Comments and forex-analytics from FBS

[ryuroden]

Euro: events and comments

The single currency fell versus the greenback on the expectations that European Central Bank cuts its benchmark interest rates on Thursday, November 3.

According to Bloomberg, Credit Suisse Group AG index shows that yesterday traders expected the ECB to reduce the borrowing costs by 26.1 basis points during the next 12 months, while at the end of July this figure was equal to 11.1 basis points.

Euro was also affected by the weak Chinese Manufacturing PMI data which dropped from 51.2 in September to 50.4 in October. In Addition, the single currency weakened against its US counterpart ahead of the FOMC statement later today (4:30 p.m. GMT).

Apart from the ECB meeting the major coming events are:

- G20 summit on November 3-4;

- Referendum on the EU latest bailout plan for Greece that includes the agreement of the private creditors of the nation to accept 50% loss on their holdings of Greek government bonds or 100 billion euro, the increase of EFSF (European Financial Stability Facility) to 1 trillion euro and support for the region’s banking sector. According to Greek Prime Minister George Papandreou, the referendum will take place after all the details of the bailout package will be set. According to the polls, nearly 60% of Greeks oppose the debt deal;

- The vote of confidence in the ruling Socialist party government will also take place in Greece on Friday.

The pair EUR/USD plunged from October 27 maximum at $1.4247 to open today at $1.3860 and then slump below $1.3750. Analysts at Commonwealth Bank of Australia believe that euro is on the way down to the levels around $1.35. Support for euro is found at 1.3650/60 (October 18-20 minimums).

[ryuroden]

Westpac: recommendations ahead of NFP

On Friday comes an important release – US Non-Farm Payrolls for October.

Currency strategists at Westpac Institutional Bank think that if the number of jobs increased last month by more than 95K (the consensus forecast is of 98K increase after September growth of 103K), it would be wise to buy USD/JPY. If the reading is below 60K, the specialists recommend buying USD/CAD pointing out that Canadian economy which has close ties to the one of its neighbor will also suffer.

Westpac analysts regard the first scenario as the most likely. That’s why they advise investors to open dollar longs at 77.00 yen stopping at 76.00 yen and targeting 79.50 yen.

[ryuroden]

Citigroup: Japan’s intervention is unlikely to be a success

On Monday Japan intervened at the currency market for the third time this year in order to weaken its national currency. There’s no official information about of the amount spent, but the market’s speculating that Japan may have sold about 7 trillion yen ($92.31 billion) breaking the previous record of a 1-day intervention of 4.5 trillion yen (August 4, 2011).

Never the less, many analysts are skeptical doubting that the move will be able to succeed in preventing yen from appreciation and easing pressure on Japanese exports. The economists cite the results on the previous unilateral attempts of Japan’s government when after a jump the pair USD/JPY slid down again. Citigroup specialists believe that this time everything will be the same. Economists at BNP Paribas say that the intervention policy is losing effectiveness.

Among the factors which may cause the demand for yen increase one should name the risks connected with the euro area and the possibility that the Federal Reserve may ease its monetary policy. Specialists at Westpac underline that in the current situation investors will crave for safe havens. Another thing that seems likely to undermine the efforts of Japanese monetary authorities is the profit repatriation of Japanese companies which buy yen during this process.

US dollar bounced yesterday by 5% from the record minimum at 75.56 yen to the maximum at 79.53, but then eased down to the levels around 78 yen.

[ryuroden]

Westpac, HSBC on the outlook for kiwi

New Zealand’s dollar weakened this week versus its US counterpart as investors’ risk sentiment was affected by the news about the referendum in Greece.

Currency strategists at Westpac believe that NZD/USD will keep declining during the next few weeks moving down to the levels in the $0.7000 area. In their view, support for the pair is situated at $0.7910, while resistance stays at $0.8050.

Analysts at HSBC, however, think that there won’t be any clear trend for kiwi until the FOMC and ECB meetings and US payrolls this week. It’s necessary to note that the specialists don’t expect the Fed to trigger the QE3 as there should be a deflationary environment for that.

[ryuroden]

J.P.Morgan: euro versus yen and US dollar

Analysts at J.P. Morgan claim that in the situation of uncertainty caused by the announcement of the Greek referendum one should sell the single currency versus Japanese yen at 107.00 stopping at 109.25 and targeting 102.00. According to the economists, the unilateral intervention in Japan won’t be effective.

Chart. Daily EUR/JPY

As for EUR/USD, the specialists think that it will decline to $1.36. The bank underlines that the volatility index is high, about 20%, so in the short term the trade is going to be extremely choppy. The strategists advise investors who are trading the pair to pay great attention to today’s FOMC meeting results and US Non-Farm Payrolls data on Friday. In their view, euro will keep losing to the greenback during the coming months and quarters and may hit $1.30.

Chart. Daily EUR/USD

[ryuroden]

Commerzbank: technical comments on EUR/USD

Concerns about Greece’s future made euro test the levels below October minimums in the $1.3655/52 zone hitting the $1.3600 area yesterday.

Technical analysts at Commerzbank expect EUR/USD to through consolidation during the coming sessions. Resistance levels at $1.3855 and $1.3930 are going to limit euro’s advance today. Support is found at $1.3610 and $1.3550.

Then the pair will resume its down move. The specialists think that the European currency will slide to $1.3381/60 (late September minimums) and then to $1.3145 (October 4 minimum).

The bank advises investors to avoid trading the pair until the fate of the latest bailout package becomes clear.

[ryuroden]

Agenda for the euro area in November

– Wednesday, Nov. 2: French President Nicolas Sarkozy and German Chancellor Angela Merkel meet with Greek, IMF and EU officials in Cannes. Portuguese T-bill auction. Euro-zone manufacturing PMI data.

– Thursday, Nov. 3: ECB policy meeting. Mario Draghi’s first press conference as ECB President. Spanish and French bond auctions.

– Thursday, Nov. 3 – Friday, Nov. 4: G-20 leaders meet in Cannes.

– Friday, Nov. 4: Greek government confidence vote. Euro-zone services PMI data.

– Monday, Nov. 7: Eurogroup finance ministers meet.

– Tuesday, Nov. 8: EU finance ministers meet. Greek T-bill auction.

– Thursday, Nov. 10: Italian T-bill auction.

– Friday, Nov. 11: 2.0 billion euro of Greek T-bills mature.

– Monday, Nov. 14: Italian bond auction.

– Tuesday, Nov. 15: Greek T-bill auction.

– Wednesday, Nov. 16: Portuguese T-bill auction.

– Thursday, Nov. 17: Spanish and French bond auctions.

– Friday, Nov. 18: 1.3 billion euro of Greek T-bills mature.

– Sunday, Nov. 20: Spain holds general election.

– Thursday, Nov. 24: General strike in Portugal.

– Friday, Nov. 25: Italian T-bill/bond auction.

– Tuesday, Nov. 29: Italian bond auction. Final Portuguese budget vote.

[ryuroden]

Morgan Stanley: euro and political factors

Analysts at Morgan Stanley look into political factors which will determine dynamics of the single currency versus the greenback.

Today German Chancellor Angela Merkel and French President Nicolas Sarkozy meet with the Greek government and the IMF officials ahead of 2-day G20 summit beginning tomorrow, but the specialists think that euro’s advance on this news won’t last long.

The strategists urge traders to pay attention to the confidence vote in Greek government that is taking place on Friday. In their view, the most bearish outcome for euro would be if the Prime Minister George Papandreou wins as that will lead to the referendum with potentially negative results. If Greek say “no” to the bailout package, Greece will be doomed to announce default.

If Papandreou loses, the government will fall and the new elections will be very likely. In such case the new budget reform measures and potentially delay the next round of bailout funds from the EU will be delayed. This scenario, however, would be more positive for euro as this way there will be no referendum.

Anyway, the medium term outlook for euro, according to Morgan Stanley, is negative.

According to the bank, EUR/USD has broken through the major support levels and is now poised down to $1.3365 and $1.3145 (October 4 minimum). Morgan Stanley expects the pair to end 2011 at $1.30 and then drop to $1.25 in the first quarter of the next year.

[ryuroden]

CIBC: 12-month forecast for EUR/USD

Analysts at CIBC World Markets expect the single currency to trade between $1.3400 and $1.3800 during the next 12 months.

According to the specialists, in December EUR/USD will consolidate in the $1.3800 area. Then it will fall to $1.3400 in March next year and rebound to $1.3500 in June and to 1.3600 in September to return back to $1.3800 in December 2012.

[ryuroden]

UBS: technical levels for the major pairs

EUR/USD: the major support is found at $1.3567. If the single currency breaks below this level it will fall to $1.3406. Resistance is situated at $1.3871 and then at $1.4003.

GBP/USD: resistance lies at $1.6097. If the pair overcomes this level it will be poised up to $1.6167. Support is at $1.5825.

USD/JPY: resistance is seen at 78.42 and 78.98 yen and support – at 77.43 and 76.94 yen.

USD/CHF: support is situated at 0.8718 and 0.8568 (October 27 minimum). Resistance is found at 0.8960.

Chart. Daily EUR/USD

Chart. Daily USD/JPY

[ryuroden]

Greece: the referendum story

Everything about the euro area and Greece in particular seems to change with great speed. At the beginning of the week the markets were shaken by Greek Prime Minister George Papandreou’s unexpected announcement of the referendum on the bailout package.

The EU policymakers’ reaction was abrupt as they froze credit payments to Greece and raised the question of the nation’s membership in the monetary union. Then Greek opposition expressed readiness to compromise, Papandreou backed away with the referendum idea and investors’ concerns ease. The head of Greek government has no intention to step down. Now Greek authorities discuss the prospects if setting up a transitional government with the participation of the opposition to make sure Greece will get aid payment.

The analysts in Deutsche Bank caught the point claiming that trading EUR/USD has become so volatile that it has become too risky to open significant positions for longer than 5 minutes.

The pair EUR/USD rose from 3-week minimum in the $1.3600 area to the levels above $1.3800. Strategists at Westpac say that the single currency has no strength for the sustainable rally but there is some relief as the threat of referendum that would very likely bring “no”-result has been removed.

[ryuroden]

NAB: market awaits NFP data

The market’s looking forward to get another confirmation of the coming QE3: many traders expect that US jobs growth slowed in October, while the unemployment rate remained high at 9.1%. Economists surveyed by Bloomberg project Non-Farm Payrolls to increase last month by 95K after adding 103K in September.

Analysts at National Australia Bank claim that even if the NFP reading beats economists’ forecasts but the unemployment rate stays unchanged, traders will see this as a reason for additional monetary stimulus and this will weight on the greenback.

Analysts at Bank of Tokyo-Mitsubishi UFJ point out that for unemployment to decline by half a percentage point over a year US employers have to hire about 150K workers a month. According to the labor statistics, by the beginning of October American economy had recovered about 2.09 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

The NFP figures and the jobless rate are released today at 12:30 GMT.

[ryuroden]

Commerzbank: comments on GBP/USD

British pound consolidated versus the greenback at the levels around $1.6000.

Technical analysts at Commerzbank believe that as long as GBP/USD stays below the 200-day MA at $1.6140, the outlook for the pair will be negative.

The bearish pressure would ease only if British currency overcomes 61.8% Fibonacci retracement at $1.6185. In such case pound will be poised up to 78.6% retracement of the decline from May at $1.6430.

The specialists, however, think that sterling is more likely to break support at $1.5875 (55-day MA).

[ryuroden]

RBS: sell euro versus Canadian dollar

Currency strategists at Royal Bank of Scotland see the trading opportunity on the current European mess.

The specialists note that the euro zone’s economic outlook is very dim, while the prospects of Canadian economy seem to be much more favorable. According to RBS, it would be beneficial to sell the single currency versus Canadian dollar in the longer term.

The analysts underline that trading EUR/CAD is a better idea then EUR/USD as the latter is strongly correlated with the S&P500 index that tends to jump on positive news from Europe, so this type of trade doesn’t suit here.

As a result, the bank’s recommendation is to open shorts on EUR/CAD in the $1.3925 area stopping above $1.4380 and targeting the levels just below $1.2800.

[ryuroden]

Commerzbank: negative outlook for EUR/USD

Technical analysts at Commerzbank claim that as long as the single currency is trading versus the greenback below resistance in the $1.3855/1.3930 area, the outlook for it will remain negative.

The specialists expect EUR/USD to decline to $1.3381/60 (September 26, October 7 minimums) and then to $1.3145 (October 4 minimum). According to the bank, in the longer term the pair will drop to $1.2000.

[ryuroden]

J.P. Morgan: trading in case of risk aversion

Currency analysts at J.P. Morgan believe that in the long term the efforts of European authorities to solve the region’s debt crisis will be repaid.

At the same time, there are still plenty of risks, so the specialists advise traders to watch for the events this week. If the news turns out to be more negative, it will be necessary to sell Australian dollar versus its US counterpart.

As the reasons for choosing this type of trade in the risk-off situation the bank cites the fact that the Reserve Bank of Australia has so far started reducing its benchmark interest rate. In addition, there are some concerns about Australian economic growth and the currency is correlated with euro and its ability to reflect the risk sentiment and the state of the things in the euro area.

So, the recommendation is to open shorts at AUD/USD in the $1.0360 area stopping above $1.0500 and taking profit at $0.9950. The strategists also warn investors that the market seems to be extremely volatile and one should put place the stops close.

[ryuroden]

Morgan Stanley: comments on the European crisis

Analysts at Morgan Stanley warn that as the European leaders have officially raised the possibility of Greece leaving the euro area, the consequences may be very dangerous (see the http://www.fbs.com/analytics/news_markets/view/9022).

The specialists underline that until last week such idea was a taboo but now it seems likely the currency union will use the threat of exclusion against its recalcitrant members.

In their view, the crisis may get much more severe, for example, there may be runs on sovereigns and banks in the indebted peripheral nations.

[ryuroden]

Greece: Papandreou agreed to step down

Greek Prime Minister George Papandreou agreed to step down for the new national unity government to be formed. Its creating was agreed after the negotiations of Papandreou, the head of socialist Pasok party, Antonis Samaras, the leader of the main opposition party and President Karolos Papoulias.

The main goal of this government is to assure that the nation gets bailout money and help the nation’s economy survive.

The elections will take place right after the decisions of European Council made on October 26 are implemented. According to finance ministry’s statement, the most suitable date is February 19.

Analysts at Standard Chartered Bank note that the markets have become a bit more confident about Greece and investors’ attention has moved to Italy where Prime Minister Berlusconi is under pressure to step down.

Edited November 7, 2011 by ryuroden

[ryuroden]

Commerzbank: comments on USD/CHF

Technical analysts at Commerzbank expect the greenback to rise to 0.9082 versus Swiss franc.

Then, if US currency manages to overcome this level, it will be poised up to 0.9317 (October maximum) and 0.9341/99 (April maximum and 50% Fibonacci retracement of the 2010/2011 decline).

Here the specialists look forward to some profit taking on USD/CHF.

[ryuroden]

BMO: sell pound versus franc

Currency strategists at BMO Capital Markets advise investors to pay attention to the Bank of England’s meeting on Thursday as it, in their view, represents good trading opportunity.

The specialists distinguish 3 possible scenarios:

- BoE doesn’t act at all;

- BoE undertakes minor quantitative easing on the order of 25 billion pounds;

- BoE does more significant easing.

The analysts regard the third outcome as likely as British economy is in a very poor condition that together with the euro zone’s debt crisis will keep pound under pressure, while franc has upside potential as a safe haven. BMO thinks that the results of Swiss National Bank’s any intervention won’t last long. As a result, the bank recommends selling sterling versus Swiss franc.

[ryuroden]

Westpac: market is focused on Italy

Today the market’s attention is focused on the budget vote in Italy. The nation’s Prime Minister Silvio Berlusconi is under pressure to step down, so the vote will show whether the premier still has a majority in the 630-seat Chamber of Deputies.

Next week Berlusconi plans to hold the confidence vote a on implementation of measures pledged to the European Union that are designed to promote Italian economic growth and reduce its huge debt.

Analysts at Westpac Banking claim that it seems that the market will be satisfied only if Berlusconi resigns and technocratic government is formed. The specialists say that when it happens, risk sentiment increases and the euro increases. In their view, one should use the advance of EUR/USD to sell the single currency as the relief for euro won’t last long.

Analysts at Societe Generale are worried about high Italian borrowing costs as the 6.5% yields would be soon unbearable for the country with only 1.8% nominal GDP growth and the debt accounting for 120% of GDP. Another thing to watch will be the nation’s auction of fixed-rate bonds on November 14 that may cause euro’s sell-off if the borrowing costs increase once again.

[ryuroden]

BBH: euro will fall to $1.3145

Technical analysts at Brown Brothers Harriman claim that the single currency has breached the support of its middle-term upside channel within which it was trading since September 2010.

So, at the end of the last month this line started to play the role of resistance in the $1.4200 area.

According to BBH, the pair EUR/USD is poised down to $1.3145 (October 4 minimum).

[ryuroden]

Standard Chartered, BarCap: comments on EUR/CHF

Swiss central bank Vice President Thomas Jordan claimed that Switzerland’s monetary authorities are closely monitoring franc’s rate and are ready to act if it’s necessary.

SNB President Philipp Hildebrand is speaking today at 17: 30 (GMT+4). In his last interview on November 6 Hildebrand warned that if franc remains strong the nation will face the risk of deflation or economic contraction.

Analysts at Standard Chartered Bank underline that Swiss monetary authorities do a lot of verbal interference in the currency market. So far this strategy has proved to be effective enough as the SNB manages to keep the pair EUR/CHF above the floor of 1.20 set on August 9 even though the worsening situation in the euro area urges investors to run to franc as a safe haven.

Strategists at Barclays Capital expect demand for Swiss currency to increase this week. In their view, the pair EUR/CHF is on its way down to $1.2245.

Specialists at ING don’t think that the SNB will raise floor for the pair as such actions may ruin the credibility of the threshold. On the upside the analysts see euro’s advance limited by $1.2500.

[ryuroden]

Deutsche Bank on trading difficulties

Analysts at Deutsche Bank note that forex trading on the macroeconomic trends is getting more and more difficult.

The specialists point out that Swiss franc – the strongest currency this year – added 6.5% versus the greenback in 2011, while Canadian dollar – the weakest 2011 currency – declined against its US counterpart by 1%. The deviation between franc and loonie is less than 8% and judging by the 30-year average is very small. According to the bank, that means that it has become very difficult to find profitable trades.

The economists think that in 2011 the situation won’t improve due to the extremely low short-term interest rates of the developed nations’ central banks. According to Deutsche Bank, the next year many traders will start seeking profits outside of G10 currencies. As for the major currencies the bank favors selling euro versus yen and US dollar.

[ryuroden]

Saxo Bank: forecast for EUR/USD

Analysts at Saxo Bank believe that the decline of the single currency from the October maximums in the $1.4200 area will continue during the rest of this year and in 2012 when the greenback is expected to gain 25%. The specialists claim that EUR/USD will slide to $1.20/1.30 and then to $1.10/1.15. In their view, euro will be affected by lower ECB rates.

Edited November 8, 2011 by ryuroden