Comments and forex-analytics from FBS

[ryuroden]

BNY Mellon: forecasts for the major pairs

Forecasts from 10/26/2011

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[ryuroden]

BMO: loonie’s prospects in 2012

Analysts at BMO Capital Markets claim that the dynamics of Canadian dollar has been so far determined by 2 factors: Bank of Canada’s monetary policy and the euro zone’s debt crisis.

The bank’s specialists think that Canada’ currency will lose to its US counterpart during the first half of the next year affected by the concerns about financial market.

In the second half of 2012 loonie will likely strengthen as the Bank of Canada will likely be the first central bank to start raising rates. According to BMO, be the end of the next year the pair USD/CAD will decline to parity.

Edited November 8, 2011 by ryuroden

[ryuroden]

Italy: Berlusconi agreed to step down

Yesterday Italian controversial Prime Minister Silvio Berlusconi didn’t manage to obtain the absolute majority on the routine budget bill as he was supported only by 308 lawmakers out of 630.

As a result, Berlusconi, who seems to have lost political confidence, pledged to leave his post as soon as the nation’s parliament approves austerity measures promised to the EU. The whole matter should be over in the next few weeks.

The market’s reaction, as expected, was optimistic: investors hope that new authorities will be able to find way out of the crisis. Never the less, analysts at RBS warn traders that the relief won’t last long.

Italy now faces technocratic government – the government with limited term meant to carry out specific reforms. It’s likely to be chosen by political leaders and appointed by President Giorgio Napolitano and charged with implementing debt-reduction agenda until April 2013 when the elections are to be held. Conducting new elections on the spot as suggests Berlusconi would delay reforms. Most of the opposition parties have signaled they would support a broader coalition or a technical government.

However, one should realize that the country’s 1.9 trillion euro-debt is very difficult to control, so there are no guarantees that new authorities will do much better than Berlusconi.

[ryuroden]

Commerzbank: comments on USD/JPY

Japanese yen keeps gradually strengthening versus the greenback as the concerns about another potential intervention fade.

Technical analysts at Commerzbank believe that USD/JPY is poised down to the level of 50% Fibonacci retracement of the advance made after October 31 intervention at 77.40 yen.

The specialists claim that the outlook for the pair will remain bearish as long as it keeps trading below the 4-year downtrend line at 79.64 yen and 55-week MA at 80.52 yen. If US currency manages to overcome these levels, it will be able to rise to 2011 maximum at 85.53 yen.

According to the bank, support is found at 77.50/40. If dollar breached these levels, it will drop to 76.93 and 76.22/75.94.

[ryuroden]

RBC: sell Swiss franc versus Japanese yen

Analysts at RBC Capital Markets believe that the single currency will stay in a tight range for some time.

Instead, the specialists advise traders to turn to yen and franc as the Swiss National Bank’s and the Bank of Japan’s intervention approaches are different.

The SNB is concerned about deflation risk, so it set specific target for franc in order to reverse its advance versus euro and is successfully defending it. The BOJ has also attempted to stop the appreciation of the national currency, but failed to keep yen from strengthening. So, the latter, according to the bank, lacks determination and the use of specific targets of the former.

As a result, RBC recommends opening shorts on CHF/JPY in the 87.25 area stopping above 89.30 and targeting 83.00 yen.

[ryuroden]

MIG Bank: negative outlook for EUR/USD

Currency strategists at MIG Bank note that the single currency is under pressure as Italian 10-year bond yields have surged to the record levels of 7.22% and S&P500 index is down from the recent maximums.

The specialists note that EUR/USD was rejected by 2-year trend-line and expect the pair to slide to $1.3140.

According to the bank, support is found at $1.3145 (October 4 minimum) and $1.3000 (psychological level).

[ryuroden]

UBS, Commerzbank: dollar will gain versus franc

Analysts at UBS advise investors to buy the greenback versus Swiss franc.

The specialists underline that the European Central Bank and the Reserve bank of Australia are decreasing rates and the Bank of England is doing quantitative easing. The Bank of Japan is conducting actual interventions, while the Swiss National bank is doing the verbal ones pledging to act if necessary. Only the Federal Reserve keeps its monetary policy unchanged that makes UBS bullish on the greenback.

The economists don’t choose trading EUR/USD because of high volatility, GBP/USD has chances to gain as sterling may be used as an alternative for euro, and AUD/USD is still expensive for shorts due to the higher borrowing costs in Australia. That brings the bank to choose franc as the currency to sell against US dollar.

Analysts at Commerzbank believe that if USD/CHF overcomes 0.9082, the pair will be poised up to 0.9317 (October maximum) and 0.9341/99.

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RBC on the policy of major central banks

ECB: the central bank surprisingly cut interest rates by 25 basis points in November. The analysts expect to see the same reduction in December.

Bank of England: the MPC will likely announce another 50 billion pounds of asset purchases at its meeting on Thursday, November 10. The minutes from October Meeting showed that all members of the Committee agreed that further monetary stimulus is necessary.

Bank of Canada: the next time the interest rates will be changed to the upside, but this won’t happen until the second half of 2012.

Reserve bank of Australia: there will be another 25-basis-point rate cut in the first quarter of 2011.

[ryuroden]

Mizuho: US dollar may strengthen versus yen

Technical analysts at Mizuho Corporate Bank believe that the greenback may rise to the 4-month maximum versus Japanese yen.

The specialists point out that USD/JPY has managed to break above the top of the Ichimoku Cloud. In their view, after Japan’s intervention on October 31 dollar’s baseline has lifted up to 77.44 yen. If the greenback keeps closing above this level until the end of November, bullish pressure on US currency will increase.

According to the bank, the pair may rise above August 4 maximum at 80.23 yen.

[ryuroden]

Commerzbank: negative outlook for EUR/USD

Technical analysts at Commerzbank note that the single currency declined yesterday versus the greenback testing levels below $1.3565, the level representing 61.8% Fibonacci retracement of its advance in October.

The specialists think that if EUR/USD remains trading below $1.3565, it will be poised down to $1.3380/60 (78.6% retracement and September minimum). After that, the next downside target will be $1.3145 (October 4 minimum).

According to the bank, resistance levels are situated at $1.3685/90 and $1.3870.

[ryuroden]

SocGen: sell Aussie versus yen

Currency strategists at Societe Generale advise traders to stay out of EUR/USD as there is severe event risk and the pair’s dynamics is extremely volatile.

The specialists propose investors to trade on the consequences of the euro area’s debt crisis or, in other words, on the economic growth slowdown and worsening risk sentiment.

So, according to the bank, a good trading strategy is selling Australian dollar versus Japanese yen. The analysts advise to open shorts on AUD/JPY in the 79.50 area stopping above 81.50 aiming at 74.00 yen.

[ryuroden]

BBH is concerned about US debt issues

So far the market’s attention has been focused on the euro zone’s debt problems, investors have almost forgotten that the US also has much to deal with.

The United States created special congressional committee – or supercommittee – in order to the debt-reduction measures. The deadline is on November 23. If the policymakers don’t come up with the plan how to decrease debt by $1.2 trillion before the time runs out, America’s spending will be automatically cut in 2013.

Analysts at Brown Brothers Harriman underline that there is a serious split in the opinions of the committee’s members. In their view, this is one of the factors why the single currency has been performing relatively well versus the greenback so far. By their estimates, traders are pricing in only a 7% probability that the supercommittee will reach a deal by the end of the month.

BBH specialists underline that in case of supercommittee’s failure fiscal tightening and sluggish economic growth could make Federal Reserve’s policy more accommodative. That, in its turn, will put the greenback under negative pressure.

US dollar, euro and sterling will be competing in weakness, so US currency want lose much to the latter. Taking into account the euro area’s issues the bank still thinks that EUR/USD will fall to $1.29 by the end of the year. At the same time, other G10 currencies are quite likely to outperform dollar.

[ryuroden]

Merrill Lynch on US credit rating

Analysts at Bank of America Merrill Lynch believe that other major rating agencies – Moody's or Fitch – will lower US top credit rating by the end of the year after Standard & Poor's downgraded the world’s leading economy in August.

As the reason for such dim outlook the specialists cited concerns about the nation’s huge budget deficit and debt. In their view, the second downgrade will seriously hit weak American economy.

If the so-called supercommittee fails to reach a deal to reduce the US deficit by at least $1.2 trillion by November 23, the rating agencies will make their move at the end of November-beginning of December.

Merrill Lynch decreased US economic growth forecasts for 2012 and 2013 to 1.8% and 1.4% respectively.

At the same time, it’s necessary to note that the agencies don’t intend to hurry with their judgments. Moody's Investors Service plans to take into account such factors as the results of presidential elections and the expiration of the Bush-era tax cuts late in 2012, but not only the committee. Fitch Ratings still has a stable outlook on its AAA rating on the United States, so before any downgrades it will probably revise outlook to negative.

[ryuroden]

Bank of England left policy unchanged

The Bank of England’s meeting passed today in line with the forecasts: as it was expected, the Monetary Policy Committee left its benchmark rate at 0.5% keeping the ceiling for the asset purchases at 275 billion pounds ($437.3 billion). Minutes of the meeting will be released on November 23.

The BOE said it will take up to four months to make the additional quantitative easing of 75 billion pound sanctioned in October. The central bank aims to keep the scale of the program under review. Despite the fact that inflation reached 5.2% in September British monetary authorities will decline sharply the next year.

Analysts at Nomura International note that the MPC is extremely concerned by the debt crisis in the euro area and potential contagion. In their view, British central bank is very likely to announce more easing until the end of February.

According to the European Commission, UK economy risks contracting at least in one of the next few quarters affected by the government’s spending cuts.

The pair GBP/USD rose from the weekly minimums in the $1.5890 area to the levels in the $1.5970 zone.

[ryuroden]

Euro area: economic and political news

The single currency rose today versus the greenback helped by the high demand for Italian T-bills: the bids exceeded offer in about 2 times making the market’s concerns ease.

It’s necessary to say that there are enough reasons for concerns. Yesterday Italy’s 10-year yields rose above the critical 7% level – the point when Greece, Ireland and Portugal asked the EU for financial help. Today the yields retreated, but remained elevated.

In addition, there was a talk about the European Central Bank buying Italy’s government bonds. Ever the less, European Central Bank policymaker Juergen Stark warned European governments on Wednesday against asking the ECB for support in dealing with the region's sovereign debt crisis, saying this would put the central bank's independence at risk.

Analysts at JPMorgan Chase warn that Italian problems could make Japanese investors sell the nation’s bond. In such case EUR/JPY is poised to decline.

The European Commission warned of a “deep, prolonged recession” in the region reducing its euro zone economic growth forecast in 2012 from 1.8% to 0.5%.

Lucas Papademos, former vice president of the European Central Bank, was named new Greek prime minister. Elections are scheduled on February 19, 2012.

[ryuroden]

Goldman Sachs lifted forecast for NZD

Analysts at Goldman Sachs increased forecasts for New Zealand’s dollar from 0.74 to 0.77 in 3 months, from 0.78 to 0.80 in 6 months and from 0.82 to 0.84 in a year.

The specialists point out that kiwi has managed to recover from October minimums in the 0.7470 area, though its dynamic was volatile. In their view, the currency is doing pretty well despite the looming concerns about global economic slowdown and New Zealand’s credit rating downgrade by Standard & Poor's and Fitch at the end of September. According to Goldman, the coming 12 months will be characterized by US dollar’s weakness.

[ryuroden]

Wells Fargo about USD/JPY prospects

Currency strategists at Wells Fargo note that the moves of the pair USD/JPY are no more strongly correlated with the dynamics of stock market. The specialists underline that the greenback is falling, while stocks in the US are rising.

In their view, the mentioned relationship had been growing less and less pronounced since 2009 and was finally broken in the past year due to continuous Japan’s interventions and contracting interest rates differential between the US and Japan.

As a result, the advance of the equity market won’t help to bring Japanese yen lower. According to the bank, the greenback will be trapped between 78 and 80 yen during the next 6-12 months. Any attempts to weaken yen won’t be effective in the longer term until US economic prospects remain dim and interest rates – extremely low.

[ryuroden]

Commerzbank still expects EUR/USD to decline

Despite euro’s recovery from 1-month minimum at $1.3483 hit yesterday technical analysts at Commerzbank expect the single currency to fall versus the greenback to $1.3380/60 (78.6% Fibonacci retracement from its October advance and September minimum). The specialists see resistance at $1.3685 and $1.3870.

[ryuroden]

BBH advises traders to sell EUR/USD

Analysts at Brown Brothers Harriman note that although the European currency is trading with high volatility versus the greenback, it’s closely correlated with the dynamics of S&P500 index – the specialists estimated the correlation by 80%.

The bank claims that in the stock markets are likely to decline in the current state of uncertainty and recommends selling EUR/USD in the $1.3650 area stopping above $1.38, expecting the pair to fall to $1.30 by the end of the year.

[ryuroden]

The odds for euro area’s breakup increased

Last week European leaders for the first time raised the possibility of Greece leaving the currency union if it keeps violating its commitments. That triggered the speculation that German policymakers are already preparing to exclude the peripheral nations out of the euro area.

Even though Germany and France denied the reports that they had discussed a possible breakup of the euro zone, the option has become real. As a result, it will likely become much harder for indebted members to convince investors in their ability to get their finances in order and for Merkel, Sarkozy and ECB President Mario Draghi to defend the single currency.

The questions concerning currency bloc’s future will be discussed at the EU summit on December 9. Some experts say that the European leaders will probably talk about introducing an exit clause.

Analysts at Brown Brothers Harriman still think that European authorities will do anything to save the monetary union. In particular the specialists see the way out in increasing integration.

Strategists at HSBC warn that the euro zone’s breakup would cause something similar to the Great Depression. The quitting country will face collapse of the banking system, capital outflow and the surge of inflation. Deutsche Bank says that if one nation exits, investors will expect other problem states to do the same.

[ryuroden]

BNP Paribas, ING: leave euro for pound

British pound has strengthened this month versus the single currency by 3% since the end of October.

Sterling gained despite the release of weak economic data in the UK: the nation’s trade deficit widened from 8.6 billion pounds in August to 9.8 billion pounds in September. It’s also possible to say that the effect of additional quantitative easing wasn’t as great as it could be.

Strategists at ING believe that British currency is slowly moving to safe haven status as it is perceived as an alternative to more troublesome euro.

Analysts at BNP Paribas justify such assumption by the high demand for British debt. According to the Bank of England, net inflows into UK government bonds held by non-residents bounced in September when the fears about the euro zone’s future escalated to 12 billion pounds, the maximal level since June 2010.

Unlike Australian dollar which is declining against euro pound isn’t that affected by the commodities prices and investors’ risk sentiment. As a result, sterling may count as a refuge in times of high risk aversion, though it can’t compete with the greenback – at least now when the Federal Reserve remains on hold and doesn't do more easing.

[ryuroden]

BNY Mellon: US dollar is under pressure

Analysts at Bank of New York Mellon point out that despite the ECB rate cut, the euro zone’s debt turmoil and unfavorable economic prospects, the single currency is still above October minimum at $1.3145 and 14% higher than June 2010 low at $1.1875.

The specialists explain relative strength of euro by the weakness of US dollar. In their view, American currency is losing the market’s confidence as a store of value.

According to the bank, as the political uncertainty in Greece and Italy fades, negative pressure on the greenback will build up. Never the less, the strategists don’t urge investors to buy EUR/USD as the euro zone’s politicians could bring negative surprises.

[ryuroden]

UBS lowered forecast for EUR/USD

Analysts at UBS reduced forecasts for the single currency versus the greenback due to the escalating crisis in the euro area.

Apart from deepening concerns that the European policymakers won’t be able to find the way out of the debt turmoil, euro will be affected by the region’s economic slowdown and ECB rate cuts. The strategists underline that even though the United States and Japan also have severe debt issues, the situation in the euro zone seems to be much worse, so the demand for dollar and yen will be higher.

The specialists expect EUR/USD to drop to $1.35 in a month, $1.30 in 3 months, $1.25 in a year. At the beginning of November the analysts thought that the pair will end the year at $1.40.

It’s also necessary to note that, according to the bank, the Swiss National Bank will lift the floor for EUR/CHF from 1.20 to 1.25 as it regards franc as still extremely overvalued.

[ryuroden]

ANZ: negative outlook for NZD/USD

Technical analysts at ANZ Bank claim that there us a “dead cross” on the NZD/USD chart formed in October by 50-day and the 100-day MAs – the former went below the latter – and that the figure is still in place.

The specialists underline that this is a bearish signal that means that kiwi may weaken to $0.7335, the level representing 38.2% Fibonacci retracement from the pair’s advance from March 2009 minimum to August 2011 maximum.

According to the bank, support levels for New Zealand’s currency are situated at $0.7550 and $0.7470 (October 4 minimum).

[ryuroden]

BarCap: trading in the situation of uncertainty

Risk aversion is expected to dominate the markets concerned about European debt crisis and weak economic data.

Currency strategists at Barclays Capital see several ways to secure oneself against the elevated uncertainty. One of the strategies preferred by the bank is buying the greenback versus Swiss franc.

According to BarCap, if the situation in the euro area deteriorates, the SNB will be forced to defend EUR/CHF floor selling franc. Such actions of the central bank will lift USD/CHF. In case of some positive surprises in Europe, demand for franc as a refuge will ease and USD/CHF will also rise.

So, the specialists advise traders to open longs at USD/CHF stopping below 0.8920 and targeting 0.9300.