Comments and forex-analytics from FBS

[ryuroden]

The IMF: Australia's in the forefront

According to the International Monetary Fund (IMF), Australia’s economy is the strongest in the world and it is expected to stay the best-performing economy for at least the next two years.

The IMF also forecasts the Australia's unemployment rate to remain low at 5.2% in both 2012 and 2013.

Australia’s economy is expected to grow by 3% this year on the back of easing economic woes in Europe and the U.S. However, the economy may be hurt in case if tensions in the Middle-East lead to new commodity price hikes.

"The IMF's confirmation of Australia's strong economic fundamentals - with solid growth and low unemployment - further underscores the importance of returning the budget to surplus, and giving the Reserve Bank maximum flexibility to cut interest rates if it considers that is necessary," the deputy prime minister of Australia Wayne Swan said.

[ryuroden]

Sterling’s supported by positive data

So, MPC meeting minutes is releases. The vote to keep the benchmark rate unchanged at 0.5% was, as expected, unanimous.

As for the Asset Purchase program, only David Miles called for its increase from 325 to 350 billion pounds, while Adam Posen who voted for more easing last month has changed his mind.

Also note that British unemployment rate fell from 8.4% in January to 8.3% in February. The claimant count change (change in the number of people claiming unemployment-related benefits) dropped from 4.5 in February to 3.6K in March.

The pair GBP/USD managed to climb to $1.5990 on the news and is now testing resistance in this area. Bulls will also face resistance at $1.6015 (upper Bollinger) and $1.6063 (April 2 maximum). Support lies at $1.5842 (200-day MA). Note that the 55-day MA approached the 200-day one and may cross it bottom-up – positive signal.

[ryuroden]

Germany sells 2-years with record low yield

Germany sold today 4.206 billion euro in 2-year bonds out of the 5.0 billion euro target. Average yield was at record low of 0.14% from previous 0.31%.

Rabobank: “Investor demand for core paper remains firm with the background threat of crisis tensions ratcheting yet higher underpinning an overriding desire for capital preservation”.

Investors were watching the sale with great attention after the unsuccessful launch of a new 10-year German bond last week.

In secondary markets German yields remain very low as the nation’s debt is still perceived as a refuge.

[ryuroden]

EUR/CHF: Will the SNB rise the 1.20 floor?

Swiss ZEW economic expectations index released today indicates optimism (2.1 in March vs. 0.0 in Feb.). Due to this month’s unexpected improvement some analysts expect franc to strengthen. Moreover, franc may remain “safe haven” from Europe’s debt woes which have resurfaced: demand for Swiss assets remains high even despite the negative 6-month bill yield. HSBC thinks, for example, that all attempts of the SNB to weaken the Swiss franc won’t work.

On the previous SNB meetings, Swiss policymakers disappointed the market by not raising the EUR/CHF floor from the current boundary of 1.20, provoking a steep appreciation of the franc to this level.

Analysts at UBS claim that if EUR/CHF does test 1.20 again, stronger intervention by the SNB would be welcomed by the investors who remain nervous of a broader decline through the figure. Market expects the floor to be lifted to 1.25 francs at least.

EUR/CHF strengthened today to 1.2029 (above the Ichimoku cloud on the H4 chart).

Watch the release of Swiss trade balance for March on April 24. Trade surplus increased from 1.5 billion francs in January to 2.68 billion francs in February.

[ryuroden]

Commerzbank: USD/CAD technical

The pair USD/CAD is trading almost unchanged from today’s opening price.

Analysts at Commerzbank think that “Tuesday’s sharp drop to 0.9864 looks to be impulsive, however, thus increasing the odds of support at 0.9841 (March 1 minimum) giving way within the weeks ahead, provided, of course that 1.0052 (April 11 maximum) continues to cap”. The specialists claim that if USD/CAD closes below 0.9842, it will slide to 0.9786 and then 0.9726.

If the pair closes the day above 1.0052, it will be able to start rising to 2011-12 resistance line at 1.0161.

[ryuroden]

USD/CHF: technical comments

The currency pair USD/CHF is moving sideways since the beginning of January, creating a triangle. The cross is clamped between the 50- and 100-day MAs. Moreover, on a daily Ichimoku chart Kijun-sen and Tenkan-sen are lying horizontally in the Cloud, also pointing at a flat market. The trend may be breached both on the upside and on the downside. Breakthrough the levels 0.9330 and 0.8930 will confirm the reversal.

The pair USD/CHF climbed to 0.9197 today, finding the nearest resistance at 0.9229 (100-day MA), 0.9251 (high Apr.16) and 0.9254 (high Mar.16). Support lies at 0.9120 (21-day MA), 0.9092 (low Apr.13) and 0.9050 (hourly high Apr.3).

As for the news, Thomas Jordan was named as permanent president of the Swiss Central Bank today. He became interim SNB chairman on Jan. 9 when his predecessor Philipp Hildebrand resigned after a trading scandal involving his wife.

Swiss ZEW economic expectations index released today indicates optimism (2.1 in March vs. 0.0 in Feb.).

[ryuroden]

Yen down on BOJ comments

The yen weakened today against most of its peers on the back of the Bank of Japan’s officials “dovish” comments and the unexpectedly wide trade deficit.

On Wednesday the BOJ Governor Masaaki Shirakawa said in the central bank is “committed” to adding monetary stimulus. Deputy Governor Kiyohiko Nishimura confirmed that the bank is ready to implement additional easing if necessary. The next BOJ meeting will be held on April, 27.

Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted 223.2 billion yen deficit.

Mitsubishi UFJ: Markets are pricing in additional easing by the BOJ. A trade deficit is a negative catalyst for the yen.

The USD/JPY is strengthening for the third consecutive day and climbed to 81.51 yen, after reaching 81.57 yesterday, the highest level since April 10. The EUR/JPY rose to 106.92 yen today.

[ryuroden]

Wells Fargo: bearish outlook on EUR/USD

According to analysts at Wells Fargo, the euro will reach 1.24 against the dollar by early 2013, and continue keep falling to 1.22 from there.

In their view, the debt problems are flourishing and economic activity in the region remains weak. Analysts expect the ECB to cut rates to stimulate the economy.

Moreover, Wells Fargo analysts note that the technical forecast on EUR/USD also remains bearish (20-day MA lies below the 50-day MA).

[ryuroden]

Commerzbank: trading EUR/GBP

Analysts at Commerzbank are bearish on EUR/GBP in the long term and recommend entering the trade at current levels with a stop at 0.8277 (April high) and targeting at 0.8067 (2010 low).

On Wednesday the cross closed the day below 0.8221 (Jan. 9 low), reaching a new 20-month low. According to analysts, the market is viewed as having recently broken down from a 3 month consolidation.

[ryuroden]

BMO: trading EUR/USD on Spain's woes

Spain issues as much as 2.5 billion euros in 2- and 10-year government bonds on Thursday, trying to cut budget deficit. The country struggles to prove its ability to finance itself without begging for external financial support.

On Wednesday Spanish 10-year yields were down 1.8 b.p. to 5.89%. However, the investors are getting nervous again ahead of the auction.

According to analysts at BMO Capital, the EUR/USD is creating lower highs and lower lows. If the euro becomes weaker against the greenback after the auction, strategists recommend entering the trade right around $1.3130 with a stop at $1.3230 and targeting at $1.2850 or $1.2830.

[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).

EUR/USD: $1.3025, $1.3070, $1.3100, $1.3210 (large);

EUR/JPY: 106.25;

USD/JPY: 81.00, 81.15, 81.25, 81.50;

GBP/USD: $1.5960, $1.5990, $1.6000;

EUR/GBP: 0.8175, 0.8200;

AUD/USD: $1.0300, $1.0415, $1.0435, $1.0450;

USD/CHF: 0.9150.

[ryuroden]

EUR/USD: economic news and comments

Spain and France conducted bond auctions today. Spain sold 2.54 billion euro in 2- and 10-year bonds slightly exceeding the planned volume. Borrowing costs rose as the nation’s struggling to meet deficit targets. France borrowed 8 billion euro ($10.5 billion).

The yields were higher due to the risks associated with approaching French presidential election.

The 10-year spread between Spanish, French, Italian bonds and German ones widened as the effects of the LTRO conducted by the ECB is fading.

In the US jobless claims also posted the reading higher than expected: 386K vs. the forecast of 370K for the week to April 14. Earnings reports were more optimistic: Bank of America reported first-quarter earnings that beat expectations as well as Travelers and Verizon Communications.

EUR/USD keeps trading in range between $1.3030 and $1.3210, within which it settled after the slide from $1.3380/3250 in early April.

Analysts at UBS are bearish on the single currency. In their view, support for the pair lies in the $1.2974/54 zone (below these levels bearish momentum will increase), while resistance is situated at $1.3213.

[ryuroden]

Standard Chartered: on ECB and the Fed’s rates

The baseline scenario of analysts at Standard Chartered is that the European Central Bank will remain on hold until the first quarter of 2014. The specialists say that if the ECB does decide to cut one more time, it will reduce borrowing costs by 25 bps by the end of June and then remain on hold for the rest of this year and in 2013.

As for the United States, the bank expects disappointing data. “Weak income growth in Q1 should result in disappointing consumer spending data in Q2 which will weigh on growth. Real earnings were up just 0.2% m/m in January and February, and the increase seen in total earnings growth has been as a result of an increase in the number of people working and hours worked, rather than actual wages. There is little evidence of consumer spending being fuelled by credit growth. The decline in core durable goods reinforces the idea that the business community is reluctant to make additional capital investment.” Economists think that the Fed to announce further QE by the end of the second quarter.

[ryuroden]

Danske Bank, MIG Bank: buy GBP/JPY

Analysts at Danske Bank recommend buying British pound versus Japanese yen as the British and Japanese central banks have 2 different approaches to monetary policy: while the Bank of Japan keeps trying to weaken the national currency, the latest minutes of the Bank of England suggest that the policymakers are moving away from further easing as UK economy is performing better than expected.

In addition, there are many comments from the BOJ official which are weighting yen. One should also mention that Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted deficit of 223.2 billion yen.

The technical picture for GBP/JPY is also optimistic enough. The pair bounced up from bullish Ichimoku Cloud and the 38.2% Fibonacci retracement from this year’s advance aiming at resistance around 133.30 yen (maximums of April 2, March 27 and 22).

Analysts at MIG Bank say that if sterling gets above 133.49 yen, it will be able to follow an uptrend to 160.00 yen. The specialists say that on the downside, below 126.55, GBP/JPY will risk declining to 121.69 and 120 yen (psychological level).

[ryuroden]

Economic events to watch today

Data to watch today:

• Europe: April German Ifo Business Climate index is forecasted to decrease to 109.6 from 109.8 in March.

In addition, there will be 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).

The pair EUR/USD remains in range between $1.3050 and $1.3200. There are stops below and above these levels.

• 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.

The pair GBP/USD is rising for the fifths day in a row. Yesterday sterling reached the maximal level since November 2011 at $1.6078.

• Canada: the growth pace of Core CPI may decline from 0.4% in February to 0.3% in March. The nation’s annualized headline inflation rate is expected to drop to 2.0% in March from 2.6% in February. The data will provide more information about inflationary pressures in the country's economy, and could help justify the recent hawkish tone from the Bank of Canada.

The pair USD/CAD keeps trading between 0.9845 and 1.0050 within staying in this range since the end of January.

[ryuroden]

USD/JPY weak ahead of BoJ meeting

The yen keeps weakening against most of its peers on the back of yesterdays BoJ officials’ “dovish” comments and the unexpectedly wide trade deficit.

On Wednesday the BOJ Governor Masaaki Shirakawa said in the central bank is “committed” to adding monetary stimulus. Deputy Governor Kiyohiko Nishimura confirmed that the bank is ready to implement additional easing if necessary. The next BOJ meeting will be held on April, 27.

Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted 223.2 billion yen deficit.

Mitsubishi UFJ: Markets are pricing in additional easing by the BOJ. A trade deficit is a negative catalyst for the yen.

The USD/JPY trades in the 81.57 area above the daily Ichimoku cloud. The traders see resistance at 81.87 (21-day MA) and at 82.24 (Kijun-sen). A strong impulse may cause a break through 83.30 (high April 2). Support lies at 80.10 (Ichimoku cloud bottom), 79.84, 79.21 and 78.98. The cross strengthened 0.9% this week.

[ryuroden]

EUR/USD: analyzing today’s trade

German PPI rose by 0.6% in March vs. the forecast of 0.5%. The market’s now waiting for April German Ifo Business Climate index which is forecasted to decrease to 109.6 from 109.8 in March.

The single currency didn’t show significant advance on the news as traders were selling “on facts”. As technical indicators remain slightly bullish one may do buying on the dips today, though no strong growth of EUR/USD is expected. It seems wise to take profit on the pair’s advance to $1.3225.

ING Groep: if euro closes above resistance 50-day MA, it will be able to rise to $1.3265 (longer-term downtrend line). MACD (moving average convergence/divergence) rose above the signal line hinting on the possibility of euro’s advance. Support for the European currency is provided by the 100-day MA at $1.3120.

Danske Bank: buy EUR/USD in the $1.3097 area targeting $1.3213 and stopping at $1.3024.

[ryuroden]

Analysts: trading GBP/USD

According to Commerzbank analysts, the pair GBP/USD is unlikely to close the day above $1.6062/67 resistance, despite the intraday breach. The further resistance is seen at $1.6077 (high April 19), from where the cross would target $1.6170 (high Oct. 2011 and 61.8% Fib. of the 2011-2012 move). In their view, support lies at $1.5856 (low April 17), $1.5844 (55 – and 200-day MAs intersection), $1.5600 (March low) and $1.5412 (78.6% retracement seen this year).

However, analysts at Societe Generale expect the sterling to strengthen against the greenback. They recommend entering the trade at $1.6000 with a stop at $1.5800 and a target of $1.6500.

Britain’s monthly retail sales data in March grew by 1.8% vs. forecasted 0.4% growth and 0.8% decline in February.

[ryuroden]

What prospects does Spain have?

Analysts at Citigroup expect that Moody’s Investors Service and Standard & Poor’s will downgrade Spain, Italy, Ireland and Portugal within a year. As reasons for such assumption the specialists cite recession and continuous debt crisis. In their view, deficits will beat official forecasts this year and in 2013.

Spain had to pay a yield of 5.743% to sell new 10-year bonds on Thursday (up from 5.403% in January). The auction results made the experts say that the nation’s borrowing costs are too high to be sustainable in the long term, though not high enough to trigger a near-term meltdown. Reuters poll showed only a one in four chance that Spain would need an international rescue.

It seems unlikely that the increase IMF funding resources by $400 billion (249 billion pounds) which is being currently discussed in order to help bail out Spain (or Italy) will change the overall pessimism about the face of these nations which is only beginning to unfold.

The sentiment will become positive in the medium and longer term only if we get improvement of economic fundamentals, reduction of the nations’ finances and secure the banking system. As this would take time (Spanish government is projecting output to shrink by 1.7%, unemployment rate’s approaching 24%) the levels of uncertainty and volatility will remain high.

Renaissance Capital: “things will carry on until the government, in two years' time, has either proven that it is pursuing sufficient reforms so that the market is beginning to give it better yields or the population is out on the streets… Spain can survive if they push through the right reforms in the next couple of years.”

[ryuroden]

Aussie's hurt by the external risks

The Australian and New Zealand dollars keep declining: the resurgent concerns on the euro zone’s debt crisis switch the market into a risk-off mode. Aussie lost 0.5% this week, while kiwi fell by 1.5%.

According to Nomura specialists, the market is expecting bad news out of Europe. In their view, Aussie can weaken to $1.0150 (low Jan. 9) against the greenback. The IMF and the Worlds bank officials meet in Washington on Friday to discuss Europe’s financial problems.

AUD/USD is currently trading in the $1.0321 area. The pair may bounce back to $1.0400 level, the strong resistance lies at $1.0376 (200-day MA), $1.0432 (100-day MA) and $1.0479 (a 38.2% retracement from Dec.2011-Feb. 2012 move). However, if the cross breaks below the $1.0300 support, further decline towards $1.0240 (a 61.8% retracement from Dec.2011-Feb. 2012 move) in the coming sessions will be expected.

[ryuroden]

Gaitame.com: EUR/JPY technical

Technical analysts at Gaitame.com Research Institute claim that the pair EUR/JPY may have bottomed out in the near-term as it closed yesterday above the bearish candle formed on April 13.

In their view, the single currency may be heading to 109.94 (February 27 maximum). The result of such move will be the “head-and-shoulders” pattern with the top of the heat at 111.43 (March 21 maximum). If the pattern is formed, it will provide a bearish reversal signal.

[ryuroden]

USD/CAD down on CPI data

The Canadian dollar strengthens against the U.S. dollar due to March inflation figures. CPI grew 0.3% in line with forecasts vs. 0.4% in February. Core CPI increased by 0.4%.

The pair USD/CAD trades in the C$0.9922 area on Friday. This week the loonie strengthened 0.8% after the BoC Governor Mark Carney said that perhaps the economy may do without the monetary stimulus due to stronger growth and inflation. The BoC could raise interest rates from a record 1% low sooner than expected.

[ryuroden]

French elections: Hollande wins the first round, concerns on euro

Socialist Francois Hollande won the first round of French election with 28.5% of votes versus Nicolas Sarkozy who got 27.1%.

IG Markets Securities: “Hollande’s victory may mean a collapse of the ‘Merkozy’ axis and that would hamper efforts on the debt crisis.” EUR/USD may finally breach support at $1.30.

Lloyds: bond yields rose last week due to the concerns that Hollande may relax the nation’s deficit-tackling policy if he’s elected.

CBA: “European politics are going to come up in the next few weeks and add a lot of volatility to the euro.”

French Socialists are hoping to return to the Elysée Palace for the first time in almost two decades. According to survey by the Ipsos polling firm, Hollande would beat Sarkozy by 54% to 46%. The Socialist got support from the left parties in the final round.

The centrist François Bayrou remains in an influential position, but has not said yet whether he will endorse a candidate. As for Sarkozy, he will now try to attract the far-right voters by pledging to tighten border controls, tighten immigration rules and take new steps to fight crime.

The next round of the election will take place on May 6.

[ryuroden]

NZD: Key’s comments, technical levels

New Zealand’s Prime Minister John Key claimed that though the national currency’s overvalued, he wouldn't support the Reserve Bank of New Zealand intervening in the currency market. According to Key, government was doing what it can to support monetary policy by running a tight fiscal policy which removes pressure from the central bank. “Dreaming that we can somehow get the exchange rate down through intervention is la la land stuff,” said the official.

From the fundamental point, kiwi may decline this week as the RBNZ is expected to keep official cash rate at the record minimum of 2.5% on Thursday. In addition, being a risk-sensitive currency New Zealand’s dollar may be affected by the renewed concerns about euro zone’s future.

NZD/USD is trading today on the downside remaining in range between $0.8060 and $0.8320 within which it’s trading since the beginning of March. HSBC China PMI Index for April rose to a 2-month maximum at 49.1, though the reading below 50 still indicates contraction of the industry.

Support for the pair lies at $0.8117 (March 29 minimum), $0.8091 (200-day MA), $0.8062/58 (March 15, 22 minimums), $0.8050 (38.2% Fibo retracement of the advance from November to February).

Resistance is situated at $0.8198 (April 19 maximum), $0.8234/50 (April 17, 16 maximums), $0.8265 (April 3 maximum) and $0.8280/88 (April 12, March 19 maximums).

[ryuroden]

April 23-27: events to watch

Tuesday, April 24:

• Japan: 20-year JGB auction

• Australia: The Q1 CPI is expected to rise by 0.8% vs. 0.0% in Q4. According to UBS analysts, the CPI data will be close enough to RBA’s forecasts to allow the central bank to trim rates by 25 bps from the current 4.25%.

• Canada: Canada’s Core Retail Sales in February are expected to increase by 0.8%. In January the report reflected a 0.5% decline. The BoC Governor Mark Carney in his speech may give a hint on a more hawkish monetary policy: the central bank could raise interest rates from a record 1% low sooner than expected.

• Great Britain: Public Sector Net Borrowing in March is forecasted to show£15.6 billion budget deficit vs. £12.9 billion deficit in February.

• U.S.: The current expectations are that the April Consumer Confidence index may reach 70.1. New Home Sales in March may increase by 321K vs. 313K in February. However, if the number of new home sales will fall, it may further indicate a slowdown in the U.S real estate market. U.S. 2-year notes auction is scheduled.

• Switzerland: The trade surplus in March is forecasted to decline to 1.99 billion Swiss francs vs. 2.68 billion surplus in February.

• Euro zone: Spanish 3- and 6-month T-bill auction; Italian bond (CTZ, BTPei) auction.

Wednesday, April 25:

• Great Britain: The Preliminary Q1 GDP is expected to grow by 0.1%. In the Q4 2011, the GDP contracted by 0.3%.

• U.S.: A bunch of important data is expected. The Federal Open Market Committee will hand down its monetary policy decision. Members have been slightly more positive on the economic outlook; however, it is still very much in the realm of “cautious optimism”. Any discussion about the prospect of more QE will be important. Core Durable Goods Orders (the de-facto gauge of business investment) are expected to increase by 0.6% in March vs. 1.8% rise in February. 5-year notes auction is scheduled.

• Euro zone: Allotment of ECB three-month long-term refinancing operation. Following the April ECB rate decision in which the rate wasn’t changed at 1% Mario Draghi will speak and may refer to ECB’s plan to calm the markets including implementing LTRO 3 or resuming the SMP. According to UBS analysts, in order to lower the fears circling the euro zone debt situation, ECB's officials are speaking about the likeliness of new SMP. However, Germany is strongly against such a measure or another LTRO, so the ECB may use the strategy of cutting the interest rates. In general, the UBS analysts expect the ECB to remain more dovish than the Fed in 2012.

Thursday, April 26:

• Canada: The BoC Governor Mark Carney speaks.

• New Zealand: The Reserve Bank of New Zealand meets on April, 26. Last month, the RNBZ Governor Alan Bollard forecasted the cash rate to remain unchanged at 2.50% for much of 2012. However, there may be a dovish slant to the statement. The deterioration of Australia's terms of trade is suggestive of New Zealand, especially given the recent sharp drop in milk prices.

• U.S.: Unemployment Claims are forecasted to increase by 378K this week vs. 386K the previous week. U.S. Pending Home Sales in March may increase by 1.4% vs. a 0.5% decline in February. 7-year note auction is scheduled.

• Euro zone: Italian T-bill auction.

• Japan: 2-year JGB auction.

Friday, April 27:

• Japan: The Bank of Japan is seen as likely to ease its policy further at a meeting on April 27 after coming under intense pressure to help support the still fragile economy. There are widespread expectations that it increases its asset purchase fund by 5 trillion yen to 24 trillion yen. The Overnight Call Rate is expected to remain at 0.10%. The annualized Retail Sales in March may increase by 11.5% vs. 3.4% in February.

• U.S.: The U.S. reports its preliminary estimate of Q1 GDP. Aided by government outlays (military spending and less drag from state and local governments) and strong capital spending, the GDP likely to expand by 2.6% vs. a 3.0% in Q4.

• Euro zone: Italian bond (BTP) auction is scheduled. The KOF Economic Barometer, the outlook of the Swiss economy, in April may grow to 0.26 vs. previous 0.08.