Comments and forex-analytics from FBS

[ryuroden]

The week ahead: events to watch

Monday, April 16:

• Switzerland: Producer price index, a leading indicator of consumer inflation, is expected to increase 0.5% in March against a 0.8% growth in Feb.

• U.S.: On Monday a bunch of negative data is expected. Core retail sales (retail sales excluding automobiles) in March are expected to increase by 0.6% compared with a 0.9% increase in Feb. Retail sales growth is also forecasted to slow to 0.4% after 1.1% in Feb. Analysts expect the Empire State Manufacturing Index to stay positive, but to decline from 20.2 to 18.2. Net Long-term Securities Transactions in Feb. may drop to $41B after outstanding $101B in Jan. Business inventories are forecasted to grow 0.7% in Feb.

• Australia: Minutes of RBA’s recent board meeting release is scheduled. Sales of new motor vehicles were flat in February, there is no market forecast for March. In the year to February, new motor vehicle sales rose 1.7%.

Tuesday, April 17:

• Britain: CPI in March may grow 3.5% compared with 3.4% in Feb.

• Europe: Spanish, Greek T-bill auctions will take place. In April German ZEW economic-sentiment indicator is forecasted to decline slightly to 20.2 from 22.3.

• U.S.: Number of new residential building permits in March may slightly decrease to 0.71M from 0.72M in Feb.

• Canada: According to a consensus-forecast, Bank of Canada may leave the overnight rate unchanged at 1%. The median forecast in a Reuters poll of 40 economists shows the next interest rate hike will come in the second quarter of 2013. However, analysts at RBS believe the bank statement may be more hawkish than expected. Manufacturing sales contraction in Feb. may be down to a 0.1% decline against 0.9% in Jan.

Wednesday, April 18

• Europe: Spanish, French bond auctions. Meeting of Group of 20 deputy finance ministers (through April 22).

• Britain: April meeting minutes of the Bank of England's Monetary Policy Committee will be released. At the April MPC meeting, the committee made no further changes to policy after deciding to extend QE by a further £50 billion at its February meeting. Interest rates were also kept low at 0.5% level. The unemployment rate in February is forecasted to remain at 8.4%. Meanwhile, on the claimant count, economists are forecasting unemployment to have risen by 6.6K in March versus 7.2K in Feb.

• Canada: Bank of Canada will offer detailed forecasts in its quarterly Monetary Policy Report, followed by a press conference by Governor Mark Carney.

• Japan: March trade deficit is forecasted to expand to 0.43T from 0.31T in February.

• New Zealand: Quarterly CPI may show a 0.6% growth against a 0.3% decline in the last quarter 2011.

Thursday, April 19

• U.S.: Weekly number of unemployment claims may decline to 370K from 380K on the previous week. Home resales in March are expected to go up slightly (4.62M versus 4.59M in Feb.). Philly Fed Manufacturing Index, however, may decline to 12.1 compared with the previous 12.5.

Friday, April 20

• Europe: April German Ifo Business Climate index is forecasted to decrease to 109.6 from 109.8 in March. Also note the annual spring meeting of the International Monetary Fund/World Bank (through April 22) and the extended deadline for some Greek foreign-law bond holdouts (to tender their bonds and for second leg of debt-restructuring accord).

• Britain: March retail sales data is expected to show an appreciable 0.4% growth after suffering a sharp decline in February. Retail sales volumes fell 0.8% in February after rising 0.3% in January and 0.7% in December. “If March retail sales do see significant growth, it will significantly boost the likelihood that overall consumer spending was positive in the first quarter and helped the overall economy return to growth after GDP contracted by 0.3% quarter-on-quarter in the fourth quarter of 2011”, analysts at IHS Global Insight say.

• Canada: CPI may demonstrate a 0.3% growth in March compared with 0.4% in Feb.

Sunday, April 22

• Europe: French presidential election, first round.

[ryuroden]

Danske Bank: trading recommendations

Analysts at Danske Bank recommend:

- selling EUR/USD targeting $1.2974 and stopping at $1.3094;

- selling GBP/USD targeting $1.5737 and stopping at $1.5955;

- selling USD/JPY targeting 80.25 and stopping at 81.38.

[ryuroden]

Euro falls before Spanish bill auctions

The common currency touched a one-month low against the greenback and decreased versus its other major peers before the Spanish bill auctions on Tuesday. Investors fear the European debt crisis may continue.

Spain will sell 12-month and 18-month bills tomorrow, followed by April 19 auctions of debt due in 2014 and 2022. Yields on Spanish 10-year bonds soared to 6.07% on April 13 (highest since December 1).

Westpac Banking: The euro does look like it’s vulnerable to breaking down a lot further in the short term. If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did.

The euro fell 0.4% to $1.3023, after touching $1.3009 (minimum since March 15).

[ryuroden]

J.P. Morgan: trading USD/CAD

Analysts at J.P. Morgan recommend selling the greenback versus Canadian dollar at 0.9980 stopping at 1.0050 and targeting 0.9800.

The specialists try to trade on the US earning season. In their view, the market’s expectations are very low, so there may be some upside surprises. Up to this week 29 companies in the S&P 500 had reported first quarter earnings and 83% of them beat expectations.

According to J.P. Morgan, Canada will benefit from stronger US economy. In addition, the analysts think that the Bank of Canada will upgrade tomorrow their assessment of the Canadian economic prospects.

[ryuroden]

CFTC trader positioning data

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

• The net short euro position swelled by 32k contracts to 101.4k, a largest in about a month. A small number of longs (almost 600 contracts) capitulated, while shorts rose by 21.3k contracts.

• The net short yen position grew by 1k contracts to 66.1k. Both longs and shorts were increased (1.5k and 2.5k respectively).

• The net short pound position rose by about 10k contracts to 18.8k. Longs added 500 contracts, while the short positions grew by 10.5k contracts.

• The net short Swiss franc position was decreased to 9.9k from 14.7k. Short positions were trimmed by less than 100 contracts, while the longs fell by 4.8k contracts.

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]

Commerzbank: comments on GBP/USD

Analysts at Commerzbank claim that GBP/USD’s uptrend versus the greenback seems vulnerable as the pair didn’t manage to overcome resistance at $1.6000.

The specialists say that if sterling breaks below $1.5821 (uptrend line) it will fall to $1.5602 (March 13 minimum) and $1.5415 (January 19 minimum). There will be some support at $1.5805 (April low) and $1.5770 (March 22 minimum). As for resistance, it’s found at $1.5905 (Fibonacci retracement), $1.6037 (March maximum) and $1.6092 (November 2011 maximum).

[ryuroden]

BT: bearish view on euro and Aussie

Analysts at fund manager BT Investment Management expect Australian dollar and euro lose versus the greenback to 0.9500 and $1.25 respectively.

The specialists note that “the next leg of the European crisis is building now” and all eyes are for Spain. In their view, the ECB will have to resume bond buying.

As for Australia’s prospects, the firm says that the nation’s growth is “clearly slowing” due to the negatives from China and Treasurer Wayne Swan’s plans for record budget cuts. Economists surveyed by Bloomberg expect Australian’s GDP to add 3-3.5% in 2012, but BT Investment Management thinks this figure is lower and equals 2.5%.

[ryuroden]

BoC is unlikely to raise interest rate

The Bank of Canada meets on April 17. The analysts expect the central bank to keep the rates unchanged at 1%. Then the BOC will release full domestic and international assessment April 18.

On Thursday, April 18, Canada’s trade surplus declined to C$0.3 billion vs. C$2.2 billion expected and C$1.9 billion in February. However, many analysts believe the economy will continue demonstrating moderate growth.

The median forecast in a Reuters poll of 40 economists shows the next interest rate hike will come in the second quarter of 2013.

RBC Economics: With U.S. auto sales remaining robust during the first quarter of 2012, we expect the Canada’s automotive and energy export to return to positive growth in subsequent months. We forecast an annualized increase in GDP of 2.5%. The external risks remain sizeable, so the BOC is unlikely to raise the overnight interest rate level.

CIBC Economics: The February trade report was downbeat for estimates of Q1 growth, but the quarterly GDP is still expected to grow by 2%. The BOC is becoming less worried about Europe blowing up and more encouraged by U.S. economic performance, but a change in the policy rate soon is unlikely.

BMO Capital Markets: As long as the U.S. data remain unstable and the European debt problems unresolved, the BoC will be loathe adding negative drag to the domestic economy by tightening lending conditions.

However, some specialists warn the Bank of Canada may change its monetary policy tone to a more hawkish.

UBS: The BoC’s growing fears about household leverage and rapid house price gains have led to suggestions that it may even resort to rate hikes purely to mitigate bubble risks.

[ryuroden]

Barclay’s: short-term GBP outlook turned bearish

Analysts at Barclay’s stopped being on British pound as it fell versus the greenback below $1.5900. The specialists claim that the pair GBP/USD will now fall to $1.5800 and $1.5770 and then probably to $1.5610.

[ryuroden]

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.3025, $1.3100, $1.3115, $1.3120, $1.3150;

GBP/USD: $1.5850;

EUR/CHF: $1.2000;

USD/CHF: 0.9200;

USD/JPY: 80.00;

AUD/USD: $1.0280, $1.0350;

EUR/AUD: 1.2650;

USD/CAD: 1.0000.

[ryuroden]

RBS: still bearish on EUR/GBP

Analysts at RBS claim that the outlook for the single currency versus British pound is still extremely bearish.

The specialists point out that EUR/GBP broke lower after the period of sideways consolidation at the beginning of this year.

In the medium term for the pair is still at 0.8069. There may be corrections within the downtrend at 0.8192 (the final retracement level from the credit crunch rally), 0.8140 (August 2010 minimum and the level from which the market rallied hard back to 0.8900) and 0.8069 (2010 low and level which has been underpinning price action since then).

[ryuroden]

Banks' forecasts for FX majors

Forecasts are submitted on April 13

Source: FX Week

[ryuroden]

NZD expected to weaken

The New Zealand dollar may weaken this week because the Reserve Bank of New Zealand is expected to leave the official cash rate (OCR) at 2.5% level due to CPI forecasts.

Release of a quarterly consumer price index (CPI) is scheduled on Thursday, April 19. Economists expect the CPI to have risen by 0.6% in Q1 vs. a 0.3% decrease in Q4 2011. According to experts, the RBNZ will have little reason to raise interest rates this year. The CPI was probably driven up by an increase in the government excise on tobacco.

New Zealand's food price index (FPI) released this morning showed prices fell 1% in March vs. 0.6% increase in February, adding to evidence that inflation level is favorable.

In March Reserve Bank Governor Alan Bollard held the official cash rate at 2.5% saying the strength of the kiwi would keep interest rates lower for longer.

Analysts at Barclays Capital expect the CPI to surprise to the upside at 0.7%. Key interest rate is unlikely to be cut further, because it remains at a historic low since March 2011. Analysts expect the AUD/NZD to strengthen.

According to currency strategists at RBC, the New Zealand dollar is overbought. Moreover, they add that low risk sentiment weighs on the commodity currencies, including the kiwi. The New Zealand dollar may also be influenced by the results of the Spain bond auction held on Thursday.

However, the kiwi should benefit from China’s trading band widening, because the country is expected to reduce the monetary reserves and to increase buying of trading partner currencies, such as the kiwi and Aussie.

[ryuroden]

Euro down before Europe's data

The common currency weakened against the greenback before Europe’s data releases.

German ZEW Economic Sentiment index is forecasted to decline from 22.3 (a 21-month high) to 19.7. Spain will sell 12-month and 18-month bills today. On the back of the deepening crisis country’s borrowing costs may grow. Yields on the nation’s 10-year notes touched 6.16% yesterday, edging toward the 7% level that may require international help.

The euro’s yesterday’s growth (EUR/USD strengthened to $1.3147) is nothing but a short covering. Early Tuesday the common currency trades in the $1.3090 area. Resistance lies at $1.3147 (yesterday's top), $1.3264 and $1.3380 (April 2 maximum), while support – at $1.2994 (yesterday’s low), $1.2880 and $1.2754. Moving below yesterday’s bottom or above yesterday’s high may define a trend of the euro.

[ryuroden]

Japan pledged $60 bln to expand IMF’s firepower

Japan said today that it provide $60 billion in loans to the International Monetary Fund, which acts as a lender of last resort for governments, in order to increase the fund's financial firepower and stop the contagion with the euro zone debt crisis. Japanese Finance Minister Jun Azumi encouraged European authorities to take more action in return.

The Fund wants to boost its funding by $600 billion. However, the IMF will face serious difficulties trying to secure firm commitments at meetings of the fund, the World Bank and the G20 this week: the US has showed reluctance to find troubled economies, while such nations as China, Brazil and Russia don’t rush to give commitments either.

The IMF Managing Director Christine Lagarde claimed last week that the fund may need less money as economic risks had subsided. Reuters reports that $400-$500 billion sum seems more likely. Euro zone countries have committed about $200 billion and other European Union nations an additional $50 billion.

There was speculation that big US bank have been buying on behalf of the IMF over last 24 hours. This process may continue during the European and North American sessions.

[ryuroden]

EUR/JPY: technical levels

According to JPMorgan Chase technical analysts, the EUR/JPY is approaching to its support zone (104.25 -104 yen). On the Fibonacci chart, the 50% retracement between a January low and a March high lies at 104.24 yen. Analysts expect the currency pair to bounce from these levels.

Strategists at Jyske Bank recommend selling EUR/JPY with a stop-loss at 107.52 yen. In their view, due to strong declines on Friday and Monday this is the first significant resistance for the pair. However, on a daily Ichimoku chart resistance is seen at 106.15-106.30 levels (above the cloud). Moreover, the RSI indicates divergence. Analysts see strong support in the 103.5-104 yen area.

[ryuroden]

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.3000, $1.3090, $1.3125 and $1.3150;

GBP/USD: $1.5800 and $1.5815;

EUR/GBP: 0.8200 and 0.8250;

USD/JPY: 80.50, 80.75, 81.00 and 81.10;

USD/CHF: 0.9265;

AUD/USD: $1.0200, $1.0220, $1.0285, $1.0300, $1.0310, $1.0400.

[ryuroden]

EUR/USD: updates

Europe cheered the markets up with positive data: both German and European ZEW economic survey beat expectations, while Spanish and Greek auctions were successful enough.

Spain sold 3.18 billion euro of 12- and 18-month debt out of targeted 2-3 billion euro. The yields were higher, but that wasn’t a surprise.

Euro zone’s core CPI growth accelerated from 1.5% in February to 1.6% in March (y/y), while the headline CPI added 2.7% versus the forecast of 2.6%.

At the same time, it seems that the market participants hurry to take profit. Nobody believes in euro ability to strengthen. EUR/USD posted daily maximum at $1.3172, but the retreated to the levels around $1.3145. It’s necessary to note though that the pair managed to stay above 100-day MA which is now playing the role of support.

All in all, trading is quite volatile today. Euro will get chance to rise to $1.3380 (April 2 maximum), if it overcomes the recent highs in the $1.3210 zone.

[ryuroden]

Pound up on CPI data

The cable strengthened to $1.5953 level on Tuesday after the benign inflation figures were released.

The March consumer price index (CPI) rose in line with expectations by 3.5% after increasing 3.4% the previous month, reducing concerns on further QE.

Technical analysts at Commerzbank remain bearish on the GBP/USD prospects. In their view, the pair won’t break through the strong resistance at $1.6000.

Resistance lies at $1.5985 (high Apr.12), $16000, $1.6063 (high Apr.2) and $1.6095 (high Nov.14), while support – at $1.5843 (200-day MA), $1.5836 (55-day MA), $1.5808 (low Apr.10) and $1.5801 (low Mar.26).

This week watch out for important data on claimant count, Monetary Policy Committee meeting minutes and monthly retail sales. The MPC “dove” Adam Posen will give a speech today.

[ryuroden]

Westpac: trading AUD/JPY

Analysts at Westpac Institutional Bank believe that Chinese authorities wouldn’t have widened yuan’s trading range unless they expected national economy to recover in the second half of the year.

The specialists say that in the longer Australian dollar will benefit from better economic situation in China as the 2 economies have close trading connections. In the near term, however, Aussie’s rate will depend more on the RBA’s monetary policy.

Westpac expects Australian central bank to cut borrowing costs in May, so AUD will get under negative pressure. According to the analysts, one should sell AUD/JPY around 83.50 targeting 81.20 (200-day MA) and stopping at 84.60 as Japanese yen will enjoy safe haven demand as a refuge from European woes.

[ryuroden]

Barclays Capital: bullish view on AUD/USD

Analysts at Barclays Capital expect Australian dollar to strengthen versus its New Zealand’s counterpart.

The specialists draw investors’ attention to relative commodity price performance in recent weeks and the fact that Australia will benefit more from growth in the US and China.

In addition, BarCap thinks that the market is already pricing in a 90% probability of a 25-bp RBA rate cut on 1 May and an aggressive 80bp of cuts by year-end.

From the technical point of view, Aussie’s advance above $1.2670 will make the pair AUD/NZD rise to $1.2725 and $1.2765/70 on the short squeeze.

[ryuroden]

USD/CAD plummets after BoC statement

The USD/CAD reached a 2-week low after the Bank of Canada announced the overnight rate remains at 1.0%, but said in its statement that easy monetary policy may be coming to an end. The central bank expects the Canada’s economy to grow by 2.4% in both 2012 and 2013.

"In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the BoC said.

USD/CAD plummeted to C$0.9889, with the support at C$0.9867 (low Mar.20) and C$0.9859 (low Mar.19). The resistance lies at C$0.9958 (prior intraday support), C$1.0031 (high Apr.16) and C$1.0051 (high Apr.11).

[ryuroden]

Yen’s declining: reasons and technical comments

Japanese yen eased down versus its main counterparts. The pair USD/JPY rose from Monday’s minimum at 80.28 to 81.40 today.

Among the reasons of such move we may cite:

- Risk appetite improved due to positive news seen yesterday: high earning from companies such as Coca-Cola, Spain's successful debt auction and unexpectedly strong German investor confidence;

- The IMF raised yesterday 2012 and 2013 forecast of global economic growth from 3.3% and 4% to 3.5% and 4.1%.

- S&P 500 gained 1.5% and MSCI Asia Pacific Index of shares added 1.2%,

- US jobless claims may have declined from 380K to 370K (data released tomorrow at 12:30 GMT);

- Nikkei newspaper: the Bank of Japan may increase its 2012 core inflation forecasts from 0.1% to 0-0.5%. The BOJ is expected to announce additional monetary on April 27, while the Fed may refrain from the hints on more easing.

- Japan’s trade balance (released on Thursday) may have switched to deficit in March after a small surplus in February.

RBS thinks that there will be “some strength in a range of currencies against the yen.” Union Bank NA warns, however, that “if nothing is announced, USD/JPY is more likely to drop below 80.”

Wells Fargo claims that the technical outlook for the pair is bullish (20-day MA above 50-day MA). Resistance is found at 83.30 yen (April maximum) and 84.18 yen (March maximum).

[ryuroden]

GBP: watch MPC Meeting Minutes

On Wednesday the Bank of England will publish the minutes of MPC meeting, held on April, 5, when the policymakers agreed to leave its QE program 325 billion pounds. The previous minutes released on March 21 showed two policymakers still think additional QE is required.

The March consumer price index (CPI) rose in line with expectations by 3.5% after increasing 3.4% the previous month, reducing concerns on further QE.

BNP Paribas: The surprisingly dovish minutes put the GBP in harm’s way. The April minutes may highlight a different tune.

Societe Generale: As UK economic data have been a bit less worrying of late, the need for further QE may have lessened. Any low vote in favor of further QE would be GBP-positive versus AUD.

Bank of America: The pound needs to climb above $1.5986 (the right shoulder of the so-called head-and-shoulders pattern) to invalidate further weakness.

Analysts at BMO Capital believe that if today’s data come out more dovish, the sterling will weaken. In this case analysts recommend selling the cable with a stop at $1.6025 and a target of $1.5650.

Today also watch out for important labor market data: the claimant count (forecast 6.6K in March vs. 7.2K in Feb.) and the unemployment rate (expected to remain at 8.4%).

[ryuroden]

RBS reduced forecasts for AUD/USD

Analysts at RBS reduced forecasts for Australian dollar versus the greenback for Q2, Q3 and Q4 from $1.05 to $1.02, from $1.08 to $1.05 and from $1.10 to $1.08.

The specialists explained the revision by the fact that strong Aussie has a negative impact on the nation’s economy causing political and economic uncertainty. Australia may face in the near future declining trade volumes, increasing budget deficit and the possibility of shrinking capital expenses.