Comments and forex-analytics from FBS

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CFTC trader positioning data

The latest Commitments of Traders (COT) report for week ended on August 28 was released on Friday, August 31, by the Commodity Futures Trading Commission (CFTC).

Speculative investors turned against the greenback for the first time in nearly a year. Investors held net short USD positions against seven major currencies worth $1.59 billion. EUR shorts fell to the smallest level in about 4 months. The net long JPY position nearly doubled as yen was bought as a safe haven. In recent weeks the market had shown a clear preference to extend long speculative positions in CAD and AUD. In the latest reporting period, CAD was the only one to stay in such favor. The net long AUD position fell by about 10%.

Take a look at the following table.

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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BMO: CAD is approaching extreme levels

USD/CAD keeps trading close to 3-month minimum at 0.9840 hit on August 21. A breach of 0.9800 would be a very bearish signal. Yet, as this is the bottom of a significant consolidation area, it will be hard for the bears to push the prices lower.

Resistance: 0.9900, 0.9950, 1.0000, 1.0050.

Support: 0.9840, 0.9800, 0.9730.

BMO Capital Markets: “Investors, including central banks and sovereign wealth funds, have favored the loonie to diversify their holdings and as a haven from the debt crisis in the euro region. Canadian dollar is approaching extreme price levels where it is going to have an impact on the domestic economy. The recent strength is going to be hurting the demand we have seen. CAD should become weaker versus the US dollar and fall to around C$1.03 per USD by the end of the year, which would be a more comfortable level for the Canadian economy to operate at.”

Chart. Daily USD/CAD

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AUD/USD keeps on falling

During the last days the Australian dollar has been a weak performer. AUD/USD has left the June-August upward channel and decisively moves down. On Monday the pair opened a new 5-week minimum at $1.0240 on the negative data releases. The pair trades below the 200-day MA. Next support lies at $1.0205 (100-day MA), $1.0176 (July 25 minimum) and $1.0100 (July 12 minimum). On the H4 chart we can see a bearish convergence, so a correction towards $1.0340 is possible.

Most analysts are bearish on the pair’s longer term prospects. For example, specialists at UBS expect AUD/USD to reach parity before the end of 2012. In their view, falling commodity prices and worrying China economic data will weigh on the pair. Strategists at Westpac also believe the pair is moving towards $1.0000/0100.

Tomorrow the RBA will hold a meeting for a policy decision. According to most economists, the regulator is likely to keep the cash rate at 3.50%.

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 August 31.

Source: FX Week

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UBS, HSBC: Grexit is not an option

Many analysts say that the odds of Greece leaving the euro area have diminished considerably ahead of the Troika (the European Commission, the IMF and the ECB) review of Greek finances and its progress in meeting its repayment require¬ments to its European lenders. The final report is expected by the beginning of October.

UBS: “In the short time span between March and today, the euro crisis has escalated to such an extent that, even theoretically, a Greek exit is no longer an option. The risk would be very high that it could lead to the euro¬zone unravelling altogether, because markets would see little reason why Greece can exit but Portugal, Spain and Italy cannot.”

At the same time, the ECB meeting on September 6 distracts the market’s attention from the Troika.

HSBC: “In more normal circumstances, the Troika report would be at the sharp end of market focus. But the reason it might not be is because there is so much else going on at the same time, with the ECB and Federal Reserve meetings taking place, so there are rather large distrac¬tions that might diminish the market’s fixation. If it were a quieter time, we would be hanging on every word of the Troika review. If the money for Greece is released then it is one less banana skin for the euro, so if the Troika report is positive, or at least neutral, then that will be good for the euro. If it isn’t, that would be a real headache for the mar¬ket because we have got used to the idea that Greece is a manageable crisis. If it looked like bail-out money would be stalled indefinitely, you would open up another unpleasant chapter in the crisis. For that reason it is not the most likely out¬come.”

This image by the anonymous artist known as Colonel Flick aka Willimabanzai7

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USD/JPY is under bearish pressure

USD/JPY is trading in the 78.40/18 area after sliding by 30 pips on Friday.

The pair is now trading below support line connecting the recent minimums which is now providing resistance for the pair. There’s more of resistance at 78.65 (lower border of daily Ichimoku Cloud) and 78.80 (38.2% retracement of the decline from August 20 maximum to August 22 minimum; last week’s highs).

USD/JPY didn’t manage to regain the pivotal 79.00 barrier. The pair remains under negative pressure. We see bearish convergence on H4 MACD, but the general outlook remains bearish.

Nomura: “The dollar may be supported by likely buying from Japanese importers in the near term. But I do think it will test 78 yen.”

Chart. H4 USD/JPY

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GBP/USD: technical comments

GBP/USD consolidates close to the level of its opening ($1.5877) following a spike on positive British manufacturing PMI data (49.5 in August vs. forecasted 46.1 and 45.2 in July). The pair traded within the sideways channel in June-July before breaking its upper boundary ($1.5750) on August 21. GPB/USD trades above the 50-, 100- and 200-day MAs. On the H4 chart upward-directed MAs create a rather strong support for the pair.

Next resistance lies at $1.5900, $1.5911 (August 23 maximum) and $1.5928 (February 8 maximum). Support is seen at $1.5800, $1.5770 (August 30 minimum) and $1.5750 (upper boundary of the flat channel, August 28 minimum and a 100-day MA).

Chart. Daily GBP/USD

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EUR/USD: technical update

EUR/USD is consolidating in the $1.2585/60 area on Friday after testing new highs above $1.2600 on Friday. Here we also see some divergence on H4 MACD, though the short-term uptrend remains intact.

Commerzbank: resistance for EUR/USD is getting serious. The bulls may fail at $1.2657 (downtrend resistance line of August 2011) and $1.2748 (June maximum). In this case EUR/USD will resume its decline heading to the levels below $1.2406 (August 2 peak).

NAB: “EUR/USD has reached our interim (end Q3) target of 1.26, while AUD/EUR has similarly reached our forecast of 0.82. While volatility is set to rise through October, risk now is that some of the additional gains we anticipated during Q4 will materialize sooner. We can see EUR/USD trading up to at least 1.28 this month and AUD/EUR down to test 80.0.”

Chart. H4 EUR/USD

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Westpac: bearish on NZD/USD

On Monday NZD/USD trades close to a 5-week low below the $0.8000 mark and the 200-day MA. The kiwi remains under pressure because of the negative Chinese data and the euro crisis tension.

Support for NZD/USD is seen at $0.7930 (100-day MA), $0.7840/60 (support area of the June July sideways channel) and at $0.7800, while resistance – at $0.7997 (200-day MA), $0.8014 (June 21 maximum), $0.8053 (July 19 maximum) and $0.8073 (July 5 maximum).

According to specialists at Westpac, the pair targets $0.7800 and $0.7550. Australian GDP (Wednesday) and ECB meeting results and Australian labor market data (Thursday) may pull the pair down.

Chart. Daily NZD/USD

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Macroeconomic indicators

The table below provides recent data on the main macroeconomic indicators and is an extremely valuable resource for any trader.

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September 4: forex news

The market players are all about anticipating the ECB’s move on Thursday. Investors seem to believe that the ECB has everything ready to launch new bond purchases. The central bank’s President Mario Draghi said yesterday that purchases of sovereign bonds with a maturity of up to 3-years won’t be considered as state aid and would not breach the ECB’s mandate. German Finance Minister Wolfgang Schaeuble said he was sure the country's Constitutional Court would not block treaties establishing a permanent bailout fund (ESM) September 12.

EUR/USD rose above $1.2600 moving gradually up. USD/JPY is up from the recent lows testing resistance around 78.40 yen. GBP/USD is trading on the upside, not far from resistance of $1.5912. UK construction PMI is released at 8:30 GMT. Swiss GDP unexpectedly contracted by 0.1% in Q2. The SNB has good reasons to keep defending franc’s cap.

AUD/USD went up from its 6-week lows after the RBA left the rates on hold at 3.50%. According to the RBA Governor Glenn Stevens, the regulator’s monetary policy is “appropriate” to current economic situation. The tone of the statement was not as dovish as many market participants feared in the context of Chinese problems and drop in iron prices, but contained some dovish hints. Many economists believe the RBA remains in a wait-and-see mode. AUD/USD strengthened towards $1.0280 levels, but still remains below the 200-day MA. NZD/USD opened a new 5-week minimum at $0.7953 on Asian stocks decline, but then bounced higher. USD/CAD remains on a 4-month low around 0.9850.

EU President Herman Van Rompuy meets with German Chancellor Angela Merkel today in Berlin. Italian Prime Minister Mario Monti welcomes French President Francois Hollande to Rome. Later today watch for ISM August manufacturing data (cons.:50.0, prev.: 49.8).

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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: $1.2500, $1.2540, $1.2550 (large), $1.2600, $1.2700;

USD/JPY: 78.00, 78.45, 79.00, 80.00 (large);

USD/CHF: 0.9540, 0.9750;

AUD/USD: $1.0325;

EUR/JPY: 96.00;

EUR/GBP: 0.8005.

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BoA, Barclays, SocGen: ideas about the ECB

Bank of America Merrill Lynch: “The ECB bond buying plan at its meeting on Thursday is likely to disappoint. Further clarification is expected on the ECB’s seniority status; the type of purchased securities, which markets understood as specifying the maturity of sovereign bonds to be purchased; and perhaps the amount of securities to be purchased. In our view markets may be expecting too much transparency from the ECB in the absence of any formal request for EFSF/ESM support. The likely market disappointment should intensify the pressure on Spain to request a new program, but concrete moves will have to wait for the German constitutional court’s ruling on the ESM on September 12. The ECB may cut its refi rate by 25bp to 0.50%.”

Barclays and Societe Generale: The ECB will wait until the German constitutional court decision on September 12 to give full details of its actions.

Societe Generale: “While the ECB’s announcement of a new bond buying program was welcome, there’s the risk that other good news will be slower in coming.”

“Draghi will be vague and he should be,” says Unicredit.

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Commerzbank: outlook for AUD/USD

On Tuesday AUD/USD moves up on the RBA meeting results, but the overall trend remains downward. The pair trades below $1.0300 and is cramped between the 200- and 100-day MA.

According to Commerzbank analysts, in a near-term AUD/USD is likely to find support at $1.0219 (38.2% Fib. retracement of the summer uptrend). Specialists are bearish for the pair while it remains below $1.0545 (August 23 maximum) and see the first resistance at $1.0318 (200 -day MA) and $1.0412 (August 17 minimum). AUD/USD may make an upside move, but is expected to fail to overcome the $1.0412 resistance and to drop towards $1.0100 (July 12 minimum and 50% Fib. retracement).

Chart. Daily AUD/USD

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Euro’s prospects: opinions are divided

Traders and strategists are more divided than at any time since 2011 over whether European officials will be able to keep the currency from tumbling.

On the one hand, markets are generally optimistic about the ECB’s response to the crisis. On the other hand, the expected bond purchases will likely debase the currency.

Analysts at Morgan Stanley expect euro to slide to $1.1900 by the end of 2012. In their view, EUR/USD’s advance to $1.2700/$1.3000 would provide a good level to sell. Strategists at Wells Fargo think EUR/USD may climb to $1.3000 by the end of October and then slide to $1.2000 in a year as euro zone’s economy will underperform the US one.

The most bearish view is that of Bank of America Merrill Lynch which expects EUR to weaken to $1.15 by the end of the year. The most bullish forecast for EUR is given by HSBC which believes in the policymaker’s efforts to save euro: the banks projects that euro will rise to $1.3500 by the end of the year and $1.3700 by March 31 underlining that current levels are a buying opportunity.

Chart. Daily EUR/USD

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Commerzbank: NZD/USD will fall to 3-month low

Here’s one more forecast from Commerzbank. The analysts expect NZD/USD to slide to 3-month minimum at $0.7458.

The specialists underline that last week kiwi slipped below the key support of the 200-day MA at $0.7986. The pair may find initial support at previous minimums of $0.7969 and $0.7928 (100-day MA).

“We would allow for some profit taking here, however given that technical indicators are negative, rebounds should remain tepid. Once last week’s low at $0.7969 cents is fallen through, the July low at $0.7811 will be back in play. Failure here will mean that a medium-term top has been formed and that a drop back towards the $0.7458 June low is underway,” said the bank.

Chart. Daily NZD/USD

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Bloomberg: tip about EUR/USD

According to Bloomberg, EUR/USD is trading 3.3% higher than the median year-end estimate of more than 50 analysts at $1.22. Last week this gap expanded to 3.8%. The last time the single currency exceeded the consensus by that much was in July 2011, and euro lost 9.4% in the next 10 weeks. This gives us some food for thought, doesn’t it? The broad technical picture allows further gains (see MACD at the weekly chart), so the scenario that euro will firstly rise up to $1.3000 and then decline seems credible enough.

Chart. Weekly EUR/USD

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RBS: thoughts about GBP

Analysts at RBS claim that British pound is overvalued at the current levels. In their view, GBP/USD’s fair value lies closer to $1.5650.

The specialists say that the next couple of weeks seem set to be important in determining how currencies and financial assets trade into early December.

According to them, further easing by the Fed should help limit the downside in GBP/USD over the next month. RBS underlined that Bernanke appeared to open the door a little more to further easing and even a better than expected payroll number on Friday seems unlikely to change this.

Chart. Daily GBP/USD

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UBS: bearish view on AUD/JPY

Analysts at UBS think that AUD/JPY may continue to decline. The specialists note that the pair’s testing 80.10 (38% retracement of the advance from June 1 minimum to August 21 maximum).

In their view, if Aussie breaks this support, it will head to 79.50 (July minimum) and 79.03 (50% retracement).

“With the recent weakness seeing daily and weekly trending tools turn negative, the picture is bearish,” says the bank.

Chart. Daily AUD/JPY

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MIG Bank: trading USD/CHF

Analysts at MIG Bank note that USD/CHF continues to move down within declining channel. In their view, the pair will slide to strong support area between 0.9420 (June minimum) and 0.9366 (May 21 minimum). In addition, the bank considers the broader technical picture to be positive. The specialists think that one should enter longs at these levels. So, their recommendation is to place buy limit at 0.9423 targeting 0.9556/0.9800/0.9972 and stopping at 0.9290.

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September 5: forex news

Demand for riskier assets shrank due to the signs of global economic slowdown. MSCI Asia-Pacific index of shares outside Japan tumbled 1.2% to a 5-week low.

AUD/USD slid to 6-week minimum below $1.0190 as Australia’s GDP added only 0.6% in Q2 (cons.: 0.8%; prev.: 1.4%). Moreover, a private survey showed the nation’s services industry contracted in August at the fastest pace in 4 months. NZD/USD remains under pressure testing support at $0.7925. USD/JPY rose to 78.53 in Asia, but then dropped below the opening price to 78.38.

EUR/USD slid from the recent highs above $1.2600 declining for the second day. Investors await the ECB’s meeting tomorrow: a lot of expectations about the central bank’s acting to help the European countries fight the debt crisis have been built and now the pair’s pricing in the risk of disappointment.

Today watch for Spanish, Italian, euro zone’s and British services PMI data. European retail sales released at 9:00 GMT may show contraction.

In the evening all eyes will be on the Bank of Canada’s meeting. USD/CAD lifted from the 3-month lows but still remains close to these minimums. The BOC is expected to leave interest rates unchanged, so investors are focused on whether Governor Mark Carney will change the message that the central bank may need to hike rates.

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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: $1.2500, $1.2530, $1.2535, $1.2550, $1.2585, $1.2650;

GBP/USD: $1.5825;

USD/JPY: 78.00, 78.60;

AUD/USD: $1.0250, $1.0400;

EUR/JPY: 97.60, 97.70, 99.00;

EUR/GBP: 0.7940;

AUD/USD: $1.0250, $1.0400.

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Greece: a 6-day working week?

It seems that hard times for the Greek population are only beginning.

According to the leaked letter from the Troika (the European commission, the ECB and the IMF) to the Greek finance and labor ministries, Greece’s creditors are demanding that the nation’s government introduce a 6-day working week and increase working time as part of the terms for a second bailout.

The Troika inspectors return to Athens this week after a long delay caused by political turmoil in Greece. The officials are expected to deliver a verdict in October that will determine whether Greece will get the next trance of financial help worth 30 billion euro.

Greece is in the midst of a 5-year recession, with nearly 2 million people currently unemployed (the unemployment level is almost 30%). Greek authorities are trying to enact spending cuts of a further 11.6 billion euro which were to have been implemented in June. The nation’s government is pleading for more time – 4 years instead of 2 – to fulfill debt reduction targets and spending cuts. At the same time, such extension of time would require more help from the euro zone and this looks problematic.

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Forecast Pte: year-long downtrend’s intact

Technical analysts at Forecast Pte underline that EUR/USD is still trading within the downward channel.

The resistance line of this channel is connecting $1.4549 (August 29, 2011 maximum) and $1.4247 (October 2, 2011 maximum), while the support line is going through $1.3146 (October 4 minimum).

The specialists underline that during the past year euro has never climbed above the channel. For today EUR/USD’s upper limit is situated around $1.2674. Forecast Pte expects the pair to retest $1.2040 (July minimum).

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BarCap recommends selling GBP/USD

Barclays Capital recommends selling GBP/USD with target at $1.5600 and stop at $1.5950. The pair faces technical resistance at $1.5915.

The specialists reason this way: if ECB disappoints the markets on Thursday with no further details on debt purchases, EUR/USD is vulnerable to a correction. GBP/USD is highly correlated with EUR/USD. If US non-farm payrolls come above the forecast of 121K, for example, at 150K, US dollar will have a lift. The analysts don’t expect QE from the Fed.

Barclays underlined that UK PMIs have been mixed but official data remains very weak, so the Bank of England will ease its policy. According to the bank, in November the BoE may announce 50 billion pounds of QE and cut its benchmark rate by 25 bps.

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