined by 0.6% in July. The data shows that the nation is struggling to defeat deflation and the odds are that Japanese monetary authorities will do more monetary stimulus. Yen went lower against most of its major peers. USD/JPY remains trapped in the 78.30/00 area.

 

The day of US GDP has finally come. Advance data for Q2 q/q are released at 12:30 GMT (Prev.: 1.9%, cons.: 1.5%) – this is surely the key publication of the day. The market’s speculating that the Fed may start QE3, so the greenback weakened versus the majority of its counterparts this week. Also watch for German prelim CPI m/m during the European morning and Spanish unemployment figures at 07:00 GMT. Italy will try to sell up to 8.5 billion euro in 6-month bills. Italian 10-year yield eased down to 6.04%.

 

 

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[fallenDC]

EUR: Draghi was very convincing

 

The ECB President Draghi has boosted the single currency yesterday saying that the ECB will do “whatever it takes to preserve the euro.” Some experts argue that Draghi sounded very confident of himself saying “Believe me, there will be enough” that he’s surely preparing something and won’t go back on his word.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/pa-11992816-230x150.jpg

 

Image from api.thejournal.ie

 

 

UBS: Markets are trading on a generally buoyant note as investors seek to consolidate yesterday’s gains. “The sharp rally has seen the momentum turn higher, suggesting the risk is for the strength to continue. Resistance is at 1.2402, support lies at 1.2118.” The specialists expect EUR/USD to trade in range between $1.2170 and $1.2370 until ECB’s meeting next Thursday. In their view, as Draghi's comments came just a week before the meeting, “it was a very good reminder to the market that he does mean business.”

 

At the same time, although the pessimism subsided for now, it still hasn’t gone far.

 

Standard Chartered: There’s a combination of concerns in Europe: the economic cycle, which is still pointing down, and the European crisis. “We’re still looking for $1.18 for the euro for the end of the quarter.”

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/h4_eurusd_11-18.gif

 

Chart. H4 EUR/USD

 

 

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[fallenDC]

NZD/USD: technical comments

 

On Friday NZD/USD strengthens for a third consecutive day after Thursday’s surge. As can be seen from the daily chart, yesterday bulls managed to fix above $0.8000: the pair overcame strong resistance at $0.7955/60 (100-and 200 MAs). On the H4 chart the 200-, 100- and 50-period MAs are heading to converge and to create a strong support area. The pair trades sideways in a $0.7841-0.8075 range after an early June uptrend.

 

In our view, NZD/USD is likely to overcome the $0.8075 resistance and to leave the flat range. When this occurs, the doors will be open for a further rise to $0.8232. On a downside, a strong support is seen in the $0.7930/60 area.

 

Resistance: $0.8053 (July 19 maximum); $0.8075 (July 5 maximum); $0.8231/33 (April 27 and 30 maximums); $0.8316 (April maximum); $0.8469 (2012 maximum)

 

Support: $0.7935/60 (100-and 200-day MAs and MAs on the H4 chart); $0.7841 (50% Fibonacci retracement); $0.7826/14 (50-day MA and July 25 minimum); $0.7748 (38.2% Fib. retracement); $0.7638 (23.6% Fib. retracement); $0.7454 (2012 minimum)

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/daily_nzdusd_26.07._11-14.gif

 

Chart. Daily NZD/USD

 

 

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[fallenDC]

Key options expiring today

 

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

 

Here are the key options expiring today:

 

EUR/USD: $1.2245, $1.2300;

USD/JPY: 78.15, 78.30, 78.50, 78.70;

GBP/USD: $1.5720, $1.5725, $1.5750;

AUD/USD: $1.0395.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/09_07_12/flatline.jpg

 

 

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[fallenDC]

UBS: bearish on EUR/GBP

 

On Friday bears are trying to pull EUR/GBP down after the pair peaked 0.7860 (highest since July 18) yesterday. The pair trades in a downward channel since July 2011.

 

Analysts at UBS expect GBP to perform well in the current economic environment, especially in comparison to EUR. According to specialists, the pair is likely to slide to 0.7700 in a month.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/weekly_eurgbp_27.07._12-25.gif

 

Chart. Weekly EUR/GBP

 

 

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[fallenDC]

AUD/USD: technical comments

 

AUD/USD trades above $1.0400, moving up for a third consecutive day. The pair trades above the 200-day MA. On the H4 chart the pair trades close above the up-directed 200-, 100- and 50-period MAs.

In our view, a medium-term uptrend looks rather resilient: further advance of the Aussie may lead AUD/USD to $1.0473 (April maximum) and probably even higher. On a downside, a break below the 200-day MA ($1.0280) will pave the ground for a further decline to $1.0176 (July 25 minimum) and to $1.0100 (July 12 minimum).

 

Resistance:; $1.0443 (July 19 maximum); $1.0450 (April 12-13 double top); $1.0473 (April maximum); $1.0500; $1.0557 (March 27 maximum); $1.0635 (March 19 maximum); $1.0750/60 (Sep. and Oct. 2011 maximums); $1.0855 (2012 maximum)

 

Support: $1.0330(50-period MA on the H4 chart); $1.0281 (200-day MA); $1.0272 (100-period MA on the H4 chart); $1.0200 (100-day MA); $1.0184 (200-period MA on the H4 chart); $1.0100 (July 12 minimum); $1.0070 (50-day MA); $0.9968 (June 22 minimum); $0.9579 (June 1 minimum)

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/daily_audusd_27.07._12-58.gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

USD/JPY: technical update

 

The picture for USD/JPY didn’t change much from what we’ve seen yesterday. The pair keeps trading sideways in the narrow 30-pip range between 78.30 and 78 yen. The bulls have made several attempts to move to the upside, but the pair kept returning to the levels around 78.15.

 

The general picture remains negative. Investors are waiting for US GDP release at 12:30 GMT – the uncertainty obscures the outlook for the pair. If the bulls manage to push US currency 78.45, it will get chance to 79.00, though one would be able to speak about the recovery only above 80.00. On the downside, 78.00 remains the key level below which one may expect a slide to 77.65, though the pair will be supported by demand from Japanese importers below 78.00 and the risk of the BOJ intervention.

 

Resistance: 78.45 (July 20 minimum, 50-period MA on H4 chart), 78.80 (July 20 maximum), 79.00, 80.00.

 

Support: 78.00, 77.94 (July 23 minimum), 77.65 (June minimum), 77.35 (February 15 minimum, January 6 and 19 maximums).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/h4_usdjpy_13-29.gif

 

Chart. H4 USD/JPY

 

 

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[fallenDC]

UBS: trading comments on AUD/USD

 

Analysts at UBS recommend going long on AUD/USD above $1.0350, targeting $1.0550 and with a stop at $1.0170.

 

According to specialists, the Aussie may climb to $1.0557 (Match 27 maximum) as its MACD holds above zero line, reflecting a bullish condition. It is advisable to wait until the other momentum indicators such as stochastic oscillator confirm the signs of strength.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/daily_audusd_27.07._13-40_(1).gif

 

Chart. Daily AUD/USD

 

 

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[fallenDC]

The Games: incentive or burden for UK?

 

The British economy's Q2 performance shocked the financial markets: GDP contracted by 0.7%, far below the consensus forecast of 0.2%. It means the U.K. fiscal and monetary policy failed to revive the economy. This is precisely why many economists are looking forward to the London Olympics which start on July 27 and may boost the UK economic growth. According to British Prime Minister David Cameron, the economy could get more than £13 billion (about $20 billion) over the next four years thanks to the Olympics.

 

That's as may be, so let’s analyze the possible benefits of the event for the British economy. There is no doubt the Olympics will support the tourism sector as they will generate ticket sales as well as business for hotels, restaurants and retailers, simultaneously improving the city infrastructure. Moreover, the attractiveness of London for tourists will increase in a longer term because the idea to visit the city will cross many minds at once. The event will be the driver for the sector of construction, leading to new short-term jobs across the UK. As for the British pound, demand for the currency is expected to increase considerably.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/bridge-bloomberg.jpg

 

Photo: Bloomberg

 

 

However, all the above-mentioned positive effects are likely to be short-living. The main drawback of hosting the games is the cost. According to British media reports, the final cost, therefore, could reach £24 billion ($37.7 billion). It is 10 times higher than the cost predicted in 2005, when London won the bidding for these Games.

 

The public cost of running the Games is expected to be at least £11 billion (about $17 billion), but that doesn’t include the price of construction and infrastructure development and security necessary to be able to host the event. According to economists at Goldman Sachs, the London Games are expected to make a profit (in the sense that revenues will exceed the cost of running the Games) but this will still leave the government with a significant (£8-9bn) bill from construction, security and other costs.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/london_bloomberg.jpg

 

Photo: Bloomberg

 

 

Goldman Sachs specialists forecast the Games to raise the Q3 GDP by 0.4%. However, the short-term benefits will dissipate within months with GDP growth falling back in Q4. Analysts at Barclays Capital also don’t expect the Olympics to sustainably improve the UK economic conditions and to be an important driver of the British pound in Q3. It’s no doubt that tourists and businesses associated with the sporting event will need the British currency. However, the additional flow is likely to be tiny relative to the daily volumes.

 

 

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[fallenDC]

WEEK AHEAD: July 30 – August 3

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/week_ahead.jpg

 

Are you ready for the next week’s trade? It promised to be quite… interesting for the lack of a better word.

 

Monday, July 30

 

Greece: Another meeting of Greek authorities with the Troika officials. The parties have already agreed that Greece is going to make about 10 of the 11.5 billion euro in cuts that the Troika is demanding over the next 2 years.

 

Spain: GDP q/q – Spanish economy contracted by 0.3% in Q1. The Bank of Spain is looking forward to 0.4% GDP decline in Q2. The nation has to pay bond redemptions totaling 12.9 billion euro. Spanish 10-year yields rose to the record high of more than 7.5% on the week July 23-27.

 

Italy: 10-year bond auction. Italian 10-year yields were above 6% on the week July 23-27.

 

UK: Watch for consumer borrowing and mortgage approvals – the data will likely be weak. CBI reports on retail sales in July may show some improvement from June due to better weather, but no strong rise is expected soon. British consumers will likely remain pessimistic.

 

Tuesday, July 31

 

New Zealand: NBNZ business confidence. In June a net 12.6% of respondents expected conditions to improve over the next 12 months. The index has been declining from a peak of 35.8 in April. Now July data is on the agenda.

 

Euro area: Conclusion of the second phase of Spain’s bank-sector review. Euro-area flash July inflation data. The region’s unemployment rate may have risen last month to new record maximum of 11.2% after reaching 11.1% in May. In addition, Italian parliament is to ratify European Stability Mechanism (ESM) by this date.

 

Canada: GDP may add 0.2% m/m in May after stronger than expected 0.3% increase in April as retail sales in May added 0.7%, manufacturing sales rose by 0.2% and the volume of wholesale trade increased by 0.4%.

 

US: CB Consumer confidence is probably low and that households may be spending less than they are earning.

 

Wednesday, August 1

 

China: Official manufacturing PMI – the data may show that in July the index returned to the May’s level of 50.4 after sliding to 50.2 in June. Note that China’s HSBC PMI rose 48.2 in June to 49.5 in July.

 

Euro-zone: July manufacturing PMIs – both the previous readings and the forecasts are well below the critical level of 50 that means contraction of the industry.

 

UK: July manufacturing PMI – the figures are better than in Europe, but still the reading is expected to remain below 50.

 

US: ISM report might show that manufacturing has contracted in July for the second month in a row. Don’t miss ADP non-farm employment change. (!) The Federal Reserve’s meeting.

 

Thursday, August 2

 

Australia: The pace of retail sales’ growth may have slightly increased in June, while the nation’s trade balance probably deteriorated with deficit rising from 0.29 billion Australian dollars in May to 0.38 billion in June.

 

UK: Construction PMI – there may be a minor advance, but still the reading is expected to remain below 50. (!) Bank of England’s meeting: decisions on Asset Purchase Facility and Official Bank Rate. MPC rate statement.

 

Euro area: (!) ECB rate decision and press conference. Spanish bond auction.

 

Friday, August 3

 

Euro area: July services PMI data. Spain’s last regular cabinet meeting before summer break. Retail sales in the region may be some 1.5% down y/y (+0.2% m/m).

 

UK: Services PMI – consensus forecast tells to expect an increase from 51.3 in June to 51.9 in July.

 

US: NFP report could show a third successive month in which non-farm payrolls have risen less than 100K, suggesting the economy isn’t creating enough jobs to reduce unemployment. The unemployment rate is seen staying at 8.2%. ISM Non-Manufacturing PMI may have increased from 52.1 in June to 52.6 in July.

 

 

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[fallenDC]

WEEK AHEAD: central banks

 

Next week is tightly packed with central banks’ meetings: we have the Federal Reserve on Wednesday, the ECB and the Bank of England on Thursday. It’s not hard to imagine that the policymakers are now racking their brains trying to come up with some new ideas of how to support national economies and promote lending. That seems like a really difficult task now when they’ve already used many of their conventional and unconventional tools.

 

Last time the Fed extended Operation Twist program to the end of 2012, the ECB cut its benchmark rate to a record minimum of 0.75% and the BoE increased asset purchases to reignite growth after boosting them by 50 billion pounds ($77.4 billion).

 

The problem is that although low interest rates and liquidity injections which have been in place during the last few years, the economies didn’t return to sustainable recoveries. The banks are still reluctant to lend and the experts are concerned that further increases of the same measures may be even less efficient.

 

So, that tools do the central banks have now?

 

The Fed’s options:

 

- Extend its assurance that interest rates will be kept “exceptionally low” from late 2014 into the middle of 2015.

- Launch another round of QE (Credit Suisse thinks the possibility of QE3 announced next week is 1 in 3, while the odds of QE in September are almost 2 in 3).

- Buy home mortgage securities rather than or together with Treasuries.

- Cut the 0.25% interest rate it pays commercial banks on reserves: banks have parked around $1.6 trillion of excess reserves at the central bank as it allows them to earn 0.25%. If the rate is cut, this will encourage the lenders to turn to consumers.

 

If the Fed engages in a minor action (most likely) like the latter it will buy time to assess the state of domestic economy.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/20120401-federal-reserve.png

 

The ECB’s options:

 

- Reiterate openness to further rate cuts.

- Reduce benchmark interest rate.

- Lower the deposits rate from 0 to minus 0.25% to encourage banks to use the money for more productive purposes. Lower interest rates may induce banks to stop lending to each other because the returns are no longer large enough to cover transaction costs.

- Launch another round of LTRO.

- Reveal its forecasts for future direction of interest rates.

- Lowering bank reserve requirements.

- Broaden the collateral it accepts when making emergency loans.

- Revive program of buying bonds.

- Provide partial guarantee for all euro-area debt or cap bond yields.

- Give banking license to the ESM.

 

Last month the ECB last month lowered the minimum rating threshold for mortgage-backed securities to BBB- from A-, offering support for Spanish banks in particular which had been unable to use some securities for loans.

 

The central bank’s President Mario Draghi said on July 26 that the ECB would “do whatever it takes to preserve the euro” and added, “believe me, it will be enough.” Such statements ahead of the meeting make the markets expect much.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/ecb-sml-pos-rgb-702.gif

 

The BOE’s options:

 

- Make another increase of asset purchases.

- Cut benchmark rate from 0.5%.

 

A rate cut still seems unlikely as last month all 9 MPC members voted in favor of keeping base rate unchanged. QE may be extended further once the current 50 billion of purchases are completed in November. Note that the BoE has already done something interesting. The central bank along with the UK Treasury has designed funding for lending program which implies rewarding new lending with access to cheaper financing. The program will be in place from August.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/27_07_12/bank-of-england-logo.jpg

 

All in all, we don’t expect the central banks to announce serious changes of their policies new week, though the ECB may be forced to make a move in order to calm European debt markets.

 

 

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[fallenDC]

July 30: forex news

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/angl.jpg

 

The market was rather quiet during today’s Asian session; the major pairs were going through consolidation.

 

Investors’ attention will be focused on peripheral euro zone nations: Spanish flash Q2 GDP is released at 07:00 GMT (prev.: -0.3%, cons.: -0.4%). Later in the day Italy plans to sell 5.5 billion euro in long-term debt, including 10-year bonds. Current Italian 10-year bond yield is below 6% at 5.96%. Bloomberg reports that the European Commission will publish today household sentiment which may have dropped in July to almost 3-year minimum. In addition, euro is under pressure before data tomorrow may show that the region’s unemployment increased to a new record of 11.2% in June.

 

The ECB President Mario Draghi meets US Treasury Secretary Timothy Geithner today, though no press conference will follow. Moody’s Investors Service warned that the ECB can’t resolve the debt crisis alone.

 

EUR/USD is trading in the $1.2292 area, about 100 pips below Friday’s peak. US dollar edged up against higher-yielding currencies, though demand for it is limited before the Fed’s 2-day meeting which starts on Tuesday. USD/JPY returned to 78.35 after testing the levels above 78.60 at the end of last week.

 

 

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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: $1.2150, $1.2190;

 

GBP/USD: $1.5650;

 

USD/JPY: 77.90, 78.00, 78.20, 79.00;

 

USD/CHF: 0.9700, 1.0000;

 

EUR/JPY: 94.00, 96.00;

 

AUD/USD: 1.0310;

 

EUR/AUD: 1.1900;

 

AUD/NZD: 1.2975.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/09_07_12/flatline.jpg

 

 

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CFTC trader positioning data

 

The latest Commitments of Traders (COT) report, released on Friday, July 20 by the Commodity Futures Trading Commission (CFTC), showed that on a week ended July 24:

 

Net long US dollar positions decreased to $19.8 billion (-23%), while net long yen positions surged to $4 billion (+128%) on the back of negative US data. The value of the euro net short positions declined to $ 23.4 billion. (-9%). The single currency fell to its lowest level since June 2010 but then bounced back as the euro shorts shrank. Investors expect the Swiss franc to deppreciate: net short positions rose to $3.3 billion (+10%). On the previous week the Aussie and the kiwi net longs increased. Net short positions on the loonie moved up, while on the pound - declined.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/cftc.gif

 

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

 

 

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EUR/USD: fundamental & technical

 

The single currency fell by 0.4% from 3-week high of $1.2390 touched on Friday to $1.2287, June 1 minimum. The majority of analysts believe that euro’s appreciation will be only temporary.

 

Last week the ECB President Mario Draghi pledged to do whatever it takes to save euro. But, as Sica Wealth Management’s expert said, “central bankers do not have the ability to do ‘whatever it takes’ to save the euro. They only have the ability to undermine their credibility by making promises they cannot keep.”

 

UBS: “We certainly don't rule out further short squeezes in the next few days towards 1.25 against the greenback. But it seems too early to conclude the single currency's downtrend since March has ended.”

 

Mitsubishi UFJ Morgan Stanley Securities: “The euro will continue to struggle. To resolve Europe’s debt crisis, monetary policy will have to bear a lot of the burden.”

 

From the technical point of view, we see a bullish divergence on daily MACD – a positive signal. At the same time, Fridays candle resembles a spinning top which is a sign of indecision.

 

Resistance: $1.2330/40 (recent session/Thursday’s maximums), $1.2390/1.2407 (June 28 lows/Friday’s highs).

 

Support: $1.2260 (July 6 minimum), $1.2241 (Friday’s minimum), $1.2220, $1.2165, $1.2040 (2-year minimum).

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/daily_eurusd_11-06.gif

 

Chart. Daily EUR/USD

 

 

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AUD/USD: technical comments

 

On Monday AUD/USD slid from a four-month high as the risk appetite worsened ahead of the euro zone’s reports on consumer confidence and unemployment. The pair rose confidently for three consecutive days and managed to test a strong resistance at $1.0475, completely offsetting the May decline. AUD/USD remains in a bullish channel since June. On the H4 chart the pair trades above the up-directed 200-, 100- and 50-period MAs.

 

In our view, a medium-term uptrend looks rather resilient: if the bulls manage to fix above $1.0475, a further advance to $1.0855 will become possible. On a downside, a break below the 200-day MA ($1.0280) will pave the ground for a further decline to $1.0176 (July 25 minimum) and to $1.0100 (July 12 minimum).

 

Resistance: $1.0473 (April maximum); $1.0557 (March 27 maximum); $1.0635 (March 19 maximum); $1.0750/60 (Sep. and Oct. 2011 maximums); $1.0855 (2012 maximum)

 

Support: $1.0348 (50-period MA on the H4 chart); $1.0280 (200-day MA); $1.0283 (100-period MA on the H4 chart); $1.0200 (200-period MA on the H4 chart); $1.0191 (100-day MA); $1.0100 (July 12 minimum); $1.0083 (50-day MA); $0.9968 (June 22 minimum); $0.9579 (June 1 minimum)

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/daily_audusd_30.07._11-30.gif

 

Chart. Daily AUD/USD

 

 

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FX majors from top forecasters

 

Here are the forecasts for EUR/USD, GBP/USD, USD/JPY, USD/CHF and EUR/JPY from top forecasters. Data were submitted on July 27.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/cons_majors.png

 

Source: FX Week

 

 

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USD/JPY: weekly Ichimoku report

 

Weekly USD/JPY

 

Now that’s something new: the baseline (1) and the conversion lines (2) are turning upwards – a sign of improvement of the pair’s technical picture.

 

Have a look at the ‘hammer’ candle formed last week: the pattern resembles the figure formed at the end of January. That time a significant advance of USD/JPY has followed. It’s too early to speak about a move like that now, but it’s already clear that the pair has solid support around 78 yen, whether it’s due to the risk of the Bank of Japan’s intervention or something. There’s a support line in place from 2011 minimums going through January, February, May and July minimums. In addition, the bottom of the Ichimoku Cloud around 77.30 is also a support.

 

At the same time, one has to understand that resistance for the pair is strong either (1, 2, Cloud’s top). Kumo (3) remains very thin – neither bulls, nor bears dominate the market. USD/JPY is under pressure from both sides.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/ich_weekly_usdjpy.gif

 

Chart. Weekly USD/JPY

 

 

Daily USD/JPY

 

Let’s have a look at the daily chart. The prices are struggling to get above sloping down Tenkan-sen (1), the most important near-term resistance. The next obstacle is represented by the horizontal Kijun-sen (2). Support seems weaker at this timeframe (look at the chart).

 

In the first half of July the bulls tried to push the pair through the Cloud, but USD/JPY only managed to cross the lower edge of Kumo, nothing more. Now the Cloud has become much thinner, so the bulls have more chanced to succeed. This week we will probably see the pair above 78 yen struggling to get higher. The Fed’s meeting on Wednesday is a big event which has to be taken into account: dollar’s possibility to advance will be limited ahead of the event, later it may strengthen if US central bank doesn’t deliver much of easing., though in this case investors may turn their expectations to August.

 

http://www.fbs.com/sites/default/files/image/analysis/July2012/30_07_12/ich_daily_usdjpy.gif

 

Chart. Daily USD/JPY

 

 

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