Comments and forex-analytics from FBS

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Credit Agricole: USD/CHF forecast

Analysts at Credit Agricole draw investors’ attention to the bearish signals on the daily USD/CHF chart:

- Ichimoku: the prices are below the Cloud as well as under the lines Tenkan-sen and Kijun-sen;

- 50-day MA stays below the 200-day one;

- the linear regression indicator also gives negative hints.

As a result, the specialists expect US dollar to weaken in the medium term. According to the bank, the greenback will go down to February minimums in the 0.8930 area. Credit Agricole points out that in the short-term the pair may continue to trade within sideways trend as it did during the last 2 months.

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J.P. Morgan: trading CAD/JPY

Strategists at J.P. Morgan Asset Management recommend buying CAD/JPY at the current levels (pair trades at 83.22 today) with a stop at 82.00 and a target of 88.00.

The Canadian dollar is going to benefit from the rebounding U.S. economy, while the Bank of Japan keeps on weakening the yen, seeking to reach a 1% inflation target. The loonie, therefore, is going to strengthen versus the yen.

Analysts believe the Fed Chairman Ben Bernanke's comments about easy monetary policy not only hurt the dollar but lifted hopes for the U.S. economic growth. According to J.P. Morgan, the fair value of USD/JPY is around 115 yen in a longer term.

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Yen strengthened versus main peers

USD/JPY snapped 2 days of gains. Japanese yen rose versus all of its major peers as stocks dropped encouraging demand for yen as a refuge. The S&P 500 lost 0.3% yesterday, MSCI Asia Pacific Index declined today by 0.5%.

Mizuho: “The yen move is driven by supply and demand before the final exchange-rate fixing of the fiscal year. While there haven’t been a whole lot of orders from Japanese exporters to sell dollar into the end of March, we’ll start to see some rise in demand to buy yen. The Aussie dollar is being sold against yen.”

Standard Chartered: the greenback may see some pullbacks against the yen in the coming quarters if the market starts to doubt the feasibility of the BOJ's inflation goal – and it will, thinks the bank. “Most of this move higher in dollar/yen has already been seen,” says the bank.

At the same time, many investors regard USD/JPY’s decline as merely a correction saying that yen’s downtrend is still in place as the loose monetary policies of major central banks will likely support risk appetite.

The pair USD/JPY broke down below the key level of 83.00.

Support: 82.63 (March 27 minimum) and 82.38 (week’s opening, March 22 minimum).

Resistance: 83.20 (today’s maximums) and 83.38 (March 27 maximum).

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Barclays Capital, UBS: AUD and NZD prospects

The Australian and New Zealand dollars tend to decrease against their major counterparts amid concerns Chinese manufacturing will slow, contracting the demand for resource exports.

On March 30 RBA is expected to release the private sector credit figures (forecasted 0.3% growth in Feb. versus 0.2% in Jan.). RBA officials say the slow credit growth could hinder the large banks’ profit growth. The retail, manufacturing, construction and tourism sectors suffer from low retail spending and high exchange rates.

Barclays Capital: If the U.S. is performing well, market is in a risk-on mode; in this environment AUD and NZD tend to perform well. AUD/USD will climb to $1.07 in a year, while NZD will reach $0.86.

UBS: AUD/USD may rise to 1.05 in the next month, but drop to 1.00 in the next 3 months. The strong Aussie affects manufacturing and retail sectors, but the RBA intervention is unlikely. The underlying trend is bearish; support lies at $1.0427 and $1.0336, resistance is at $1.0596.

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Citigroup: pound may fall to 1985 minimum

British pound fell from maximum at $1.6000 reached yesterday (highest point since November 2011) to the levels around $1.5915.

Analysts at Citigroup believe that the pair GBP/USD may fall to the minimal level since 1985 at $1.3255. The specialists underline that sterling approached strong resistance at $1.6014 (200-week MA). Pound hasn’t crossed this line since August 2008.

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Watch US durable goods release

The market is eyeing US durable goods release at 12:30 GMT as there isn’t much to watch in Europe today. Investors want more info about the condition of US economy. Societe Generale underlines that the focus remains on growth indicators.

Commonwealth Bank of Australia: “The risk is that durable goods orders are going to be even stronger than economists predict and that will push the U.S. dollar higher.”

American durable goods are expected to add 3.0% in February (m/m) after January decline by 3.7%. Core figure is seen up by 1.6%.

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SocGen: buy USD/CHF

Analysts at Societe Generale claim that as the pair USD/CHF stays above the 200-day MA, it looks attractive. In addition, EUR/CHF, which is currently trading at 1.2060, is close to the Swiss National Bank's floor at 1.2000.

The specialists recommend opening longs at the current levels stopping at 0.8850 and targeting 0.9500.

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Pound’s suffering from weak data

On Wednesday the British pound dropped versus its major peers on the backdrop of negative data coming from U.K.

According to the U.K. Office for National Statistics, seasonally-adjusted GDP shrank 0.3% during the fourth quarter versus the preliminary estimate of a 0.2% contraction. However, the current-account deficit decreased slightly to 8.5 billion pounds in the last quarter against 10.5 billion in the third. The household incomes in 2011 fell by 1.2%.

On Tuesday the Chancellor of the Exchequer George Osborne said Britain is now “in the recovery phase.” Osborne used his March 21 budget to spur businesses to invest and hire by cutting taxes for companies and high earners.

Bank of England Governor Mervyn King said that in 2012 the U.K. economy will be extremely volatile and the European crisis remains the biggest threat for U.K. economy rebound.

Today GBP/USD slipped to the $1.5941 level. Cable is likely to find support at $1.5800, Monday’s low and resistance at $1.5963, the session high. The EUR/GBP reached the 0.8372 level.

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RBS: comments on EUR, CAD, CHF

- EUR/USD has strengthened in the recent days due to the short covering to $1.3330. The outlook for euro’s still negative. The fair value for the pair lies well below $1.3000, so it makes sense to go short on the pair.

- USD/CAD: the pair is trading between 0.99 and parity. The pair failed to overcome resistance at the 200-day MA. Solid data in the US will keep improving prospects for Canadian economy, so loonie will likely appreciate. The upcoming budget release on Friday and comments from Bank of Canada Head Carney could also strengthen loonie driving USD/CAD lower.

- USD/CHF: even despite the speculation about additional QE in the United States after Bernanke’s comments, short-term fair value (STFV) model continues to suggest about 3% upside for USD/CHF from current levels. Swiss policymakers may favor weaker franc. Solid US data expected in the coming weeks should support the pair.

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GBP: up or down? (Commerzbank, Danske)

Commerzbank and Danske Bank analysts split over the prospects of the cable.

According to Commerzbank specialists, GBP/USD is likely to slide from current highs, even though yesterday it tested the $1.6000 psychological resistance line. The 200-week MA lies at $1.6014 and the cable has not traded above here since 2008. The specialists think that the pair will decline to $1.5650, the minimums of the range within which the pair’s trading since the end of January.

On the other hand, Danske Bank analysts express the opposite view on the cable’s prospects. The Danish bank advises clients to buy the pound against the greenback at $1.5830 aiming at $1.6036 with a stop at $1.5900.

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Saxo Bank: comments on USD/JPY

Analysts at Saxo Bank note that “short yen versus the dollar has been the main theme of the quarter and the market seems to have taken it too far heading into the Japanese fiscal year-end.” The specialists underline that US/Japan rate spreads are not supportive of where dollar/yen is at the moment. In their view, “there is more scope for yen strength in the near-term before it weakens against the dollar again and one-year forecast is at 88 yen.”

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RBC: forecast for USD/JPY

Analysts at RBC Capital Markets claim that US dollar made last week a reversal pattern “bearish divergence” as it fell below 82 yen.

The specialists expect USD/JPY to keep declining to 82.02 and 80.60. At the latter level the bank recommends going long on the greenback within the upward trend which began in February.

According to RBC, if US currency manages to rise above 83.63, it will be able to get higher to 84.16 and 85.53 yen.

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BMO, BBH: trading recommendations for EUR/USD

Specialists at BMO Capital suggest a strategy to benefit from the dollars’ temporary slippage. They recommend going short when EUR/USD reaches $1.35 level or now at $1.33 with a stop at $1.34 and targeting at $1.30.

On Tuesday the Fed’s Chairman Ben Bernanke hinted that the third round of QE is on the cards. "The euro rose after Bernanke's comments, but it wasn't a widespread shift," BMO analysts say.

According to Brown Brothers Harriman, the common currency is unlikely to stand above $1.33 on the back of the concerns about the European banking sector and the sovereign debt problems.

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Yen keeps strengthening

USD/JPY continues its decline as Japanese exporters are seen selling US dollar in large amounts as the nation’s financial year ends today and MSCI Asia Pacific Index fell by 0.8% after losing 0.5% yesterday.

Strategists at Royal Bank of Scotland say that yen is now more correlated with the stock market’s moves, so they are in favor of selling USD/JPY. If the pair closes today below 82.60 (March 27 and 28 minimums), it will likely fall to 81.87/97 (March 2 maximum, March 23 minimum). Resistance for US currency lies in the 83 area (Tenkan-sen at the daily Ichimoku chart).

However, analysts at Bank of Tokyo-Mitsubishi underline that despite the recent sell-off of the greenback and dovish Bernanke’s comments, the greenback seems resilient against yen. In their view, dollar will get more support when new toushins (currency-selective type investment trust funds) are launched and life insurers' foreign bond buying gains momentum from April.

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Canada: watch the budget release

On March 30, Thursday, finance minister Jim Flaherty is expected to deliver the annual budget.

RBC Capital Markets: The finance minister will report a deficit of between C$20 billion ($20.1 billion) and C$25 billion for the fiscal year, compared with an earlier forecast of C$31 billion, and will forecast bringing the country back to budget balance by the end of the 2015-16 fiscal year, a year ahead of schedule.

Although Flaherty promised earlier this month the 2012 budget will focus on “bolstering growth in a bid to sustain the country’s recovery, rather than spending cut”, he is expected to reduce governmental spending significantly by cutting public-sector jobs across the country. At the same time, Canada’s labor market has already been going through hard times in the past five months (7,400 job cuts a month since October), regardless of the U.S. economy rebound.

Today also watch for the Raw Material Price Index release (leading Canada’s indicator of consumer inflation is expected to grow 0.4% in Feb. versus 0.1% in Jan.). Tomorrow the monthly Canadian GDP will be published (0.1% growth is forecasted in Jan. versus 0.4% in Dec.)

The pair USD/CAD has been trading sideways since the end of January in range between 0.9840 and 1.0050. Analysts at Bank of Nova Scotia note that the greenback has broken above the 50-day MA at 99.70 cents, but the pair is still not that far from the center of the 2-month range. There is strong resistance at the parity level and higher, at 1.0006 (200-day MA) and $1.0033 (March 23 maximum).

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Standard Chartered: economic outlook for Asia

Analysts at Standard Chartered claim that the economic outlook for Asia for the rest of 2012 is mixed.

Among the positive factors the specialists cite data from the US, reduced tail risks from a European sovereign or banking crisis, and the turnaround in the electronics cycle. As for the negative ones, they are the ongoing correction in China's property market, moderating export growth across Asia, and growth and inflation threats from higher energy costs.

The bank expects loosening in Asia to slow going into the summer as policy makers try to balance growth and inflation concerns. As the same time, Standard Chartered makes it clear that the risks to Asian growth are to the downside this year, so the region’s authorities will likely come up with more easing.

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OECD: UK is facing “double-dip” recession

The Organization for Economic Cooperation and Development said today that United Kingdom is poised for a so-called “double-dip” recession. Recession is defined as 2 quarters of negative growth in a row.

British GBP shrank by 0.3% (q/q) in the final quarter of 2011 after sliding by 0.2% in the previous 3 months. The OECD economists think that in Q1 2012 UK economy contracted by 0.4%.

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Analysts’ comments ahead of Eurogroup summit

European governments are preparing to increase the ceiling on rescue aid to 940 billion euro ($1.25 trillion) for 1 year at Eurogroup meeting in Copenhagen on March 30-31 in order to constrain the debt crisis. Under the proposal, the overall capacity would return to 500 billion in July 2013, when the EFSF expires.

National Australia Bank: “We do believe the approval for the rescue package will go ahead tomorrow, and this may create more support for the euro in the interim.”

Citi: The agreement to let the EFSF and ESM run in parallel would be “mildly positive because it could have been worse or not have happened at all. Everybody knows it is not going to be big enough. But less inadequate is a good thing."

ING: “That looks like the most plausible option, although it’s still going to be hard to sell to the German parliament. It would clearly do the job as long as it was followed up by some action by the IMF and G20.” (The IMF will meet in Washington on April 20-22 and is expected to agree to increase its own crisis-fighting resources as long as Europe has taken significant action first).

WSJ: “Officials tell us that a consensus will likely be reached in Copenhagen to pay in two extra tranches in 2013 and one in 2014. Despite this, officials say, unless paid-in capital is further accelerated, the funds’ actual combined size won’t top 700 billion euro at any stage. That’s because by the time the ESM lending capacity ramps up to roughly 400 billion euro by the middle of 2013, the EFSF will have been phased out.”

Hermes: “We don't see the euro zone crisis fading in the next few years even when the ESM is operating.”

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Comments about declining Aussie

During March Australian dollar has been trading within downtrend versus the greenback. The main thing that’s driving Aussie lower is concerns about Chinese economic slowdown which will surely affect Australian exports.

Westpac: bearish view on Aussie in the next 1-3 months.

ANZ: “AUD is likely to continue to underperform on most crosses.”

Wells Fargo: “We would consider establishing long Canadian and NZ dollar positions against the Australian dollar.”

Scotia bank: “AUD/USD will continue to trade on broader market sentiment ahead of the RBA meeting on April 3, where policymakers are expected to maintain policy at 4.25%.”

Do not miss China’s March Manufacturing PMI release on April 1 (forecast 50.6).

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Market’s concerned about Spanish budget

The majority of the experts believe that EUR/USD will keep trading in the $1.3000/$1.3500 area. However, with Spain's budget release on Friday, March 30, the pair may be vulnerable to the downside.

Spanish 10-year yield jumped today by 11 percentage points to 5.43%. The nation’s major trade unions called a one-day strike in protest of additional austerity measures.

If the budget delivers any negative surprises or is not considered sufficiently tough enough to reign in Spain's budget deficit, the demand for Spanish debt will decline even more.

Commerzbank: “Given the fact that we are below $1.33 this is certainly a psychologically important mark which may be the beginning of a more sustained down move.” The specialists think that even if European authorities agree to enlarge the rescue package, it will calm down the market, but the risk premium on peripheral countries' yields will remain quite high.

Credit Agricole: “We have a few political key events coming up, with the euro finance ministers meeting, Spain’s fiscal update and Italy’s labor market reforms. There’s still some uncertainty with regards to what happens over the next few days.”

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Euro is widely chosen as a funding currency

Before the European debt crisis the common currency has always been classified as risky: euro always declined when the economic situation anywhere in the world became worrisome. However, today China is gradually slipping into recession, but the euro stands steady above the $1.32 level.

Analysts believe euro’s position on the market has changed due to the Greek debt crisis. European Central bank injected cheap liquidity into the financial system, while the ECB interest rates remain extremely low (1% since Dec. 2011). As a result, euro became a funding currency in carry trade operations.

Baring Asset Management: US dollar and yen will continue to play their part in funding trades but euro is definitely joining the club.

Sometimes the further movement of the liquidity cannot be easily traced, but specialists record large amounts heading into the Australian and New Zealand dollars, Mexican peso, Korean won. According to the International Monetary Fund, the emerging economies as a bloc are expected to expand by 5.4% this year (compared to 1.2% expected in advanced economies including the U.S., Japan, the U.K. and the euro zone).

However, some market players prefer to get rid of the risky assets in favor of the euro on the back of the rising uncertainty about emerging economies.

Pacific Investment Management Co: We still like euro as a funding currency but we are cautious on risk in general. So we haven't been very active lately investing in emerging market currencies against the euro.

Credit Suisse: There's little near-term risk of the European Central Bank tightening policy or withdrawing liquidity from the market. This means the euro is likely to remain a good funding vehicle.

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Canada's budget released

Today Canada’s finance minister Jim Flaherty delivered the annual budget, which focuses on deficit elimination and requires a $5.2-billion cut to federal spending over three years.

In order to achieve the objective the government plans to rise the retirement age to 67 years and to cut 19,200 public-sector jobs. According to Flaherty, the reform will allow people to work longer and cut the budget deficit, because the government spends around $6,000 on each retiree. The national unemployment rate is expected to rise to 7.5 percent this year from 7.4 percent in 2011.

However, Flaherty promised to boost job growth and investment with $3 billion over two years for research and job subsidies.

Moreover, today watch the monthly Canadian GDP release (0.1% growth is forecasted in Jan. versus 0.4% in Dec.)

This Friday, USD/CAD is trading in the C$0.9981 area. Yesterday, the USD/CAD has tested again parity and the 200-day moving average.

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Mixed data coming from Japan

According to the today's data release, business environment in Japan has improved in recent months, regardless of the negative industrual production figures.

Manufacturing PMI increased to 51.1 against 50.5 in February. Unemployment rate eased slightly to 4.5% in February versus forecasted 4.6%. Household spending rose 2.3% year on year, beating expectations for a 0.2% fall.

The core consumer price index rose 0.1% from a year earlier, or 0.2% from the previous month, Internal Affairs Ministry reported, marking the first such gain in prices in five months. However, the rise in the core CPI was due mainly to higher electricity and transportation-related costs, according to the data.

Credit Agricole: Japan's fight against deflation is far from over. Although persistently elevated levels of crude oil prices would result in a positive core CPI inflation rate going forward, we maintain our view that there is a persistent underlying deflationary pressure in the economy.

However, Japan's factory output fell unexpectedly in February, confirming the pace of recovery is still sluggish. The 1.2% decline in industrial production surprised specialists who had forecasted a 1.3% gain. Japan's factories posted a 1.9% output increase in January and 3.8% in December.

Nomura: Japan’s recovery will continue to pick up in the first half of this year. Growth in production for March and April will absorb a decline in February.

The Japanese yen keeps strengthening versus both the greenback and the euro (EUR/JPY is currently trading at 109.63 level; USD/JPY – at 82.08).

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EU finance ministers expand the firewall to 800 billion euros

On a meeting held in Copenhagen the euro zone finance ministers agreed to expand the overall size of the firewall to 800 billion euros ($666 billion), including the 300 billion euros already committed to Greece, Ireland and Portugal. According to Austria’s finance minister Maria Fekter, permanent ESM and temporary EFSF will function together until mid-2013.

The bail-out firewall expansion became possible after this week officials in Berlin agreed to combine funds to prevent the spread of debt contagion across the euro region and calm down tensions in financial markets.

The common currency is heading towards posting weekly gains versus the U.S. dollar, which slipped after Bernanke's disappointing comments that concluded that the pace of recovery might not continue in U.S. without further easing and in result indicating at another round of quantitative easing.

The EUR/USD pair is trading in the moment around $1.3350, compared with the opening level of $1.3301. The pair recorded so far the highest at $1.3376 and the lowest at $1.3293.

Later today an important Spanish budget release is expected.

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AUS/USD: mixed Chinese data, RBA’s coming

The closely watched Chinese data came mixed on Sunday: the nation’s official PMI rose from 50.6 in February to 53.1 in March. However, HSBC PMI posted the reading below 50 that indicates industry contraction. AUD/USD opened about 100 pips above Friday’s closing level, but then slid lower returning to that area.

The Reserve bank of Australia will announce its interest rate decision tomorrow. According to the consensus forecast, the central bank will leave rates unchanged at 4.25%, though today’s data may make the policymakers hesitate: TD-MI gauge showed that Australian inflation fell in March to 1.8%, below RBA’s 2% target, while the building approvals dropped by -7.8% in February (m/m).

The most likely outcome is that the RBA will stay on hold, but we’ll see some more dovish notes in the statement.

Nomura: “Support for the currency will be evident all week in the Australian dollar as shorts get taken off the table.”