Comments and forex-analytics from FBS

[ryuroden]

Spanish and French auction results

Spain managed to sell the planned volume (4.074 billion euro out of the 3-4 billion euro target) of bonds with lower yields and better cover ratio. Here are the details:

- 3-year bonds: 2.268 billion euro, yield 3.332% (vs. 2.861%), cover 2.2 (vs. 1.6);

- January 2015 papers: 733 million euro, yield 2.966 (vs. 4.984%) %, cover 4.4 (vs. 2.4);

- October 2019 papers: 1.073 billion euro, yield 4.832% (vs. 5.352%), cover 3.3 (vs. 2.1).

France was able to sell 8.45 billion euro out of a targeted 7-8.5 billion euro. Here are the details:

- 5-year bonds: 5.025 billion euro, yield 1.93%, cover 1.99;

- July 2014: 2.090 billion euro, yield 0.89% (vs. 1.05%), cover 2.361 (vs. 2.12);

- January 2015: 1.335 billion euro, yield 1.09%, cover 3.303.

The actions may be regarded as successful enough. Never the less, euro didn’t get much help and keeps trading in minus for the fifth day in a row.

[ryuroden]

Commerzbank: USD/CAD technicals

Technical analysts at Commerzbank note that the greenback keeps trading around the 200-day MA versus its Canadian counterpart.

According to the bank, resistance for US currency lies at 1.0049/73 (December minimum and January 3 minimum) and at 1.0149/46 (55-day MA and the 3-month downtrend). The outlook for the pair will become positive only above the latter. Commerzbank says US dollar won’t likely get that high this week.

The specialists think that the pair USD/CAD may slide to October minimum at 0.9892. In their view, this level will contain further declines as only an unexpected drop and 2 daily closes below the October low would point towards further range trading with a bearish bias and the possibility of such outcome isn’t high.

[ryuroden]

USD/JPY: will the recovery continue?

The greenback keeps rising versus Japanese yen. On Tuesday USD/JPY broke above the 200-day MA spurring the bullish sentiment.

Today the pair set 3-month maximum at 78.88 yen. The cross is still trading below the post-intervention spike at 79.52 set at October 31 and November 1 maximum at 78.97.

However, some analysts keep warning investors that it may be premature to turn bullish on US dollar. The specialists remind that in the past few years USD/JPY broke above the 200-day MA many times, but this signals turned out to be false and there was no bullish reversal afterwards.

In addition, as the possibility that the Federal Reserve will decide to launch another round of quantitative easing seems strong enough, it would be hard for traders to sell yen. Expectations of QE3 will keep US short-term note yields (in particular, 2-year Treasury yields) low. USD/JPY is strongly correlated (90%) with yield spread between Japanese and US 2-year debt, so in such conditions US dollar will remain under pressure.

[ryuroden]

Western Union about NZD/USD

New Zealand’s dollar got a lift today versus its US counterpart as the Reserve Bank of New Zealand’s governor Alan Bollard claimed that the nation’s growth numbers are currently understated due to conservative statistical interpretations and the particular nature of the economy. According to Bollard, if Australian conventions are applied New Zealand’s GDP could be 10% higher.

Analysts at Western Union claim that NZD/USD is helped by more positive sentiment towards Greece: “All it takes is another bit of speculation that the Greeks have found more places to slash their budget, and while there is nothing concrete they have said that it (the second bailout) is likely to be green lit on Monday – which is all the market apparently needs”.

The specialists expect kiwi to trade at the current levels or edge higher to 0.8400. In their view, support for NZD is situated at 0.8320 (February 15 and 9 minimums), while resistance is found at 0.8420 (February 15 maximum).

[ryuroden]

BofA: euro may renew 2-month minimum

Analysts at Bank of America claim that the single currency may fall to more than 2-year minimum versus the greenback.

The specialists note that if euro doesn’t manage to hold at the current levels and resume decline closing the day below $1.3026, this would mean another wave of the downtrend within which EUR/USD has been trading since May 2011. In such case the pair will move down to $1.2644/$1.2510.

Euro’s moving average convergence/divergence, or MACD, was at 0.0036, below the signal line of 0.0045. A reading below the signal line indicates the euro may decline.

[ryuroden]

Commerzbank: comments on GBP/USD

Analysts at Commerzbank claim that British pound may rise higher versus the greenback testing 200-day MA at $1.5919.

The specialists note, however, that sterling’s advance will be limited, if not by this level, then by the next resistance at $1.5967 and $1.6016 (55-week MA).

According to the bank, support for the pair GBP/USD lies at $1.5603/1.5580 (55-day MA and 50% Fibonacci retracement).

[ryuroden]

Euro strengthened on Greek bailout news

The single currency went up versus the greenback erasing earlier decline and reached 3-month maximum against Japanese yen as the euro-zone finance ministers agreed on a second bailout package for Greece saving the nation from default in March. The package includes a 53.5% write-down for Greek bondholders – it’s a bigger trade-off from the nation’s private creditors than initially expected. Debt-swap bonds will have a coupon of 2% in 2014, 3% in 2015-2020 and 4.3% after that. ECB President Mario Draghi expressed his approval of the deal.

Euro shorts are covered now. The pair EUR/USD opened around $1.3250 and started sliding lower as the press conference was constantly delayed. The market players were pretty sure that there would be an agreement and there were enough longs on an intraday basis and these longs kept getting squeezed out, the longer the decision was delayed. After the announcement euro made 70-pip spike up. Currently the pair came close to the opening levels as stop-losses were all done.

Analysts at Credit Suisse claim that euro will likely be capped as although “short-covering is supporting the euro, this much was within expectations”. In addition, EUR/USD will get under pressure due to improving US economy. The specialists think that the pair will trade in range between $1.3150 and $1.3350 for the rest of the global day and between $1.3050 and $1.3350 during the coming week.

[ryuroden]

UBS: dollar’s long-term advance against euro will go on

Analysts at UBS claimed that the single currency will continue declining versus the greenback in the longer term from the record maximum at $1.6038 reached in July 2008.

The specialists think that US dollar will break its negative relationship with oil prices as the United States become more independent of foreign energy supply due to the development of shale-gas deposits and an increase in domestic oil production.

[ryuroden]

More comments about euro’s outlook

ING: the Greek deal might have bought a couple of months' worth of stability to the euro-zone sovereign-debt markets. The pair EUR/USD may go up to test 2012 maximum at $1.3320 and rise to $1.3430/50.

Barclays Capital: the risk of Greece’s disorderly default reduced for at least a few quarters. Never the less, there still are the implementation risks. In addition, there are near-term risks associated with early elections and rise of political opposition.

Commerzbank: the skepticism about the euro is justified even after euro area’s finance ministers agreed to provide Greece with the second bailout. That isn’t positive for euro. The large majority of market players are finding it hard to believe that Greece will get through to 2020 without a further default.

BNP Paribas: Greek agreement won't support euro much. Many traders would like to sell euro on the rallies. All the same, if the agreement really does remove the risk of a Greek default markets will be looking to fund riskier bets with a suitable currency such as euro. As a result, the European currency is doomed to remain under pressure.

[ryuroden]

Deutsche Bank, UBS: forecasts for USD/JPY

Analysts at Deutsche Bank think that the greenback may resume its decline versus Japanese yen. In their view, the effects of the latest round of easing conducted by the Bank of Japan will fade. Last week the Bank of Japan added 10 trillion to it's now 65 trillion yen quantitative easing program leaving the benchmark interest rate at the record low of 0.1%.

The specialists claim that USD/JPY may decline from the current maximums in the above 79.50 back to 75 yen area. According to the bank, Japan’s external investment position is large and growing, so its current-account balance will support yen’s strength for some time. Currency effects from Japan's shifting trade dynamics are being overplayed and the country will probably return to a trade surplus this year. The only way to prevent such outcome is additional stimulus from Japan’s monetary authorities.

Analysts at UBS, however, don’t share the view of Deutsche Bank. The specialists reduced their 1- and 3-month forecasts for Japanese yen from 77 yen per dollar to 80 and 85 yen per dollar. As the reason for the downward revision the specialists cited easing conducted by the BOJ.

[ryuroden]

BoE minutes coming: watch the pound

Today the market’s looking forward to the release of the Bank of England’s February meeting minutes (9:30 a.m. GMT). The minutes will unveil how the central bank’s 9-member Monetary Policy Committee votes on the expansion of asset purchase program by 50 billion pounds ($79 billion) to 325 billion pounds this month.

The consensus forecast is that the decision was unanimous. The experts, however, don’t rule out the possibility of 1-2 dissenting votes from the hawks against more QE.

The BoE decided to conduct additional quantitative easing in order to help weak UK economy: Britain’s revived Q4 GDP figures which are released on Friday will likely confirm that the nation’s economy contracted by 0.2% in the final 3 months of 2012 (q/q).

BoE Deputy Governor Charlie Bean claimed that despite the news that Greece will get the second bailout, serious risks remain and the debt crisis won’t be over. Such situation will hurt Britain hitting its exports and finance and affecting its consumer and business confidence. The official was also worried about the fate of other peripheral European economies.

On the one hand, it’s necessary to note that some positive consumption and housing data have been released so far, so the BoE may improve its fundamental outlook for the UK economy. In this case pound will be poised to strengthen. On the other hand, cautious tone may signal that the door is open to expand the central bank’s asset purchase program beyond 325 billion pounds – such outcome would increase bearish pressure on sterling.

Since the beginning of the year the pair GBP/USD consolidated between $1.5680 and $1.5930. Analysts at Lloyds say that sterling won’t be able to rise above $1.6000 versus the greenback in the near term. Specialists at Commerzbank think that the pair may test 200-day MA and then slide back to $1.5645.

[ryuroden]

Nomura: USD/JPY forecast revised up

Analysts at Nomura revised up their forecast for USD/JPY from 75 to 79 yen by the end of the first quarter of 2012. The forecasts for the end of Q2 and the year-end were left unchanged at 80 and 81 yen consequently.

The specialists claim that odds that the greenback will resume its decline decreased due to the Bank of Japan’s additional quantitative easing, better US macroeconomic data and easing tensions in the euro area.

Nomura draws investors’ attention to the fact that Japanese central bank decided to increase investment in the government bonds with maturity of 1-2 years. This would cap the possibility of 2-year yield growth. As a result, the yield differential between 2-year US and Japanese securities will increase encouraging USD/JPY. In addition, internal capital flows also point at yen’s gradual depreciation.

[ryuroden]

Barclays Capital expects USD/JPY to consolidate

Analysts at Barclays Capital claim that the greenback will consolidate between 78.50 and 80.50 yen ahead of the US February jobs report which is released on March 9.

The specialists think that after the pair USD/JPY has made such an impressive progress this month rising from 76 to 80.50 yen it currently lacks strong indicators for further advance, so the market will likely stand still ahead of the labor market data. According to the bank, the risk of the Federal Reserve announcing another round of quantitative easing is low.

[ryuroden]

USD/JPY again renewed maximums

The greenback made a spike higher today spiking to almost 4-month maximum at 81.67 yen due to improved US economic data and the increased possibility that the crisis in the euro area will be contained. After reaching the new high dollar backed down correcting after a rapid advance.

Analysts at Ueda Harlow claim that investors aren’t afraid to sell yen anymore as they believe that the worst case scenario for global economy will be avoided. The G-20 is making efforts to solve the debt crisis, note the specialists.

Strategists at UBS think that the pair USD/JPY is now trending upwards. In their view, the Bank of Japan has finally shown its determination to use aggressive approach combating yen’s appreciation.

Analysts at Westpac claim that US currency is currently overbought and will return to 79 yen and then resume growth. According to the bank, USD/JPY will meet resistance at 82 yen. If the pair breaks above this level, it will be able to rise to 85.60 yen.

[ryuroden]

Commerzbank: comments on USD/CHF

Technical analysts at Commerzbank believe that the greenback may fall versus Swiss franc to 0.8788/71 (78.6% Fibonacci retracement and 200-day MA).

According to the bank, key support for USD/CHF is situated at 0.8568 (October minimum).

The specialists are bearish on US currency as it dropped below 0.8960 (61.8% Fibonacci retracement of the pair’s advance from October to January). In their view, the short-term outlook remains bearish as long as US dollar trades below resistance in the 0.9066/88 area.

In the medium term Commerzbank expects USD/CHF to return to the levels around 0.9595 (January maximum).

[ryuroden]

Banks' forecasts for FX majors

[ryuroden]

SocGen: EUR/USD will decline

Analysts at Societe Generale claim that the single currency may weaken by 6% versus the greenback sliding to $1.2590.

The specialists keep thinking that euro’s advance from this year’s minimum at $1.2624 hit on January 13 was only a correction within the middle-term downtrend. In their view, the resistance line of the descending channel at $1.3570 will likely cap euro on the upside.

According to the bank, EUR/USD will decline to $1.2590/$1.2620.

[ryuroden]

CFTC trader positioning data

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• Euro shorts declined from the previous week’s total of 148.6K to 142.3K contracts.

• British pound shorts decreased from 40.6K contracts on February 14 to 31.3K contracts on February 21. Longs on sterling were cut by almost 8K contracts, while shorts were reduced by almost 11K contracts.

• Japanese yen net longs declined from 29.4K contracts reported on February 14 to 17.3K as the data on February 21 showed.

• Swiss franc net shorts extended from 15.9K net short contracts on February 14 to 19.8K contracts on February 21. Short positions increased surpassing small increase of longs.

• The value of US dollar's net long position rose to $17.25 billion in the week ended February 21 from $16.98 billion the previous week.

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.

[ryuroden]

US employment forecasts improved

US National Association for Business Economics announced today that the forecasts for US employment improved.

According to NABE’s survey of the leading economists, payrolls will rise 170,000 a month on average in 2012. In November the consensus was of 127,000 new jobs a month. Unemployment will average 8.3%, down from 8.9% be the previous estimate.

Such change in expectations reflects a potential positive shift in consumer confidence and better growth prospects for the world’s largest economy. At the same time, economists maintained forecasts for consumer spending, which may rise 2.1%, and predicted GDP to add 2.4% in the fourth quarter from a year earlier, unchanged from the November survey.

In January US non-farm payrolls by 243,000, showing the biggest advance in 9 months, while the unemployment rate fell to the minimal level since February 2009 at 8.3%.

US February labor data will be released on March 9.

[ryuroden]

Forecast Pte: USD/JPY is facing correction

Yesterday the greenback spiked to 81.67 yen reaching the maximal level since May 31. Since the end of January it gained more than 5%.

However, technical analysts at Forecast Pte claim that the pair USD/JPY may lose about 1.5%.

The specialists base their conclusions on the momentum indicators. The greenback’s 14-day relative strength index was at 72 yesterday, above the 70 level some traders see as a sign an asset’s price is set to change course.

“The candle formation looks to signal a possible reversal,” say the analysts noting that American currently seems to be extremely overbought.

As a result, the specialists think that US dollar will go though correction in the short term. In their view, USD/JPY may drop to 78.85 yen (50% retracement of dollar’s advance from the February 1 minimum to yesterday’s maximums). Then the pair may climb to 85 yen in the next 1-3 months.

[ryuroden]

BBH: US dollar’s under pressure due to oil prices

Analysts at Brown Brothers Harriman note that as oil prices are rising, US dollar will find itself under pressure.

The specialists say that the current oil price’s advance is caused by several factors. Firstly, supply from Sudan, Syria and Yemen has sharply contracted due to political instability if not to mention Libya and Iran. Secondly, Japan’s increasing oil consumption replacing nuclear fuel. Moreover, the unusual cold in Europe may be fueling demand as well.

According to BBH, high oil prices increase the risk that the Federal Reserve will launch another round of quantitative easing as the economy of the United States will suffer as oil import becomes more and more expensive.

The Fed’s Chairman Ben Bernanke will be testifying before Congress on Wednesday and Thursday, so the bank recommends watching his comments for the hints of the central bank’s opinion on the issue.

[ryuroden]

Westpac: trading ahead of LTRO

The European Central Bank will conduct its second LTRO operation on Wednesday, February 29.

The first round of low-cost refinancing operation took place in December: European banks got 489 billion euro in 3-year credits.

Analysts at Westpac claim that if the region’s banks borrow less than 480 billion euro, investors will worry that the markets are too illiquid and will buy the safe-haven greenback against Canadian dollar. At the same time, if banks borrow more than 480 billion euro, one should sell US dollar versus its Canadian counterpart.

The specialists favor the second outcome and recommend traders to take risk. Westpac advices to go short on USD/CAD stopping at 1.0060 and targeting 0.9770.

At the same time, the bank warns that one has to be careful as investors could soon change course if they reevaluate and decide that a large take-up implies weakness in the system.

[ryuroden]

Barclays: comments on USD/JPY

Technical analysts at Barclays note that the pair USD/JPY tested the levels above the weekly Ichimoku Cloud and are now looking for confirmation of the bullish trend.

The specialists claim that the greenback may add about 10% versus Japanese yen if it managed to close the month above 21-month MA at 80.90 yen. In this case American currency will climb to 88 yen.

[ryuroden]

Nomura: forecast for euro is still bearish

Nomura has made the best 3-month forecasts for EUR/USD and USD/JPY, according FX Week. Such conclusion was made due to the comparison of the bank’s 3-month projections made in the middle of November and the actual rates at the middle of February. What does the bank expects next?

Nomura is still bearish on the single currency. According to Nomura, the pair EUR/USD will fall to $1.20 by the middle of this year. The analysts think that the sovereign debt crisis will continue in spite of last week's bail-out package for Greece as other European economies may find themselves in need of bailouts as well.

The specialists think that the European Central Bank's second longer-term refinancing operation LTRO on Wednesday will be lower than expected: the banks will get only 200-300 billion euro from the ECB. At the same time, according to the survey of Nomura’s clients most people are expecting ECB to grant the region’s 500 billion euro in credits. As a result, the bank thinks that euro will start sliding in case of the lower number.

[ryuroden]

Citigroup: sell EUR/GBP

According to the Confederation of British Industry, the gauge of retail sales growth improved from minus 22 in January to minus 2 in February (versus -17 forecast).

British pound declined by 1% versus the single currency since February 21, the day before Bank of England minutes showed two policy makers voted for a larger increase in asset purchases than agreed at this month’s meeting.

Analysts at Citigroup think that now there’s a good chance to buy pound n the dips. The specialists advise traders to open shorts on EUR/GBP at 0.8473 targeting 0.8250 and stopping at 0.8555.