Comments and forex-analytics from FBS Brokerage Company

[FBS.com Official]

Barclays Capital: bearish outlook for USD/CHF

 

Technical analysts at Barclays Capital note that the greenback keeps trading within the medium-term downtrend against Swiss franc.

 

The specialists expect that the pair USD/CHF will drop to 0.8980 in the near term. If US currency doesn’t manage to hold above this level, it will be poised to fall to 0.8760.

 

According to the bank, the bearish pressure will decrease only if the greenback closes above 0.9205.

 

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[FBS.com Official]

JPMorgan: EUR/USD may correct downwards

 

Billionaire investor George Soros thinks that the ECB’s move to lift up the key interest rate last week to 1.25% was “quite inappropriate” as the one-size-fits-all monetary policy of the ECB and strengthening currency affect the peripheral euro zone nations.

 

Strategists at Bankhaus Metzler claim that the period of euro’s strength will soon be over. In their view, the pair EUR/USD has a chance to reach resistance at $1.4580 in the near-term and then correct downwards to the $1.38/35 during the next 3 months.

 

Analysts at JPMorgan say that if euro doesn’t manage to get above $1.45 it will decline in the short-term. The specialists advised to buy the European currency on dips.

 

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[FBS.com Official]

BMO Capital advised to sell New Zealand’s dollar

 

New Zealand’s dollar was rising versus the greenback during 3 weeks reaching yesterday the 0.7846 level. The strategists at BMO Capital think, however, that kiwi’s advance has come to an end.

 

Among the factors negative for the NZD there are the discouraging consequences of the earthquake, interest rates that were lowered in early March and rather modest fundamentals of the country. So, if stock markets tumble, investors lose risk appetite and the US currency begins rising, it will be gaining at fastest pace versus New Zealand’s dollar, say the specialists.

 

According to BMO, it’s necessary to sell kiwi at the current levels placing stops above 0.7905 and taking profits at 0.7630.

 

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[FBS.com Official]

BNP Paribas: Aussie may keep growing

 

Australia’s dollar fell the most in 4 weeks against yen and eased from its maximum versus the greenback after Japan raised the severity rating of Fukushima Dai-Ichi power plant, damping demand for higher-yielding assets. According to Tokyo Electric Power Co., the total amount of radiation leaks from the affected power plant may exceed that of the 1986 Chernobyl disaster.

 

Despite the deteriorated risk sentiment analysts at BNP Paribas claim that the overall outlook for the pair AUD/USD remains positive and Australian currency still has all chances to resume its way up.

 

The specialists base such assumptions on strong China’s trade data that means the steady demand for Australia’s goods.

 

In addition the bank draws investors’ attention to the dovish comments of some Federal Reserve members Yellen, Dudley and Evans hinting that the US central bank won’t hurry to raise the rates after the $600-bilion bond purchase program ends in June.

 

Finally, BNP Paribas thinks that during the meetings of G20 and the IMF the nations will fail to find the solution of the world’s economic imbalances, so the currency reserves diversification is likely to continue encouraging the demand for Aussie.

 

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[FBS.com Official]

Stiglitz: new global reserve currency needed

 

Nobel-prize laureate Joseph Stiglitz believes that in order to prevent trade imbalances that are well reflected in the US national debt, the greenback should be replaced by the new global reserve currency.

 

Last week US dollar fell to the 15-month minimum versus euro at $1.4480, while the US trade deficit widened in January to the 7-month maximum of $46.3 billion.

 

The famous economist says that the position of the United States could be much worse if the situation in Europe wasn’t so severe.

 

Stiglitz notes that the existing monetary system creates high risk that the period of low growth, inflationary bias and instability will last long. Such system is fundamentally unfair, says the specialist, as it means that poor countries are lending to the US at close to zero interest rates. To finance its budget deficits, the USA sells bonds to overseas investors and governments, boosting the dollar reserves of those nations. According to International Monetary Fund, overseas holdings of dollar reserves rose to $3.14 trillion in the fourth quarter of last year.

 

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[FBS.com Official]

Commerzbank: bullish outlook for USD/JPY

 

The greenback’s advance versus yen stalled yesterday at 85.50 and the pair USD/JPY dropped below 84.00. Technical analysts at Commerzbank note that it happened due to the general strength of yen. In their view, the outlook for US currency is still bullish.

 

The bank says that the pair paused right ahead of the resistance in the 85.62/84 area representing the top of the 2007-2011 down channel and the 50% retracement of the decline from May 2010.

 

The specialists believe, however, that after some profit taking dollar may rise to 87.55 and 94.50.

 

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[FBS.com Official]

UBS: US dollar may advance this year

 

Analysts at UBS believe that the greenback may climb this year. In their view, the faster-than-expected economic growth and rising inflation will make the Federal Reserve to tighten monetary policy. The bank didn’t specify when it expects US central bank to start lifting up the rates.

 

The specialists think that when the Fed’s $600-billion asset-purchase program ends in June, investors’ sentiment towards US currency will significantly improve.

 

According to UBS, the current trading levels of dollar crosses against euro and Australian dollar haven’t priced in the risk that the Fed can end quantitative easing. It has not priced in the risk that US policy will lead to stronger growth in America.

 

The euro may decline because the market is expecting more interest-rate increases by the European Central Bank than policy makers are likely to deliver. The market is pricing in 5 rate hikes in the next 12 months, says UBS, while the ECB is likely to raise the rates only twice more this year.

 

The pair EUR/USD added 7.3% this year. UBS forecasts that in a year the euro will be at $1.30.

 

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[FBS.com Official]

Barclays Capital: comments on EUR/CHF

 

Analysts at Barclays Capital expect that pair EUR/CHF to decline to the 1.2930/00 area.

 

The specialists note that the single currency has formed a small “head and shoulders” top on the daily chart.

 

According to the bank, bearish pressure on euro will ease only if the pair manages to close the day above 1.3205. In such case the 5-month double-bottom will be completed. The strategists, however, think that such outcome is unlikely taking into account the general strength of franc.

 

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[FBS.com Official]

Societe Generale on ECB, BoE and Fed’s rates

 

Strategists at Societe Generale claim that the ECB rates stayed at the record low during the 2 years. In their view, the time has come for ECB to show that the borrowing costs won’t stay at the emergency level forever.

 

The key question is now the extent of the tension between the core inflation in the euro area, which remains very low at round 1%, and the rising non-core components that, according to the market’s expectations, have driven headline inflation in March up to 2.6%.

 

The specialists say that it’s necessary to regard the ECB rate hike not as monetary tightening but as transfer from the troubled economies to the successful growing ones. As a result, the tensions that already exist in the euro area will strengthen.

 

“The British MPC regards inflation as a window to be looked through, while the ECB thinks of it as of a wall to be knocked down” says Societe Generale. The strategists mean that the differences in the approaches of the 2 central banks are a bit exaggerated. In their view, the Bank of England won’t lag the ECB following the European Central Bank in May. The BoE is likely to tighten at the similar pace, hiking rates by 25 basis points.

 

As for the United States, the end of quantitative easing in June may be regarded as relative tightening. The analysts remind that there is the aggressive fiscal tightening to be delivered. The Fed’s standing point is that the core inflation as well as the headline one seems to be well-behaved in the US, so any rate hike soon is unlikely.

[FBS.com Official]

RBS lifts up forecast for AUD and NZD

 

Analysts at Royal Bank of Scotland believe that Australian and New Zealand’s dollars will keep gaining versus their American counterpart during the second and third quarters of the year. Such forecast is based on the assumption that the US Federal Reserve won’t raise the interest rates and, consequently, the greenback will lack strength.

 

The specialists expect Aussie to reach the maximum of $1.10 by September 30 and then ease to $0.98 by the end of 2012. The kiwi is seen gaining to $0.84 in the third quarter before declining to $0.77 by the end of the next year.

 

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[FBS.com Official]

Commerzbank: technical levels for GBP/USD

 

Technical analysts at Commerzbank note that it seem that the British pound is unable to overcome resistance in the 1.6425/65 area trading versus the greenback. The mentioned zone represents the double Fibonacci retracement and the 2010 maximum.

 

The specialists think that sterling is now poised for a decline to 1.6180 and even lower mowing down towards 1.5963/1.5880.

 

According to the bank, the bearish pressure will ease if pound breaks above 1.6465. In such case the pair GBP/USD will get chance to rise to November 2009 maximum at 1.6880 and then to 1.7040/50.

 

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[FBS.com Official]

Mizuho: USD/JPY is consolidating in the 83.50/85.50 area

 

Analysts at Mizuho Corporate Bank claim that in comparison with the USD/JPY volatile fluctuations seen in March, the pair is now going through a consolidation. As it was expected, dollar bounced from the top of the large “triangle” formation.

 

The specialists expect the greenback to remain today in range between 83.50 and 85.50. In their view, it’s necessary to buy US currency on the dips to 83.80 stopping below 83.45 and taking profit at 84.50 or maybe at 85.15.

 

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[FBS.com Official]

BIS: reserve currencies will lose

 

Economists at the Bank for International Settlements claim that nearly all reserve currencies may depreciate.

 

After studying the relationship between foreign-exchange turnover and per capita income the specialists came to the conclusion that the richer the country, the greater the turnover in their currency. As a result, it was shown that there is a relatively consistent relationship between forex turnover, trade, and GDP per capita – practically all the countries are found directly at the regression line.

 

At the same time, according to BIS, such the currencies of the United States, Japan, Great Britain, Australia and some other nations have far more forex turnover than their trade and GDP would suggest. The economists conclude that the demand for these currencies will fall. China, on the other hand, had turnover well below what its fundamental economic activity would suggest, so the forecast for yuan is quite opposite.

[FBS.com Official]

Citi: time to cut longs on riskier currencies

 

Analysts at Citigroup claim that during the last several weeks investors’ trading strategies were determined by the positive risk sentiment. However, it’s time to finish such trade now, say the specialists.

 

According to Citigroup, the market has already priced in all possible encouraging news. The bank underlines that when the majority of players come to the single view, it should be regarded as a warning signal meaning that the situation may change in the unfavorable way quite quickly.

 

Such factors as the nuclear danger in Japan and Portugal’s applying for a bailout deteriorate the market’s attitude towards risk. The economists say that investors begin thinking that some currencies, like the Australian dollar, have surged too rapidly.

 

As a result, Citi recommend cutting longs on Canadian dollar and Norwegian krone and reducing shorts on the greenback and Swiss franc.

 

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[FBS.com Official]

The Guardian: 3 possible scenarios for Europe

 

EU is going to provide Portugal with bailout estimated by 80-90 billion euro on the conditions of severe budget cuts. Yet these conditions may affect the country’s economy as did those imposed on Greece and Ireland. Nouriel Roubini says that such terms are likely to prevent the problem nations from reducing their debt. Irish GDP lost 11% during 2 years, while Greece's economy contracted by 6.5% during the past year.

 

British newspaper The Guardian outlines for Europe 3 possible scenarios.

 

1. The «good news» scenario

 

The peripheral economies continue to shrink, though the contagion won’t spread to Spain. Spanish banking system looks rather solid, while most of the country's sovereign debt is held by Spaniards. In the wake of Portugal's crisis, interest rates investors are demanding from Spain have actually slightly declined. EU officials keep reassuring the market that Spain won’t need financial support, though it’s necessary to remember that the same was said about Portugal last year.

 

2. The «bad news» scenario

 

Spain with its slower growth and higher unemployment than in Portugal may seriously suffer from surging yields. As a result, the country may be forced to apply for the bailout. Spanish government has to pay 4.9% to sell 10-year bonds, close to the 5.5% offered by the European Financial Stability Fund (EFSF) for countries that have been thrown out of the financial market. In addition, Spain would probably need more than 400 billion euro. The EFSF that will exist until 2013 can raise 750 billion in total. But with Ireland and Portugal require at least 160 billion euro. Taking into account the fact that from the political point of view it’s hard to expand the rescue fund, Spanish bailout would drain the fund and Belgium or Italy may become the next weak link.

 

3. The «really bad news» scenario

 

Although Spain is unlikely to default in 2011, political protests counter the austerity measures are likely to strengthen, while Greece or Ireland may default. As a result, other peripheral nations will get under threat and there will be the risk of multiple defaults and possible rejection of the single currency

[FBS.com Official]

MIG Bank: bullish outlook for EUR/USD

 

Technical analysts at MIG Bank claim that the single currency has resumed its attempts to break above the multi-month “rising wedge” pattern.

 

The specialists are bullish on the pair EUR/USD. In their view, the major uptrend from June 2010 is likely to extend and euro may advance to 1.4579 (2010 maximum), 1.4710 and 1.5000 (psychological level).

 

Support levels are situated at 1.4418, 1.4249 (March 22 maximum) and 1.4000 (psychological level). If the pair falls below this level, it will be poised to fall to the previous reaction minimums at 1.3867 and 1.3752.

 

According to the bank, it’s necessary to buy euro at 1.4430 stopping below 1.4240 and taking profit at 1.4540/1.4710/1.5000.

 

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[FBS.com Official]

Commerzbank: decline of USD/JPY is a correction

 

Technical analysts at Commerzbank note that the recovery of the pair USD/JPY has stalled ahead of the resistance in the 85.62/64 area. In their view, support for the greenback is now found at 82.74 and 82.00 (55-day MA). The specialists think that US currency will finally manage to overcome 87.55 and 94.50.

 

Strategists at Mizuho Corporate Bank don’t believe that USD/JPY will stay below 83.50 for a long time. According to them, the trading range for today is the same as yesterday – between 83.50 and 85.50. The economists recommend buying dollars stopping below 83.20 and taking profit at 84.50 and 84.75.

 

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[FBS.com Official]

Mizuho: EUR/USD is overvalued by 20%

 

Analysts at Mizuho Corporate Bank claim that the single currency is overvalued versus the greenback by almost 20%. Such conclusion is based on the comparison of currencies’ purchasing power.

 

On April 12 euro reached the maximal level since January 2010 at $1.4520, deviating from the purchasing power parity by about 18%.

 

On April 7 the European Central Bank raised interest rates for the first time in almost 3 years. The bank underlines that another rate increase by the middle of this year is inevitable, while the demands for lower borrowing costs by indebted European nations can prevent the ECB from hiking in the second half. Mizuho also reminds that the Fed’s quantitative easing will soon be over that will provide US currency with some support.

 

The specialists forecast that the pair EUR/USD will drop below $1.40.

 

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[FBS.com Official]

UBS: currency reserves will keep increasing

 

Analysts at UBS and Bank of New York Mellon believe that during the coming years G7 countries will have to intervene at the currency market more to calm down exchange rates.

 

Strategists at UBS expect to see more volatility at the currency markets. As a result the governments may have to conduct more interventions, so to secure themselves they are likely to increase their foreign-exchange reserves.

 

Strategists at BNY Mellon say that until the 2000’s, interventions were more regular. Only in 1995 US Treasury intervened 8 times, while during the last decade the policymakers criticized such aggressive approach speaking more about the necessity for exchange rates to reflect economic fundamentals. Now the situation’s changing. It’s also necessary to take into account that the size of the market has more than doubled since the late 1990s, so the interventions’ volumes should be greater for them to achieve their goals.

 

Today is the first meeting of G-7 finance ministers and central bankers since the joint intervention to curb rising yen that took place on March 18.

 

According to UBS, the total global reserves rose since 2000 from $2 to $9 trillion. China’s reserves account for $3 trillion, Japan’s – for $1 trillion, euro zone’s – for 200 billion, while the US, UK and Canada have $50 billion each.

[FBS.com Official]

Goldman Sachs: about DXY and prospects for US currency

 

Currency strategists at Goldman Sachs note that the widely used DXY dollar index that reflects the performance of US dollar against a basket of currencies consisting of euro, British pound, Japanese Yen, Canadian Dollar, Swedish Krona and Swiss Franc is build on the old trade balances of the 1980s. That time the most trade flows were across the North Atlantic, the emerging markets were weak due to the series of crises, while the world was in the state of the cold war.

 

The specialists point out that it would be much more reasonable to use the broader trade-weighted index that is adjusted for inflation to measure the value of US currency. Goldman Sachs and the Federal Reserve have such.

 

Both indices give greater weight to developing countries that have become more important US trading partners and whose currencies have been performing pretty well. According to Goldman, these indexes show that the broad traded weighted dollar is at historical record minimums, clearly weaker than at the previous record lows at the beginning of 2008.

 

The analysts say, however, that the time to buy USD hasn’t come yet. In their view, the greenback will keep weakening as the rising budget deficit and the Fed’s loose monetary policy will keep weighting on its rate. However, if only the Fed changes its approach or the overseas investors increase demand for US equities or there will be a sustainable growth of US jobs, the situation may change very quickly. As a result, Goldman Sachs says that it’s necessary to pay much attention to how the events enroll in the United States.

[FBS.com Official]

Yen rose on the Chinese data

 

Japanese yen strengthened today versus all of its main counterparts. The pair USD/JPY continued its way down from the maximum at 85.50 reached on April 6 returning to the upper border of the large “triangle” formation.

 

Currency strategists at Mizuho note that yen rose as, according to Chinese data released today, the country’s CPI added 5.4% in March on the annual basis. The specialists note that the odds that China’s will take more steps to cool growth have increased encouraging demand for Japan’s currency as a refuge.

 

It’s also necessary to note that Chinese GDP increased by 9.7% in comparison with the previous year level, while the economists surveyed by Bloomberg were looking forward only to 9.4% growth.

 

Analysts at TD Securities claim that the biggest Asian economy will keep conducting “prudent” monetary policy to stabilize the consumer prices. The People’s Bank of China has raised interest rates four times since the global financial crisis, so even if the approach of China’s central bank becomes less aggressive, it will all the same lift up interest rate and reserve requirement during the next few months.

 

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[FBS.com Official]

Moody’s cut Ireland’s credit rating

 

Moody’s Investors Service reduced Ireland’s debt rating from Baa1 to Baa3 with negative outlook. The agency noted that the financial strength of Irish government is poised to decline, while Irish economic growth prospects seem to be weak and may deteriorate more.

 

The main reason of the downgrade was the uncertainty created by ESM solvency test conducted to decide on the provision of future liquidity support to the nation. It’s quite possible that Ireland may need additional consolidation measures to meet the established fiscal targets, says Moody’s.

 

In addition, the specialists underlined that the ECB rate hike to 1.25% made on April 7 may have negative impact on the indebted nation.

 

As for some way out of the current poor state of things, the agency said that upward pressure on Irish rating may appear if the country’s budget reduction manages to reverse current debt dynamics. According to Moody’s, despite all the negative factors the Ireland’s long-term potential growth prospects remain higher than those of many other advanced nations.

 

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[FBS.com Official]

Commerzbank: comments on EUR/USD

 

Technical analysts at Commerzbank note that that the pair EUR/USD has been staying below resistance at 1.4535 during 3 days. In their view, this means that euro’s target may now be lower at the 4-month uptrend support line found at 1.4258.

 

The specialists note that if the single currency drops below these levels, the bullish powers will weaken and the pair may ease to the minimum of the end-March at 1.4021.

 

Never the less, the bank still thinks that EUR/USD will finally manage to break above 1.4535.

 

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[FBS.com Official]

Roubini: Greece will be forced to restructure debt

 

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, says that Greece’s debt to GDP ratio is at “level of insolvency”, so the restructuring of the country’s debt seems inevitable. The same outcome is possible for Portugal’s and Irish banks’ debt.

 

Roubini thinks that Ireland’s government rescue package designed to finance national saving banks may deepen the country’s debt crisis.

 

The economist also claims that ECB may raise benchmark rate 50-75 basis points this year. In his view, in 2012 the borrowing costs in the euro area may reach 3%.

 

According to Roubini, the deviation in the monetary policy between the Federal Reserve and the European Central Bank may be quite destabilizing for financial markets.

 

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[FBS.com Official]

Mizuho: comments on EUR/USD

 

Technical analysts at Mizuho Corporate Bank claim that bullish pressure on euro will strengthen if the pair EUR/USD manages to close the week above the important 1.4500 level. The specialists claim that the greenback’s suffering from the broad weakness, especially versus Swiss franc and Singapore’s and New Zealand’s dollars.

 

According to the bank, it’s necessary to buy the single currency at 1.4465/1.4400 stopping below 1.4350 and taking profit at 1.4520 and then at 1.4800/1.5000.

 

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