Comments and forex-analytics from FBS

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Jean-Claude Trichet proposes the single euro zone’s government

European Central Bank President Jean-Claude Trichet claimed today that the governments of the European nations should consider the possibility of creating euro zone’s finance ministry.

Trichet underlined that the euro area already has the single market, the single currency and the single central bank, so establishing the single ministry of finance seems to be both natural and vital step taking into account the current problems of the region.

According to the ECB head, though such body as the single finance ministry wouldn’t necessarily administer a large federal budget, it would act in 3 spheres: firstly, supervise both fiscal policies and competitiveness policies and direct responsibilities for countries in fiscal distress; secondly, it would carry out all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; thirdly, it would represent the union confederation in international financial institutions. Analysts at Daiwa Capital Markets draw investors’ attention to the fact that Trichet didn’t propose to enable the institution to issue common bonds and have a budget, so it won’t actually be a proper treasury.

As for bailing out indebted euro zone’s nations, particularly Greece, Trichet said that financial aid is justified only when the country makes real efforts to conduct severe austerity measures.

All in all, the necessity of some sort of fiscal governance in Europe is becoming more and more evident. Famous billionaire investor George Soros warned about the lack of a common European fiscal authority as far back as in 2009.

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Well Fargo: US dollar may resume growth versus euro

Strategists at Wells Fargo compare the situation in Greece in May of 2011 with what was a year ago. In their view, there are both common points and differences.

As for the similarities, the source of investors’ fears remains the same, the Fed’s quantitative easing program is approaching its end and there are a lot of short USD positions. As a result, it’s possible to expect that the greenback’s weakness will be limited and that US currency will once again start strengthening in the coming weeks and months.

Though last summer the Fed began signaling the second round of quantitative easing, the specialists don’t think there will be QE3 this year, so the chance of dollar’s fall as in the second half of 2010 is also lower.

According to Wells Fargo, the most likely outcome in Europe is that Greece will keep conducting austerity measures in exchange for further financial aid. The analysts say that though this would harm euro less than debt restructuring, European authorities may be accused of avoiding more decisive and fundamental steps in resolving the crisis. However, the economists admit that the US is also facing important risks such as weak economic data and the debate on raising the debt ceiling.

Never the less, taking into account short US dollar positions, the impending end of Fed easing and European woes the analysts still think that the greenback may resume advance. Well Fargo kept the 3-month forecast for the EUR/USD at 1.4200 and the 12-month at 1.3400.

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Commerzbank: Swiss franc crosses today

EUR/CHF: the analysts note that the pair has found interim tehnical support in the 1.2050 area and may advance to resistance at 1.2320 (March minimums). The key resistance for euro is situated at 1.2404 – while it’s trading below this level, the outlook for the pair will remain negative.

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Westpac: New Zealand’s dollar may renew maximums

Currency strategists at Westpac think that New Zealand’s dollar may renew maximal levels versus the greenback in the next few weeks. The pair NZD/USD hit post-float high of 0.8262 on May 31.

The specialists note that New Zealand’s strong economic data keeps showing that the nation’s economy’s recovering. In their view, the only possible negative factor for kiwi in the near term may be a negative shock to global risk appetite caused by the problems in other regions of the world.

According to the bank, any RBNZ intervention is unlikely in the current situation as the trade weighted index of the NZD is still below 2007-2008 intervention levels and it seems useless trying to fight against the greenback’s general weakness. Westpac says that support for NZD/USD is situated at 0.8120 and that in the short term downward corrections of kiwi’s rate will be limited by this level.

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UBS: positive outlook for GBP/USD

Technical analysts at UBS claim that the outlook for British pound versus the greenback is positive. In their view, the pair GBP/USD is poised up to resistance in the 1.6418 area. If sterling manages to rise above these levels, it will get chance to advance to 1.6495. According to the bank, key support for the pair is situated at 1.6302 – while pound’s trading higher UBS stick to the optimistic view on UK currency.

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RBC Capital Markets: advised on how to trade EUR/USD

Currency strategists at RBC Capital Markets note that while trading euro it’s very important to choose right time frame.

According to RBC, if the agreement on Greece’s bail out is reached the concerns about the restructuring of the nation’s debt in the short-term will be eliminated and the pair EUR/USD may bounce by 300 pips. As a result, there will be a buying opportunity for short-term investors.

However, many analysts regard some kind of debt restructuring for Greece as inevitable claiming that this will eventually hit euro. So, for longer term investors RBC recommends using euro’s rally as an opportunity to set up longer term EUR shorts.

In addition, as the pair EUR/USD is strongly by the overall shifts in risk sentiment, the analysts say it would be better to trade euro versus a currency such as New Zealand’s dollar that tends to perform similarly in similar risk environments.

[FBS.com_official]

Reuters poll on USD/JPY

According to the monthly survey of 60 banks and analysts conducted by Reuters, the greenback will recover to 82.00 during the next month.

The pair USD/JPY is expected to reach 83.00 in the third quarter and then climb to 85.30 by the end of the year.

The median forecast for the greenback in the first half of 2012 is also positive. Surveyed economists think that US currency will cost 90.00 yen in a year.

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Commerzbank: SNB will raise rates only in September

Currency strategists at Commerzbank think that the Swiss National Bank won’t raise interest rates at its meeting next Thursday (June 16). In their view, the SNB will begin the hike cycle in September.

The specialists justify their assumptions by the fact that Switzerland’s economic growth remains lower than expected and there’s currently no risk of neither deflation nor inflation.

Swiss GDP growth rate went down from 0.8% in the final quarter of 2010 to 0.3% in the first 3 months of this year. The annual growth rate decreased from 3.1% in Q4 2010 to 2.4% in Q1 2011.

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Sterling: Moody’s warning, MPC meeting tomorrow

British pound declined today versus the greenback and the single currency as Moody’s Investors Service warned UK authorities that the country could lose its top AAA credit rating if its economic growth remained weak and the government failed to meet its budget deficit reduction targets.

The Bank of England will announce tomorrow its interest rate decision. Taking into account the discouraging data seen so far in Britain, the central bank’s most likely to keep the rates unchanged at the record minimum of 0.5% even though inflation is at 4.5% that’s well above the target and may go even higher. It’s also necessary to note that the hawks Martin Weale and Spencer Dale who called for the rate hike have revised their views due to recent weak UK data.

The ECB, on the contrary, is expected to increase the borrowing costs next month. The prospects of widening rate differential between the euro area and the UK will make investors increase demand for EUR/GBP.

The single currency climbed today to 1-month maximum versus sterling at 0.8974. Later, however, euro’s advance was erased due to the concerns about the European debt crisis and signs of stagnating global growth.

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UBS: forecast for NZD/USD

Currency strategists at UBS advise selling New Zealand’s dollar versus its US counterpart ahead of the Reserve bank of New Zealand’s meeting. The RBNZ rate announcement is due at 21:00 GMT. The consensus is that the central bank will leave the rate at the current level of 2.5%.

According to UBS, kiwi latest appreciation is largely unjustified. The economists believe that taking into account the recent economic data that wasn’t quite favorable the RBNZ will try to cool the market’s optimism. In their view, the pair NZD/USD will ease down to 0.78 in a month and to 0.70 in 3 months.

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RBS: RBNZ will have to raise rates in prospect

As it was expected, the Reserve Bank of New Zealand left the official cash rate at 2.5%.

According to the central bank, one of the reasons to keep the borrowing costs unchanged was the strength of New Zealand’s dollar during the past 2 months that was acting to tighten monetary conditions lowering the cost of imports and offsetting some of the strength in export demand.

In addition, the country’s monetary authorities underlined that the national economy remained weak. At the same time, the RBNZ said that as the signs of recovery seen in March continued it’s going to keep a close eye on the economy to ensure that the pace and timing of increases will be guided by the speed of recovery.

The bulls took such comments with optimism. The pair NZD/USD bounced to 0.8244 before returning to trade in the 0.8190 area. Analysts at ANZ claim that support for kiwi lies at 0.8145 and 0.8110. Resistance levels are found at 0.8212 (June 8 maximum), 0.8230 (June 7 maximum) and 0.8258 (June 1 maximum).

Economists at RBS note that once New Zealand will get over the earthquake consequences the RBNZ will have to tighten quite aggressively. Currency strategists at ICAP expect the central bank to raise rates by 50 basis points in the fourth quarter as the economic growth accelerates but not earlier.

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Commerzbank: comments on EUR/USD

The single currency is trading sideways versus the greenback since late Monday. The pair EUR/USD stays above the 61.8% Fibonacci retracement of May's decline at 1.4569 and below the 78.6% Fibonacci retracement at 1.4732, the last defense for May maximum of 1.4940.

Technical analysts at Commerzbank claim that euro won’t be able to rise above resistance at 1.4732. In their view, the pair’s going to fail and ease down to 1.4569 and 1.4384/40 (the 55-day MA and 38.2% retracement). As long as the European currency is above these levels, the general outlook for EUR/USD will remain bullish.

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BMO: recommendations on trading EUR/USD

Specialists at BMO Capital Markets advice investors to act the following way: wait until Trichet speaks about the “strong vigilance” and euro’s arte bounces and then sell the single currency ahead of the comments on Greece’s crisis. As a result, the analysts recommend selling EUR/USD at 1.4650 stopping at 1.4750 and taking profit at 1.4450.

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BBH expect no currency intervention in Japan

Japanese yen has once again strengthened to the key levels versus US dollar: the pair USD/JPY is trading in the 80 yen area. As a result, investors are speculating about the possibility of currency intervention. The IMF's acting head, John Lipsky, claimed that the G-7 countries are prepared to intervene again if it's necessary.

However, analysts at Brown Brothers Harriman claim that the key conditions for the intervention that existed before the most recent intervention are not present right now. According to the specialists, the volatility is much lower now than it was in March. In addition, the difference in yield between 2-year Treasuries and 2-year Japanese government bonds is about 22 basis points, while 2 months ago it was 3 times bigger. Moreover, the USD/JPY decline may be the result of dollar’s weakness and not yen’s strength.

So, taking into account all these factors BBH regards intervention as very unlikely.

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Commerzbank: AUD/USD will fall to 1.0441

Technical analysts at Commerzbank claim that Australian dollar must have reached maximum at 1.1010 versus the greenback at the beginning of May. In their view, the pair AUD/USD may weaken in the near-term. The bank’s assumption is found on Aussie’s trade-weighted index that is likely to correct downwards by 3%.

Australia’s currency didn’t manage to overcome the 1.0794 level representing 61.8% Fibonacci retracement of May's decline. The specialists believe that the pair is now poised to test

May 25 minimum of 1.0441. According to the bank, AUD/USD risks to drop to December maximum at 1.0224.

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Pimco’s reducing investment in Treasuries

Analysts at Pacific Investment Management Co., the world’s biggest bond fund, claim that foreigners are questioning US dollar’s role as the world’s reserve currency because of US extremely loose monetary policy as low borrowing rates reduce the nation’s debt burden.

The strategists have once again advised investors to keep away from Treasuries as these securities don’t compensate inflation – the difference between yields on 10-year Treasuries and the year-over-year CPI or the real yield was at minus 0.103% today, close to the minimal level since November 2008.

Pimco notes that the size of marketable debt outstanding has more than doubled since the beginning of financial crisis to $9.7 trillion. The company reduced the share of US government debt in its assets by 3% in March and by 4% in April.

According to Pimco, it’s much better to hold debt of such nations as Canada, Germany and Mexico which have better fiscal and monetary policies.

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Commerzbank: comments on EUR/USD

The single currency’s 2-week advance versus the greenback stumbled this week at 1.4700, close to the 78.6% Fibonacci retracement of May's decline.

Technical analysts at Commerzbank note that the short-term outlook for the pair EUR/USD has switched to the downside.

In their view, euro is now poised down to the Ichimoku Cloud support at 1.4295 and then to the recent minimum and the 200-week MA at 1.4007/1.3968.

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Mizuho: comments on USD/JPY

US dollar tried to recover versus Japanese yen on Wednesday from the minimum at 79.79, but failed at 80.45.

The pair USD/JPY returned to the 80.00 area. Technical analysts at Mizuho Corporate Bank note that the crossing MAs give the selling signal. There’s also the potential inverted “flag” and the pressing daily Ichimoku Cloud. The specialists note that the trade volume in summer is low. In their view, taking into account the current conditions it’s possible to assume that the greenback will drop.

According to Mizuho, it’s necessary to sell at 80.15 stopping above 81.15 and taking profit at 79.75 and 79.15.

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UBS: comments on USD/CHF

US dollar went up from the record minimums versus Swiss franc in the 0.8325 area hit at the beginning of the week getting above 0.8400.

Technical analysts at UBS note that USD/CHF upward move was caused by general strengthening of the greenback. In their view, however, the near-term outlook remains bearish as long as US currency is trading below 0.8500.

According to the bank, key support levels are found at 0.8327 and 0.8300.

[FBS.com_official]

Citibank: EUR/USD will fall to $1.42

Currency strategists at Citibank note that the ECB's stance regarding inflation and interest rate rises is not as strong as it was thought that made investors sell the single currency.

The specialists expect the central bank to raise rates next month, but they aren’t sure about the future. In their view, the pair EUR/USD will slide in the near term to $1.43/$1.42.

There’s a rather strong support at $1.4419 (38.25 Fibonacci retracement of the advance from May 23 to June 7). On the upside, resistance for euro will be found at $1.46.

Analysts at BNY Mellon underline that the market keeps being seized by the concerns about disagreements among euro zone’s authorities.

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Analysts about the prospects of EUR/JPY and USD/JPY

Technical analysts at Commerzbank claim that the single currency may fall versus Japanese yen as it didn’t manage to break through the key resistance at 117.85 (55-day MA). The specialists claim that if EUR/JPY goes below the uptrend line from March to June at 115.91, it will be poised to the 50% Fibonacci retracement of the advance from March to April at 114.91. Barclays Capital thinks that yen will strengthen if EUR/JPY falls below 115.50.

Analysts at Deutsche Bank also claim that it’s necessary to sell euro versus yen as Japanese currency will show good results only if the Federal Reserve remains keen on the extremely loose monetary policy, but also if the risk environment deteriorates. As for the European currency, there are still severe risks associated with Greece and the ECB seems less hawkish than expected.

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Westpac and Morgan Stanley about Aussie’s dynamics

Australian dollar went down versus the greenback as the country’s government released draft legislation on the controversial mining tax.

Analysts at Westpac note that Aussie is also under pressure due to the decline of the regional equities and the deteriorated investors’ risk sentiment. According to the specialists, support for AUD/USD is situated at 1.0441. The strategists think that traders plan to buy Australian currency on the dips.

Analysts at Morgan Stanley regard Aussie as the most vulnerable among G10 currencies. In their view, the factors that are traditionally encouraging the pair AUD/USD to grow such as global liquidity, commodity prices, China’s economic growth and interest rate differentials will become less supportive.

[FBS.com_official]

Ichimoku. Weekly forecast. GBP/USD

Weekly GBP/USD

Last week pound kept declining – the prices broke down through the Turning line and lost almost 200 pips.

At the same time the “golden cross” formed by Tenkan (1) and Kijun (2) above Kumo is still in place. The rising Ichimoku Cloud remains wide (3) that means that the bulls are still rather strong and will likely be able to keep the pair moving within the uptrend.

Tenkan-sen acts as resistance, while the uptrend line and Kijun-sen have the role of support.

Daily GBP/USD

The Ichimoku Cloud (3) remains extremely thin – neither bulls, nor bears are able to gain control over the market.

The situation is unstable also because Tenkan-sen (1) that has recently crossed Kijun-sen (2) bottom-up forming the “golden cross” began declining.

At the moment the prices are consolidating within a triangle. Later the pair will probably manage to resume the uptrend.

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Ichimoku. Weekly forecast. USD/JPY

Weekly USD/JPY

Last week the greenback has slightly advanced. There was a small “hammer” formed on the weekly chart that may mean that the rebound of US currency may continue.

Never the less, the general outlook still isn’t in favor of bulls. The priced remained below the horizontal Standard line that will create rather strong resistance. The Turning line went rapidly down as well as the lines limiting Kumo – Senkou Span A and B., In addition, yen is still under pressure of the bearish Ichimoku Cloud.

All this leads to the conclusion that the bulls lack powers for powerful jerk up.

Daily USD/JPY

On the daily chart Tenkan-sen and Kijun-sen formed the “dead cross” (1) below Kumo – the strong bearish signal.

Despite the fact that on Thursday the prices managed to rebound significantly, they will face strong resistance created by the Standard and the Turning lines (2). It’s also necessary to note that the Ichimoku Cloud shows that compared with last week the powers of bears have increased.

At the same time Friday’s trade resulted in the red candle with long lower shadow, so at the beginning of the week the bulls will probably move a little bit up.

However, taking into account the general negative picture the advance is likely to be short-lived.

[FBS.com_official]

Ichimoku. Weekly forecast. USD/CHF

Weekly USD/CHF

The situation at USD/CHF market changes little. There’s still the clear downtrend on the daily chart.

The bearish Cloud remains wide. All lines of the Indicator are directed downwards (1, 2, 3 and 4).

All that allows regard dollar’s advance as another correction.

Daily USD/CHF

It’s possible to see on the daily chart that last week US currency was slowly moving up.

Never the less, the prices have approached the Turning line that may act as a rather strong resistance (1). It’s also necessary to note that the lines Tenkan-sen and Kijun-sen still hold the “dead cross” (5) formed below the descending Cloud.

The Standard line (2) and Senkou Span B (4) are directed horizontally that leaves the possibility for some consolidation of the rate, though the bears keep dominating the market and will soon try to erase the correction.