Comments and forex-analytics from FBS

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SocGen: comments on AUD/USD

Analysts at Societe Generale point out that the pair AUD/USD has seemed exhausted since the beginning of March lagging all the other G10 currencies against US dollar. The bank thinks that Aussie has weakened as both domestic and external factors ran out of steam.

The specialists claim that Australian dollar is testing 100-day MA versus the greenback at $1.0370. In their view, this may be a pivotal level. If Aussie breaches this support, it will likely decline to $1.0145 (this year’s minimum) and then to the parity.

At the same time the economists comment on rising US Treasury yields: “The recent sell-off in US Treasuries and swap rates has also played a key role in AUD/USD's trajectory. Although US 10-year yields may have found a bottom, it is still premature to call a lasting uptrend. The narrowing in the 10-year AU/US spread may thus soon run out of steam, helping to set a floor for AUD/USD.”

According to SocGen, though the Reserve bank of Australia may have been reassured by the recent stabilization (even though it may be temporary) of the euro zone debt crisis, it will remain concerned by the Chinese data. With key rates currently at 4.25%, the central bank clearly has plenty of room to act if necessary. The next RBA meeting is on April 3.

It will be also necessary to watch Chinese data in April: the official PMI and Q1 GDP are released on April 1and 13 respectively, the CPI (which hit its June 2010 minimum of 3.2% y/y in February) is expected on 9 April. If Chinese economic growth keeps slowing, the People’s Bank of China may be tempted to ease monetary policy further.

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Reuters: survey on USD/JPY

According to a survey, conducted by Reuters among Japanese companies on March 1-16, 60% of the respondents expect USD/JPY to trade in the 76.00-80.00 area in the first half of the fiscal year (beginning in April), while 31% of the pollees forecast yen to stay weaker at 81.00-85.00 level. The average rate for USD/JPY for the first half-year was 80.6 yen per dollar. The resulting data shows Japanese market participants do not expect the yen to depreciate further.

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SocGen: comments on USD/JPY

Analysts at Societe Generale say that risk sentiment has stabilized in March mainly due to the temporary solution of Greece’s debt problems. If global risk appetite consolidates in the second quarter of the year, Japanese yen will remain a funding currency versus high yield currencies. The main risk factor to this scenario is the worsening of the euro zone’s debt crisis.

The specialists claim that though it’s too early to know whether there will be a durable uptrend in US yields and as the Bank of Japan’s intervention was the first trigger, a floor in US yields would help determine a floor for the USD/JPY.

Comments on USD/JPY’s correlation with WTI: “1-month correlation stands at 0.78. Our commodity analysts expect WTI at around $124 per barrel by the end of 2012, again USD/JPY supportive.”

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Aussie may weaken versus yen

Strategists at Aspen Trading Group, one of the leading providers of actionable analysis and trading strategies in the currency markets, recommend selling the AUD/JPY at 85.90 with a stop at 87.00 targeting 82.50.

According to analysts, the currency pair follows the S&P 500 stock index. Recent negative manufacturing reports from China (Manufacturing PMI declined to 48.1 in Feb. against 49.6 in Jan.) and Europe (PMI indices stand below 50) put a downward pressure on the S&P 500 index, so the Aussie is going to decrease against the yen.

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GBP/JPY: growth potential

There may be a chance to benefit from buying British pound versus Japanese yen. Note that GBP/JPY has broken above the weekly Ichimoku Cloud for the first time in 4 years.

As a result, sterling may rise to 140 yen in the coming weeks and opening longs on the pair may be a sensible way to play on potential yen’s weakness.

Concerns about the state of UK economy aren’t very likely to affect GBP/JPY unless the nation is stripped of its top credit rating or the double dip recession occurs.

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BNP Paribas: still bearish on EUR/USD

Strategists at Societe Generale point at the growing concerns over Europe and China. Despite these worries EUR/USD rebounded today from a low of $1.3133 to $1.3293.

However, BNP Paribas analysts expect the euro to keep weakening. In their opinion, Treasury yields may overcome the levels expected given the current Fed policy. Moreover, specialists believe the strain in Europe may rise on the backdrop of the French and Greek elections.

Note that we may see a “head and shoulders” pattern on the daily chart (neckline at $1.3000), so the levels in the $1.3000/2969 area have to be watched for confirmation of a larger bearish move. There are the talks of sell orders in the $1.3290/3300 zone. Support for EUR/USD is found at $1.3180 (100-day MA), $1.3150/57 (76.4% Fibonacci correction from the move $1.3286/1.3133/March 22 maximum, 50-day MA).

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MIG Bank: USD/JPY technical levels

According to MIG Bank analysts, the USD/JPY is confidently continuing a downward movement from 84.00 area after the 800-pip rally since early February. To bring the bullish trend back to the market a consolidation above 84.18 is required.

The currency pair is expected to stay above the 80.59 (March 7 swing low) and 80.00 (psychological level) support lines. Support lies at 82.25.

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Bernanke: comments on the economic situation

The Federal Reserve Chairman Ben Bernanke has spoken several times this week on the most important questions concerning US and global economic prospects.

According to Bernanke, the U.S. economy is standing on pre-crisis levels in the context of the sovereign debt volume and low consumer confidence. A rise in consumer spending is needed to support U.S. economic growth.

Moreover, high unemployment (8.3%) still raises serious concerns. Recent indicators, including new claims for unemployment insurance and surveys of hiring plans, point to the likelihood of more sluggish job growth in the period ahead.

During the testimony before Congress on Wednesday Bernanke noted the commodity price growth poses a significant risk to the U.S. and global economy, adding that the current increase in oil and gas prices probably would reverse before sparking long-term inflation.

On Thursday Ben Bernanke opined that the financial crisis hasn’t been caused by low Federal funds rates in the early 2000s. “Monetary policy did not play an important role in raising house prices,” Bernanke said. He noted housing prices began to pick up in the late 1990s before the Fed began cutting interest rates and rose dramatically after the central bank began tightening. One of the alternative reasons for home prices rise, according to Bernanke, could be the psychological optimism generating a growth in stock prices.

As for the euro area, the Fed’s Chairman claimed that the financial and economic situation in there remains complicated regardless of the slight easing of stress. In order to overcome the recession European authorities have to keep strengthening the region’s banking system, reducing debt levels and encouraging economic growth.

Bernanke pointed that the influence of the debt crisis in southern Europe on American banks is limited. However, analysts say, Greek, Spanish, Italian and Portuguese bonds account for 7% of the U.S. banks assets.

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BOTMUFJ, UBS: still long on USD/JPY

The greenback recovered from 10-day minimum versus Japanese yen where it fell on Friday due to weak data from Europe and China, while Japan posted trade surplus in February.

Never the less, strategists at Bank of Tokyo-Mitsubishi UFJ and UBS are still long on USD.

Bank of Tokyo-Mitsubishi UFJ: “Even though the dollar rally on the yen has lost a bit of momentum, the dollar is still strong after it didn't break below the 81.97 support twice in the last two weeks”. The specialists think that USD/JPY won’t be seriously affected by the repatriation flows ahead of Japan’s fiscal year-end as there’s more talk about importers buying dollar on the dip than about offers by exporters. According to BOTMUFJ, many exporters have already finished their currency hedging, not only for the fiscal year to March 31, but also until the end of the first quarter of the next financial term.

UBS: USD/JPY may still rise to 85 yen in the next few weeks, so buy US currency on dips. The analysts say that “Japan's recent run of monthly trade deficits isn't the main reason to be bearish on the yen”. In their view, the Bank of Japan's monetary loosening announced last month plus higher yields in the US are the factors that suggest the currency will weaken further against the dollar.

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EUR/USD: trading week begins

On Friday EUR/USD reached a 3-week high as far as fears of a global meltdown are a little bit down. Some market participants, however, believe bond auctions in Spain and Italy on Tuesday could put a downward pressure on the European currency. Italy is looking to raise 7.5 billion euro ($9.95 billion) in debt markets.

Barclays Capital: Any sign of erosion in restored confidence for Italian and Spanish bonds is likely to weigh on the euro. In our view, the euro drops to $1.20 in 12 months because of the lackluster economic data continuing to come from Europe.

Der Spiegel reported the German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble are expected to allow a temporary increase in the euro zone’s financial “firewall”. Before that Merkel opposed to any increase, but in Berlin they say she cannot resist the international pressure indefinitely. Euro zone finance ministers are supposed to reach a decision at a meeting in Copenhagen this Friday, March 30.The expansion of the euro-zone's rescue funds could open the way for the IMF to increase its own anti-crisis firewall during a spring meeting next month.

In contrast to Europe, economic climate in U.S. is gradually improving. On Friday, however, lower than forecasted data on the country's new home sales were released (313K in Feb. versus 318K in Jan.).

The German Ifo business climate index, started to grow in November 2011, in February increased to 109.8 versus 109.6 in January. The Fed's Chairman Ben Bernanke will speak later today.

EUR/USD is now trading in the $1.3260 area. According to analysts, the support levels for the currency pair lie at $1.3190 (March 13 maximum) and $1.3178/68 (100- and 50-day MA). The resistance is seen at $1.3320 (February 9 maximum), $1.3365 (February 27 minimum).

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Ichimoku. Weekly forecast. GBP/USD

Weekly GBP/USD

During the last couple of weeks GBP/USD was going up leaning against the Turning line (1).

Tenkan-sen (1) and Kijun-sen (2) act as support – the lines have so far crossed forming the “golden cross”, though the signal isn’t very strong as the intersection took place below the Cloud. Kumo itself keeps narrowing (4) as Senkou Span A continues moving upwards.

The chances of bulls aren’t bad: they are approaching the Cloud which is thin in that area and thus not a great obstacle. However, the prices met some resistance in the $1.5920 area (downtrend resistance line) and sterling opened this week on the downside. That’s why Tenkan-sen seems a critical level for now: if the pair fails to hold above it, it will likely slide to Kijun-sen.

Daily GBP/USD

On the daily chart GBP/USD keeps moving sideways: the pair consolidated above the horizontal Standard line (1). The bullish Ichimoku Cloud (3) stopped narrowing and began gradually widening.

Tenkan-sen (2) is slowly moving up to meet Kijun-sen (1): if the 2 lines intersect, they’ll form “golden cross” – strong bullish signal as the lines are currently above Kumo.

For now the prices enjoy strong support of both the Standard and the Turning lines. As for resistance, it’s provided by last week’s maximums and the late February/early March highs.

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CFTC trader positioning data

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that during the week to March 20:

- US dollar net longs shrank by 37% (their value dropped from $19.0 to $11.67 billion);

- Euro net shorts decreased by 16%;

- Pound net shorts contracted by 62%;

- Yen net short fell by 40%;

- Franc net shorts declined by 23%;

- Aussie net longs declined by 33%;

- Kiwi’s net longs reduced by 68%.

Among forex majors only loonie showed increased net interest from investors (net longs rose by 58%).

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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Ichimoku. USD / JPY. Week of 26-30 March

Weekly USD/JPY

As it can be seen from the chart, prices consolidate in the 82.00/84.20 area. The Tenkan-sen and Kijun-sen lines are moving horizontally, as well as the lines Senkou Span A and B. The descending Cloud narrowed, signaling that bears are losing power.

Bulls have to make a decisive spurt to reverse the current flat trend. In February the greenback managed to break through Kumo (bullish signal). However, given the fact that the prices are rather far from the support levels (Tenkan-sen and Kijun-sen lines and the upper bound of the Ichimoku Cloud), there seems to be a risk of a pullback before further growth.

Analysts advise to wait for positive signals before going long (the Ichimoku Cloud to change the color, the Turning line and the Standard line to reverse upwards).

Daily USD/JPY

According to the daily chart, dollar fell below the Turning line (1), which from now on became a resistance level. The pair’s move down turned the Tenkan-sen line horizontally. The up-directed Standard line (2) supports the prices.

As a whole, USD/JPY outlook stays positive. The bullish Ichimoku Cloud is growing quickly (3), signaling the steep upward trend started in February will continue. The currency pair may dip to Kijun-sen (2) due to retracement. However, the bulls are still expected to continue the upward movement.

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J.P. Morgan: trading AUD/USD on China

Analysts at J.P. Morgan Asset Management believe that in the near term Australian dollar will weaken due to concerns about China’s economic outlook. In the longer term, however, Chinese authorities will be able to improve the situation and promote growth (China's Ministry of Commerce has recently announced the launch of the 2012 Consumption Promotion Month between April 2 and May 4).

As a result, the specialists recommend buying AUD/USD at 1.0100, stopping at 0.9875 and targeting 1.0600.

“If you hold this position over time, you make money on the interest rate differentials as well,” says the bank.

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HSBC: comments on Swiss franc

Analysts at HSBC believe that the role of Swiss franc as a safe-haven has deceived markets into thinking that the demand from foreigners is the main determinant of franc’s exchange rate.

The specialists note that Switzerland's balance of payments data shows that while foreign events may drive franc, it is the response of the Swiss rather than foreigners to these developments that predominantly influences the CHF.

The bank says that it is the Swiss that who will ultimately determine the sustainability of the current EUR/CHF floor. In addition, the dynamics of the balance of payments suggest that efforts to limit CHF strength are ultimately doomed to failure. The best the EUR/CHF floor can hope to do is limit the damage.

If the world looks to be healing further and were EUR/CHF to creep up to 1.30 on its own accord the Swiss authorities should consider declaring this emergency floor as having done its job. This will then allow the CHF to eventually resume its appreciating trend albeit at a slower rate, says HSBC.

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Comments on EUR/USD

Many analysts think that EUR/USD will trade sideways in range between $1.30 and $1.35.

Resistance for the pair lies at $1.3373 (76.4% Fibo retracement of the decline from the end of February to the middle of March). Support is found at $1.3189 (March 23 minimum) and $1.3133 (March 22 minimum).

On the upside the single currency will be limited by concerns about Spain’s fiscal state as the nation presents its budget plan on Friday.

Analysts at RBC also advise investors to watch out Italy’s bond auction on Thursday. The country’s authorities will offer 7.5-10 billion euro ($10-$13.3 billion) of debt.

In addition, don’t forget about the summit of euro area’s finance ministers and central bankers on Friday. There’s a lot of talk this week German Chancellor Angela Merkel no longer opposes the idea of temporarily increasing the region’s bailout funds. However, until the actual decision is made the uncertainty will remain. Traders have been disappointed with European decisions too often so far.

On the one hand, decline in Treasury yields after yesterday’s Bernanke’s comments may put negative pressure on dollar versus euro. On the other hand, concerns about peripheral euro zone’s nations could make investors get rid of euro looking for a safer currency. Isn’t it always like that with EUR/USD?

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Danske Bank: sell USD/JPY

Analysts at Danske Bank recommend selling the greenback versus Japanese yen stopping at 83.25 yen.

Resistance for USD/JPY is found at 82.95, 83.25 and 83.47 yen.

Support for the pair lies at 82.29, 81.97 and 81.89 yen.

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Bernanke revived concerns about QE3

On Monday the US dollar declined against the other major currencies on the back of the Federal Reserve Chairman Ben Bernanke comments. According to him, the U.S. labor market is still weak, and the recent signs of improvement may be due to statistical errors. Bernanke said that he doesn't expect the unemployment rate (8.3% in Feb.) to keep falling.

The Fed Chairman comments raised concerns about the U.S. economy prospects and increased the likelihood of a third round of quantitative easing (QE3). Analysts believe the Fed will keep interest rates near zero in 2012 to sustain recovery, so the greenback continues to decline.

Analysts’ comments

Societe Generale: QE3 is on its way or at least a very dovish stance until such a point as unemployment falls enough.

Barclays Capital: The improvement in US economic prospects has continued, but the USD remains weak. In our view, the USD will be viewed as an increasingly unattractive funding currency, compared with the JPY, EUR and CHF.

UBS: EUR/USD may rise to $1.3489, the highest since Dec. 2, after it broke the $1.3294 to $1.3303 resistance range yesterday.

Today Bernanke is scheduled to give a new lecture at George Washington University.

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Will the stock market remain bullish?

More and more specialists start to think that the current rally in stocks, commodities and emerging markets could be a long-lasting one.

Last week the S&P 500 index closed above 1,400 points for the first time since the 2008 financial crisis rising by 30% from the bottom at the beginning of October (the index gained 11% in 2012). It seems that investors don’t hurry to take profits, but prefer to stay at American markets.

Goldman Sachs: “The prospects for future returns in equities relative to bonds are as good as they have been in a generation”.

Wells Fargo: individual investors have started wading back into higher-risk, higher-yield assets, including high-yield and emerging market funds. There’s an increase in demand for high-dividend-yield stocks, high-yield corporate debt, and emerging market fixed income.

Barclays Capital underlines that the prices for US Treasuries regarded as the safe haven dropped by 7.3% this year.

EUR/USD is up by about 2% by the end of the first quarter. Goldman Sachs expects euro to rise to $1.38 over the next 6 months and $1.45 by the end of 2012.

So, we see that the market was quite optimistic about US economic recovery. The main question now is whether Bernanke’s concerns will prove to be correct (read more). Another thing to worry is seasonal patterns: according to some researches, American data tends to deteriorate in spring. The market’s sentiment may change quickly enough. Still, the current situation is much less tense than in 2008 or in 2011. As the specialists at Credit Agricole say, “markets love a grizzly story, but there is no grizzly story – the bears have left the room.”

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UBS: comments on USD/JPY

Analysts at UBS claim that there are many reasons to be bearish on yen in the near term:

- late deficits in the Japanese trade balance despite February’s modest surplus;

- additional 10 trillion yen in the asset purchase program decided by the Bank of Japan in its last monetary policy meeting;

- the BOJ’s commitment to eradicate deflation by chasing a 1% inflation goal;

- rising US Treasury yields;

- the likelihood of private Japanese investors to seek higher returns in foreign assets.

The specialists keep advising to buy USD/JPY on the dips claiming that the pair may still reach 85.00 in the next few weeks.

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Barclays Capital: major currencies outlook

JPY: Japanese currency is expected to weaken versus the USD, AUD and CNY on the back of the risk of a structural current account deficit. We recommend going long USD/JPY, because prospects for the greenback have significantly increased. The Bank of Japan aims for higher inflation, but it doesn’t seem to be a significant negative factor for yen, while the current account deficit is a real long-lasting threat, supported by fiscal problems and political instability.

EUR: the easy monetary policy and the efforts to resolve the debt crisis have decoupled the global risk appetite and the common currency prospects. A weak euro and buoyant equity market is a rare combination. According to the past experience, this environment is positive for the euro’s major counterparts (usually the liquid safe havens and oil-related currencies outperform).

AUD, NZD: in the medium term the outlook on commodity prices is bright, so the Aussie and the kiwi remain high-yielding currencies. If crude oil prices grow for reasons different from strong Asian growth, AUD and NZD may continue the recent depreciation since early March.

CAD: Canadian dollar still has the biggest growth potential among the major currencies (influenced by less stretched valuation, bright oil price prospects and U.S. economy growth).

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Societe Generale: comments on Eurogroup meeting

Analysts at Societe Generale claim that the Eurogroup meeting on March 30 will be an important event for markets and the broader economy.

In their view, last week's movements on peripheral bond markets should have served as a reminder to euro area policymakers that the debt crisis is not over yet. Failure to increase the rescue mechanisms this Friday would be a significant negative.

The specialists say that despite the talk that German and Finnish politicians no longer oppose the temporary increase in the region’s bailout funds, much will depend on the will of the fiscally weaker member states to deliver on austerity and structural reform. While financial stress in the periphery may thus ease anew, austerity headwinds will continue to blow.

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RBS: go long on GBP/USD

Analysts at RBS recommend buying British pound versus the greenback on the dips again below $1.5929. The bank is bullish on sterling as GBP/USD broke yesterday above the downtrend resistance line connecting the maximums of 2007, 2011 and 2012.

Target is at $1.6072 (the 38.2% Fibo retracement from the credit crunch sell-off), while stops are to set in the $1.5850 area.

The specialists warn of resistance in the $1.5992 zone (2012 maximum). Support lies at $1.5929 (February 8 maximum), $1.5850 (100-day MA) and $1.5767 (last week’s minimum).

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SocGen: official China’s PMI may be better

Analysts at Societe Generale believe that China’s official PMI data won’t be as weak as HSBC flash PMI.

The specialists expect PMI to rise from 51 in February to 51.2 in March. According to the bank, March readings are typically more than 3 points above those of February even during the sharp deceleration of Chinese economy in 2009. “Stripping out this effect, our forecast for the March reading would actually signal contraction in China's manufacturing activity, and thus consistent with the HSBC PMI,” say the strategists.

The HSBC preliminary PMI fell to 48.1 in March, a 4-month minimum, compared with a final reading of 49.6 in February.

China’s March NBS PMI is due for release on April 1.

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Deutsche Bank: seasonal pattern of U.S. data surprises

According to John Horner, strategist at Deutsche Bank, the greenback’s growth in recent months may be unstable and connected with a seasonality of the U.S. economic data.

There seems to be a tendency for U.S. economic figures to overcome the expectations towards the end of a year and in the early part of the following year. However, since March, the situation is usually back to normal. The seasonal pattern is traced better if we exclude winter 2008-09 (peak of the financial crisis). John Horner believes the tendency existed long before the crisis; in the recent couple of years, however, it has become more evident.

In recent months the U.S. economic data has followed the usual positive scenario, and in March, as would be expected, is turning lower. According to Horner, the lackluster data will definitely mark the U.S. Treasury yields down, so the greenback will also be on the ebb in the forthcoming months.

The theory partly explains why USD/JPY tends to go down each year from early April.