Comments and forex-analytics from FBS

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I'm glad to present in this thread the analytics of FBS brokerage company.

Analytical support is one of our strongest advantages. FBS has a large in-house analytical department, gathering top level professionals in market research. Our analysts provide round-the-clock analytical support based on over 120 local markets news sources, comments, opinions and predictions. Our analysts also provide comments for several business broadcasting companies and TV shows.

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Lloyds: Greek debt has to be restructured

Economists at Lloyds TSB Corporate Markets note that to get the EU support Greek authorities promised last year to do fiscal tightening, but they haven’t done it. So, the country’s officials are once again promising to reduce the budget. The question is, given the increasing opposition to the cuts from Greece’s population, if the government is able to push through the austerity measures.

The analysts say that Greece doesn’t grow fast enough to generate the tax revenues. As the country needs money there certainly has to be some restructuring – it doesn’t have to be the outright default, though it depends on how you define the notion of “default”. Rating agencies, for instance, say that any sort of “reprofiling” means default, notes Lloyds. The specialists think that in the long run restructuring will help both Greece and euro zone. According to the bank, the quicker the proper mechanism is put in place, the better.

The current crisis in Europe is not a matter of confidence to the EMU as some might think, but the problem of relatively small economies, think the strategists. But as these countries still can’t meet their payments unless the debt is written off, the debt restructuring will actually ease the pressure on euro and reduce contagion effects.

According to Lloyds, the world’s economy is quite healthy at the moment and if to conduct reforms in the euro area, it’s time to do that now. The European policymakers need to be willing to act toughly dealing with the crisis in 3 countries in particular – Greece, Portugal and Ireland.

[FBS.com_official]

Ferguson: political tensions in the euro area will escalate

Naill Ferguson, a history professor at Harvard University, said in his interview to Bloomberg TV that the euro zone has become a kind of government-killing machine: those policymakers who have been in charge during the financial crisis are now being punished. This applies not only to the policymakers of the periphery known as PIGS (Portugal, Ireland, Greece and Spain), but also to the core, particularly, Germany. In his view, this process is going to continue and this is a very troubling situation with the implications for the whole global economy.

The professor recalls the experience of the Latin Monetary Union in the late 19th century that died a slow death mainly because of Italian deficits. Ferguson has also expected that it would be Italy to drive the euro zone off the cliff. The Problems have actually begun in Greece, Ireland and Portugal threatening to spread to Spain. Now, however, Italy is in the frame, so the economists say that it’s necessary to talk not about PIGS but about PIIGS in order to make room for Italy alongside Ireland.

As the political situation deteriorates, there will be more of True Finn type parties in the core and the North that urge to stop bailing out South and West, while in the periphery people will keep complaining about the masochistic austerity measures which these countries are conducting.

According to Ferguson, the dangerous idea of leaving the euro zone is starting to be regarded as politically credible one and the tensions in the region will escalate.

[FBS.com_official]

China will be possibly buying EFSF bonds

The single currency made today the biggest advance versus US dollar this month – the pair EUR/USD gained 0.7% rising from $1.4068 to $1.4195.

Euro was encouraged by the expectations that China will increase purchases of European bonds that helped to weaken concerns about the crisis.

European Financial Stability Facility CEO Klaus Regling claimed yesterday that Asian investors, including China, may buy Portuguese bailout bonds when the EFSF sells them in June.

China that is the world’s biggest holder of foreign exchange reserves and the largest overseas investor in US debt with holdings (according to Treasury May data, China holds $1.145 trillion) seems willing to diversify its reserves moving away from US dollar.

Analysts at Westpac claim that China’s interest is positive for euro in the short term. However, the specialists warn that the potential restructuring of Greek debt will prevent euro from rising in the longer-term.

Economists at Rabobank regard Regling’s statement not as the vote of confidence in the periphery, but as the pooling of the euro zone’s fiscal resources. So, in their view, any reduction of peripheral yields on this news will be short-lived.

[FBS.com_official]

Commerzbank: comments on EUR/CHF

Technical analysts at Commerzbank claim that euro managed to find support at 1.2270 trading versus Swiss franc after its fall from Friday’s maximum of 1.2646.

The specialists think that the pair EUR/CHF will be able to recover not higher than to 1.2644 or 1.2469/85. In their view, the mentioned resistance levels will constrain further advance of the sing currency.

[FBS.com_official]

Hawk Andrew Sentance is leaving the Bank of England

The outlook for British pound depends on how the uncertainty about the Bank of England’s MPC decisions will resolve. Here there’s a significant change in the state of things: Andrew Sentance is leaving British central bank next week after a year of calling for the rate hike.

During this year Sentance managed to convince 2 other MPC members – Spenser Dale and Martin Weal – that it’s necessary to raise the borrowing costs in UK in order to stem rising inflation that reached in April the maximal level since 2008 of 4.5%. According to the BoE forecast, in May this figure will iclimb to 5%. The main argument against increasing rates is the weakness of Britain’s economy: data released yesterday showed that consumer spending and investment survived in the first quarter the biggest slump in 2 years.

How the MPC will vote on the next meeting that will take place on June 9 depends on the newcomer former Goldman Sachs economist Ben Broadbent who will succeed Sentance as a policy maker. On May 17 Broadbent said that there are strong arguments both for lifting up the rates and staying on hold.

[FBS.com_official]

BNZ: NZD/USD may rise to $0.8213

Analysts at BNZ claim that New Zealand’s dollar is currently one of the most demanded currency in the world: it surged versus its US counterpart from $0.7990 yesterday approaching today the $0.8200 area.

The specialists note that kiwi is helped by the reports that China Investment Corp., Chinese sovereign wealth fund, has planned to invest 1.5% of its foreign-exchange reserves to in New Zealand’s assets.

According to BNZ, NZD/USD is poised up to the post-float maximum at $0.8213 hit in February 2008. The strategists think, however, that as there are too many bulls on kiwi right now, the pair may pause for some time. The bank says that resistance for New Zealand’s currency is found at $0.8214, while support lies at $0.8110.

[FBS.com_official]

UBS, BoT-Mitsubishi: US dollar will strengthen

US dollar bears are reducing their short positions on American currency ahead of the end of the Fed’s QE2 in June, reports Financial Times.

The Federal Reserve’s bond purchases flooded the county’s financial system with the excessive amount of the national currency. The greenback has weakened becoming widely used as a funding currency in carry trades. The stock of money in the US has tripled from $844 billion in August 2008 before the Fed’s first round of quantitative easing began to more than $2,390 billion.

Economists at Standard & Poor’s think that the expiration of QE2 will ease the fundamental pressure on dollar seen during the recent years. In their view, there may be a wave of short covering as investors buy back dollars that they sold earlier and this could mean that the USD downtrend’s over.

According to CME data, during the week before May 17 speculators cut the value of their US dollar shorts by $8 billion to $25.5 billion, the minimal level since January.

Specialists at UBS note that pension funds have also been reducing bearish bets on American currency so far. According to the bank, dollar will be able to get higher as the Fed’s decision to finish QE will reduce the usage of dollar in carry trades and improve the confidence of Asian central banks and reserve managers in the US currency.

Strategists at Bank of Tokyo-Mitsubishi UFJ pointed out that investors are worried about the inability of US Parliament to push through the legislation that would increase US debt ceiling. As the risk sentiment deteriorates due to this matter and also because of the euro zone’s debt crisis, the demand for safe havens such as Swiss franc, Japanese yen and also US dollar is going to increase in the coming months. However, one should remember that if US debt limit isn’t lifted by the beginning of August, the United States will face the danger of default.

[FBS.com_official]

Commerzbank: euro’s advance is a correction

The single currency has recovered from Monday’s minimum at 1.3970 to the levels above 1.4200 trading versus the greenback.

Technical analysts at Commerzbank regard the upward move of the pair EUR/USD as correction, though they expect euro to climb a little higher before failing at 1.4340/65 or 1.4570 representing 38.2% and 61/8% Fibonacci retracement.

According to the bank, the general outlook remains bearish. The European currency is poised down to 1.3770 (38.2% retracement of the pair’s advance from 2010 to 2011) and then 1.3463/1.3390 (55-week MA and the 11-month support line).

[FBS.com_official]

Otmar Issing: euro area could have avoided the crisis

Former European Central Bank Chief Economist Otmar Issing, who worked in the ECB from 1999 till 2006, came up today with rather tough comments about Greece. According to him, the nation managed to enter the euro zone using deception.

Issing says that the current crisis occurred due to the lack of monitoring and the absence of adequate sanctions for the violation of the currency union’s rules. In his view, the euro area could have avoided the turmoil if the required efforts were made.

The economist thinks that Greece won’t be able to repay its debts on its own even after the country approved an accelerated asset-sale plan and a package of budget cuts necessary to draw a fifth tranche of its bailout. As a result, Issing forecasts that the single currency will survive the crisis, but some nation may have to leave the euro area.

[FBS.com_official]

Deutsche Bank: EUR/USD will decline to support at $1.3500

So, EUR/USD went down from the maximums in the 1.5000 area reached at the beginning of May to the 1.4000 zone earlier this week moving within the downtrend.

Analysts at Deutsche Bank expect the single currency to lose 5 or 6 big figures more trading versus the greenback.

At the same time the specialists underline that euro’s decline will be limited by the 1.3500 level where it’s likely to find firm support that will hold during the weeks ahead.

[FBS.com_official]

Juncker: EU will decide on further Greece’s funding by the end of Jun

Jean-Claude Juncker who’s leading of Eurogroup said that the European Union leaders will decide on additional aid for Greece by the end of June.

In coming days the EU, IMF and ECB are finishing the review of Greece’s in meeting the terms of last year’s 110 billion-euro ($157 billion) bailout. According to the results of this examination, the EU will come up with plan for further aid to the country.

Under the terms of the rescue package, Greece was to return to financial markets and sell about 30 billion euro of bonds next year. As 10-year bond yields reached 16.4% that exceeds those of the time of the bailout in more than 2 times, Greece isn’t able to finance itself on its own and will need more aid.

ECB Executive Board member Lorenzo Bini Smaghi thinks that the EU and IMF will have to put up another 30 billion euro in loans to tide Greece over next year with the rest of its 2012-2013 financing needs covered by revenue from asset sales and other measures, reports Financial Times.

Greek Prime Minister George Papandreou has announced an additional 6 billion euro of budget cuts for this year to meet the bailout goal of cutting the deficit to 7.5% of GDP. The government also pledged to speed 50 billion euro of state asset sales to repay part of its debt, which is set to reach almost 160% of GDP this year.

[FBS.com_official]

Commerzbank: EUR/USD will keep correcting upwards

The single currency went up from 1.4000 versus the greenback last week overcoming the key resistance in the 1.4340/65 area.

Technical analysts at Commerzbank claim that such move of euro means that its upward correction is likely to deepen. In their view, the pair EUR/USD is poised up towards 1.4568/1.4730 (61.8% and 78.6% Fibonacci retracements).

According to the bank, support levels are situated at 1.4300/1.4240. While the European currency is trading higher, the market will remain bullish. If euro breached this area, it will head down to test 1.4003/1.3969 (200-week MA and the recent minimum).

[FBS.com_official]

BlackRock: euro zone's financial sector’s in danger

Analysts at BlackRock, the world's largest asset manager that’s in charge of about $3.65 trillion in assets in its stock, bond and hedge funds, believe that euro zone’s financial problems don’t amount to only Greek ones, though, of course, Greek issue is the most urgent to deal with.

The specialists note that if the terms of Greek debt repayment are changed the same will become inevitable for Irish and Portuguese debt.

The company underlines that European banks own the major part of the region’s debt, so restructuring in one country will put euro area’s bank under pressure. As a result, before restructuring national debts it’s necessary to restructure the banking system in Europe.

According to BlackRock, Europe will need a giant TARP that stands for the Troubled Asset Relief Program like one that was conducted in the United States to rescue financial firms.

[FBS.com_official]

BofA Merrill Lynch expects loonie to decline

Canadian dollar may decline as it’s widely thought that the Bank of Canada will decide today not to raise its benchmark interest rate that’s currently at 1.00% level. The overnight rate will be released today at 1.00 pm GMT.

On the one hand, Canada has very strong fundamentals such as decreasing unemployment, shrinking budget deficit and faster growth than in the United States. On the other hand, loonie reached the maximal level versus the greenback since November 2007 on April 29 at 0.9445. Canadian currency has become too strong and is affecting the nation’s exports that are already curbed by low demand from the US, Canada’s main trading partner.

Canada’s central bank’s governor Mark Carney dampened the expectations of rate hike in his May 16 speech citing the risks created by CAD’s appreciation. That made loonie drop by the end of the month to 0.9800.

According to Bank of America Merrill Lynch, Canadian currency will fall against its US counterpart to $1.03 by the year-end and to $1.07 by the end of 2012. The specialists think that CAD is overvalued by 20%. Analysts at Wells Fargo say, however, that investors may be underestimating the potential for rate rises as inflation in Canada is rather high and the country’s economic growth’s gaining momentum. In their view, the pair USD/CAD will finish the year at 0.90.

[FBS.com_official]

Mizuho: comments on GBP/USD

Technical analysts at Mizuho Corporate Bank claim that as the British currency rose from last week’s minimum at 1.6060 compensating 61.8% of May's decline and closing the week above 1.4300, the bullish pressure on the pair GBP/USD has strengthened.

According to the specialists, sterling reached the long-term resistance area of 1.6500/7000. Mizuho expects pound to trade at these levels for the rest of the week and possibly for the whole summer.

[FBS.com_official]

BMO Capital Markets: long-term EUR/USD forecast

Analysts at BMO Capital Markets think that as the pair EUR/USD went down from maximums of early May in the 1.4900 area to 1.3970 it has formed a significant minimum.

According to the specialists, the single currency will rise versus the greenback to 1.4700 in the third quarter of 2011 and to 1.4900 in the final 3 months of the year.

However, the strategists expect euro to go through continuous slump next year falling to 1.4800 in the first quarter of 2012, to 1.4600 in the second one, to 1.4300 in the third quarter and to 1.4100 in the final 3 months of 2012.

[FBS.com_official]

Citigroup about US debt and dollar’s rate

Analysts at Citigroup think that if US debt overcomes the critical level, the greenback will be affected much more than Treasuries as international holders of American debt may regard potential losses as greater than domestic ones.

The specialists think that the foreign exchange reaction to a debt ceiling breach would be sharper and probably more permanent. As a result, foreign investors will use every chance to sell dollars.

US Congress has to find a way to avoid default before August 2. The amount the government can borrow was reached May 16. Today the House of Representatives is voting on the $14.3 trillion threshold by $2.4 trillion. Republicans demand high spending cuts and no tax increases as a condition for raising the limit.

According to Citigroup, if there’s US sovereign debt crisis, dollar will ultimately lose value. Taking into account the fact that the euro area is also facing great difficulties, the analysts recommend turning to such currencies as Canadian, Australian and New Zealand’s dollars, Norwegian krone and Swedish krona as these nations don’t have the same fiscal problems.

[FBS.com_official]

BoA-Merrill Lynch: China’s economic growth forecast

According to the data released today, China’s official PMI fell for the second month in a row declining from 52.9 in April to 52.0 in May. HSBC China Manufacturing PMI went down to from 51.8 in April to 10-month minimum of 51.6 in May.

Economists at Bank of America-Merrill Lynch claim that although Chinese PMI figures were lower, economic slowdown will be a “soft landing”: the nation’s economic growth rate will be slowly declining after strong advance seen earlier.

In their view, the nation’s annual GDP growth will ease from 9.7% in the first 3 months of the year to 9.4% in the second quarter and to about 9.0% in the second half of 2011. The specialists neither expect further monetary tightening in China, nor think that monetary policy will be eased this year.

[FBS.com_official]

BMO, J.P.Morgan: trading on the hurricanes

The Atlantic hurricane season has begun today and will last traditionally till the end of November. Weather experts in US National Weather Service’s Climate Prediction Center expect an above-normal hurricane season this year with 12 to 18 named storms, of which 6-10 could become hurricanes.

Analysts at BMO Capital gave investors a piece of advice on how to trade on hurricane news.

In their view, the best strategy in such case is buying oil-exporting country's currencies versus US dollar. Oil prices will go up once the storms hit areas like the Gulf of Mexico. The specialists say that the greenback lost 3% versus its Canadian counterpart after hurricanes Katrina and Rita.

Strategists at J.P.Morgan Asset Management share this opinion. According to them, it may be sensible enough to start building positions in such currencies as Canadian dollar, Russian ruble and Norwegian krone now in order to be ready when a storm hits. The economists think that oil prices could move up even before a specific storm warning is issued.

[FBS.com_official]

Commerzbank: EUR/JPY is moving up to 123.33

The single currency surged yesterday versus Japanese yen. Today the pair EUR/JPY is testing resistance of the 55-day MA at 117.45.

Technical analysts at Commerzbank claim that if euro manages to get above this level it will be poised up to 119.11 and then to the recent maximum at 123.33.

According to the bank, support for the pair is situated at the 200-day MA at 113.23 and 55-week MA at 112.91. The outlook for euro is neutral/positive.

[FBS.com_official]

UBS: short-term bullish outlook for euro

Technical analysts at UBS claim that euro’s rebound versus the greenback from last week’s minimum at 1.3970 paused ahead of resistance in the 1.4455 area. In their view, the pair EUR/USD will manage to break above this zone. In this case the bullish pressure on the single currency will increase encouraging it for an advance to 1.4569.

[FBS.com_official]

Rating agencies warn about Japan’s problems

Yesterday Moody's Investors Service began reviewing Japan’s Aa2 credit rating as the negative consequences of March 11 earthquake may turn out to be greater than expected and the measures to reduce the nation’s huge budget deficit aren’t efficient enough because of the political tensions between the opposition and the current government.

According to the ratings agency, Japanese debt will keep rising unless spending is cut or revenue’s increased. It’s necessary to note that Japan's gross debt burden is already above 200%, that’s the highest level among major economies.

On February 22 Moody’s changed the outlook for Japan's bond rating to negative. The last time the country’s rating was changed on May 18, 2009. Currently Japan is at the same step in rating as Italy and Spain.

The opposition has refused to support Prime Minister Naoto Kan’s government decision to issue deficit-covering bonds for the fiscal year that began April 1. As a result, there’s a more than 40% gap in revenue in relation to planned spending even before extra spending related to the devastating disaster is taken into account.

Other major ratings agencies are as well pessimistic about the situation in Japan: Fitch Ratings said last week that it was assigning a negative outlook to its AA- rating, which is one notch below Moody's level. Standard & Poor's also has a negative outlook on its AA- rating.

[FBS.com_official]

Australian dollar gained on less negative GDP data

Australian dollar rose today to the 3-week maximum versus the greenback in the 1.0750 area gaining nearly 1%.

Aussie was encouraged by the news that the nation’s GDP fell in the first quarter only by 1.2% from the previous 3 month – though it was the biggest quarterly drop in 20 years, some economists were looking to much more dramatic figures. For example, analysts at Goldman Sachs expected the slump of more than 2%.

Support for the pair AUD/USD is situated at $1.0637, while resistance is found at $1.0757.

The Reserve Bank of Australia’s meeting is taking place on June 7. The central bank will likely keep the benchmark rate unchanged at the current level of 4.75%.

[FBS.com_official]

Analysts about the possibility of QE3 in the US

As US labor market and housing data is quite discouraging many analysts start wondering whether American monetary authorities will extend monetary stimulus to promote the rebound of the nation’s economy in form of the third round of quantitative easing.

The greenback was under pressure this year as the QE2 made the interest rates in the United States decline, while the other nations in the world were tightening monetary policy. So, the market has been looking forward to the end of the Fed’s $600-billion bond purchase program to see some relief in US currency. However, the weak macroeconomic data made brought serious doubts to the market.

Analysts at MF Capital think that declining bond yields point at the weakness of American economy. In their view, the Federal Reserve will find it necessary to act and continue buying Treasuries.

Economists at Citigroup note that the fact that US stocks are bringing better revenues than bonds. The specialists reminded that the last time it happened in a sustained way was when markets were pricing in the current round of easing. That time dollar was also weakening. Although the greenback’s trading not as weak as at the end of April, the pace of its depreciation during the last week was high enough, so it’s possible to assume that forex markets is preparing to the new stimulus program. According to the bank, Federal Reserve’s chairman Ben Bernanke will be able to persuade the FOMC to support QE3 only if US GDP posts negative dynamics in at least one quarter. As a result, Citi estimates the probability of new round of QE as low.

Economists at JPMorgan Chase are sure that the QE2 will be the last as additional monetary stimulus will lead to rather bad political consequences.