Comments and forex-analytics from FBS

[ryuroden]

Kiwi falls on unemployment figures

The New Zealand dollar weakened on Thursday after a report showed today the unemployment rate in the country unexpectedly rose.

The unemployment in the first quarter overcame the consensus forecast 6.3% and reached 6.7% after 6.4% in Q4. However, number of employed people increased by 0.4% compared with a 0.2% increase in the prior quarter. According to economists, the jobless rate surge was caused by a significant increase in number of people looking for a work.

UBS: Today’s unemployment report may contribute to lowering the RBNZ inflation outlook and may create scope to ease monetary policy.

The next RBNZ meeting is scheduled on June 14. On the previous meeting the bank tried to push the kiwi lower, giving hints on possible dovish actions.

NZD/USD dropped to $0.8062 (200-day MA) today, breaking the $0.8080 support (38.2% retracement from a Dec.2011-Jan.2012 growth). Strong support for the pair lies at $0.7965 (50% retracement) and at $0.7845 (61.8% retracement). 

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SocGen: trading ahead of ECB meeting

Analysts at Societe Generale recommend going short on the euro against the dollar, entering the trade at $1.3250, targeting at $1.2900 and with a stop at $1.3400.

According to analysts, the common currency may edge up, but than drop to the lowest level since January. However, French and German elections and the ECB meeting may weigh on the cross.

Specialists do not expect anything special from the today’s ECB meeting, but the market is ready for surprises this week after the RBA unexpectedly cut the key interest rate on Tuesday. Europe definitely needs to do something to stimulate the economic growth, but it’s difficult to say when and what measures be used.

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ECB: austerity vs. growth

What fate awaits the common currency and the euro zone? In quest of the answers, markets expect the ECB meeting (Wednesday, 13:30 GMT) with impatience. Moreover, today Spain holds its first 3- and 5-year bond auction since S&P cut the countries credit rating BBB+ last week.

The ECB has added more than 1 trillion of cheap euros into the banking system and cut interest rates to a record low of 1.0% in December to stimulate growth. Some analysts believe that the ECB funding operations, launched in December and at the end of February, supported the indebted periphery countries and prevented a global credit crunch.

However, according to recent economic releases, including the PMI’s, eight euro zone countries are now in recession, while others are struggling to grow. The discontent with the austerity measures in the region grows, making the current European leaders extremely unpopular.

Market participants understand the euro zone’s economy requires a supporting stimulus, but analysts split over the terms and the instruments of the policy easing.

Danske Bank: Recent economic data is mixed, but not so weak that it will trigger a rate cut. The ECB remains in ‘wait and see’ mode as it assesses the impact of the two 3-year LTROs.

There is a speculation that the ECB policymakers are planning to replace the “fiscal compact”, signed in March, by a so-called “growth compact”. However, according to analysts at Danske Bank, the renewed focus on growth does not necessarily mean the rate cut in June.

Societe Generale: It seems too early for another wave of easing, but that is where the risks are skewed. The outcome is continued downward pressure on EUR/USD. We still expect it to break below $1.30.

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Markets on the watch for NFP

According to the recent ADP Employer Services report, the number of employed people grew by 119K workers in April (the smallest increase in the last seven months). The figures fell below the estimated 170K growth and 201K gain in March.

CMC Markets: The release suggested that the surprisingly weak March U.S. non-farm payrolls weren't a one-off stutter and that the U.S. recovery may be losing momentum.

Factory, manufacturing and construction sectors reduced the number of jobs in April; however, the reduction was slightly offset by the increase of services sector jobs.

On Friday (13:30 GMT) non-farm payrolls release is scheduled. Investors are scratching heads: whether or not the figures will come in line with forecasted 176K. In March employment changed by 120K jobs. Negative NFP report will definitely revive talks about the further monetary policy easing.

The ISM Manufacturing PMI came out better than expected on Tuesday (54.8 vs. consensus-forecast 53.0 and 53.4 in March). However, ADP report makes rapid economy rebound look challengeable: U.S. labor market is obviously far from recovery.

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AUD/USD drops further on RBA statement

The Australian dollar keeps weakening against its major counterparts because of the investor’s bets on further rate cuts increased.

According to the RBA Monetary Policy Statement, released on Friday, the RBA sees average growth of 3% in 2012, down from a February estimate of 3.5%. Consumer prices will rise 2.5% in the year to December, from a previous prediction of 3%. Underlying inflation is predicted to be at 2.25% from a previous 2.7%, the central bank said.

U.S. non-farm payrolls data, eagerly awaited today (13:30 GMT), may influence on the cross strongly. Economists forecast the number of employed people to grow by 176K in April compared with 120K increase in March.

BMO Capital: If the NFP report comes stronger than expected (higher than 176K), go short on AUD/USD. Reserve Bank of Australia lowered the key interest rate this week and, given the problems of the Australia’s economy, may cut them further. On the contrary, positive NFP figures will make the Fed unlikely to loosen monetary policy.

AUD/USD declined 1.8% this week and is currently trading in the $1.0262 area. Resistance for the pair lies at 1.0300, 1.0395, 1.0420, 1.0450, 1.0475 (local maximum), while support – at 1.0245, 1.0225 (local minimum) and 1.0200.

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ECB press conference: highlights

The European Central Bank’s meeting, held on Thursday, was one of the most expected events of the week for the currency market.

The ECB left the benchmark rate at a record 1% low. Some market marticipants, however, expected the rate cuts after ECB President Mario Draghi last week said the bank was changing the growth and inflation outlook.

According to Draghi, the economic activity stabilized at low levels in Q1 2012. The inflation in 2012 is likely to exceed the target 2% level due to commodities price and indirect taxes growth. Downside risks are still strong, but the ECB forecasts a slow economic rebound in 2012.

ECB President has partially dispelled investor’s hopes on a third round of the LTROs: according to him, the positive effect of the second LTRO is yet to come. Mario Draghi said the operations supported the financial sector to avoid a credit crunch and strongly improved the funding conditions for the banks.

Nomura: The ECB will wait to see how its lending to banks will feed into the real economy. Economic conditions need to deteriorate significantly in the weeks ahead before the ECB will consider loosening monetary policy further at the June meeting.

Commerzbank: There are significant downside risks to the ECB’s growth outlook. Draghi indirectly hinted at next month’s ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us.

Berenberg: The pain threshold of the ECB for more policy action is high and has not been reached. Deteriorating survey data may be revisited at the next meeting, leaving the door for policy action at the June meeting open very slightly.

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GBP/USD down throughout the week

The British pound declined 0.6% against the dollar this week after a five-day downward movement. The decline followed by two weeks of steady growth.

This week a bunch of negative data was released in Britain. The Halifax house price index in April dropped 2.4%, demonstrating the largest monthly decline since September 2010 (vs. forecasted 0.4% decline and a 2.2% growth in March). Manufacturing and services PMI declined in April, but still indicate the industry expansion (50.5 and 53.3 respectively), while construction PMI edged up to 55.8.

According to analysts at Charmer Charts, GBP/USD still remains under pressure with $1.6140 as a nearby objective.The upward correction is contained by $1.6220.

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Dollar grows despite low NFP

The greenback strengthens versus its major counterparts on the back of U.S. labor market data reports.

The U.S. economy created 115K new jobs in April, missing expectations at +170K and slightly down from March +120K . However, the unemployment rate surprisingly fell to 8.1% in April from 8.2%.

Standard Chartered: It’s a weaker report overall. It’s not weak enough to make the market convinced that quantitative easing is coming soon. There’s not yet enough confidence of that, but it’s starting to raise a few more concerns.

BNP Paribas: The labor market is gradually improving, but it’s still weak. The data is not reassuring for the Fed, though it’s not catastrophic either.

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Goldman Sachs: UK vs. Spain

According to analysts at Goldman Sachs, Britain’s and Spain’s economies have a lot in common. Does it mean that their chances to resolve the crisis successfully are equal? Not really. Specialists expect the UK to “muddle through” while Spain will have to deal with the “long grind”.

Analysts point the countries faced similar problems due to the crisis: debt to GDP doubled, real GDP has not returned to its 2008 levels, the bursting of a property bubble, current account deficits and huge budget deficits.

However, Goldman Sachs’ report shows that their means and resources to come out of the crisis are different. Firstly, own currency and own monetary policy gives a significant advantage for the UK. The Bank of England is free to loosen monetary policy and to lower rates, while Spain is limited by euro zone’s monetary policy, equalizing economic interests of 17 different countries. Secondly, UK labor market is much more flexible than Spanish.

Moreover, situation in the housing market is also different in UK and Spain. Construction in Spain weighs much more than in UK: in Spain it reached close to 20% of GDP, meaning that millions of workers will have to be relocated to the other sectors, putting an additional pressure on the labor market. Furthermore, buildings under construction account to 6% of GDP in 2012 (in UK – 3%). Finally, in Spain a huge percent of properties remains vacant.

[ryuroden]

French elections: pessimistic scenario

On Sunday, May 6, the French hold the second round of their presidential elections. French centre-right President Nicolas Sarkozy is widely expected to lose to his socialist rival Francois Hollande, possibly becoming the first one-term French president in over 30 years.

Financial markets seem to underestimate the danger for the common currency coming from the program, proposed by François Hollande. The Socialist party candidate insists on the re-examination of the euro zone’s austerity policy, pursued by Nicolas Sarkozy in consort with German Chancellor Angela Merkel. According to Hollande, in case of victory he will aim for the revision of the “fiscal pact”, signed in March, and focus on the region’s growth.

Some analysts believe the strict austerity measures supported the indebted periphery countries and prevented the euro zone’s collapse. Others, however, argue that austerity only hinders growthand rest responsibility on the incumbent Europe’s leaders.

Francois Hollande wants to lead the European Central Bank to enlarge money printing programs. He has campaigned for an issue of the common European euro bonds, something that Germany has always opposed. Socialist Hollande seems to set himself up as Merkel’s political antipode, acting on behalf of the oppressed European nations. The question is whether this is nothing more than a pre-election rhetoric or his real political intentions?

The disaccord between the euro-zone’s key leaders during a complicated phase of the region’s history may weaken the common currency against its other counterparts. Spain and Italy may be the first victims of the political shift. Furthermore, yields on French bonds may also rocket, expanding the budget deficit. In such case scenario we can see the downgrade of the country by the rating agencies and the escalation of the domestic, regional and global debt crisis.

On Sunday eyes are on another important political event - elections in Greece are threatening to split the parliament and to hinder the well co-ordinated work of the government during the severe crisis. The economic risks and the unstability in the country are still high despite the fact that S&P has raised the Greece's credit rating recently.

[ryuroden]

Euro slides on political uncertainty

The common currency fell to a three-month low after France and Greece voted against pro-austerity politicians on Sunday.

As expected, Francois Hollande got 51.7% of the vote in the French presidential election held on Sunday against about 48.3% given for incumbent Nicolas Sarkozy. According to analysts, his victory may be interpreted more as an outcry against the austerity policy, pursued by Sarkozy, than the support of Hollande's own program.

Societe Generale: Mr. Hollande’s victory was largely expected, but it does act as a trigger to increase demand for the dollar.

Parliamentary elections in Greece increase bearish pressure on the euro: the debt crisis shaved the popularity of two main parties, attempting to eliminate budget deficit and to collaborate with EU. Centre-right New Democracy led with 19%, down from 33.5% in 2009. Left-wing coalition Syriza came surprisingly in second place with 16.7%, while centre-left PASOK stood in third place with 13.3%, down from 43.9% in the last elections.

UBS: If Greece chooses to resolve the crisis on its own, the EU may refuse credence and financial aid.

FX Prime: There are major concerns about the euro. What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.

EUR/USD dropped to $1.2954 early Sunday, but then bounced back to $1.3010. However, the key $1.3000 support, the lower bound of a side channel (exists since January), was broken.

Analysts at Nomura Holdings expect the pair to consolidate in the $1.26-1.28 area within a few weeks.

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JP Morgan: trading EUR/JPY

Analysts at J.P. Morgan Asset Management recommend selling EUR/JPY at current levels, setting a stop at 106.00 and a target of 102.50.

According to specialists, the Hollande’s victory was already priced in, while Greece will weigh on the euro. They underline that the market is unstable: any comments from Hollande after the election or something later in the week may influence the pair.

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Analysts: outlook for AUD/USD

The Australian dollar opened the week on a downside amid concern election results in France and Greece will deepen the euro zone’s crisis. However, throughout the day positive news from Australia improved the market sentiment.

FX Prime: There are major concerns about the euro. What’s common to both Greek and French voting is that people aren’t feeling good about austerity measures, which are the crux to a resolution of Europe’s debt problems.

Europe’s economic and political mayhem is may influence the economies, regarded as safe havens: policymakers may cut interest rates to weaken the currencies.

Societe Generale: In a weakening global environment, countries that can cut rates will do so and their currencies can fall. Europe is an economy with a currency that isn’t expensive, with not much scope or appetite for cuts.

Westpac Banking: We’ve got what may well prove to be the next wave of instability from Europe. There’s a clear voter rejection of austerity evident. We’d expect the Aussie and the kiwi to remain under pressure.

Australia’s retail sales grew by 0.9% in March after a revised 0.3% gain in February. Number of new building approvals increased by 7.4% after an 8.8% decline in February, pointing that the housing market improved in March.

Standard Chartered: The data was actually very strong, so it’s more like it’s putting a floor on the Aussie weakness that we’re seeing. It’s difficult to see the Aussie bouncing in this environment where risk sentiment is pretty weak.

The AUD/USD pair is currently trading in the 1.0180 area. Analysts at ANZ expect the Aussie to trade at $1.07 by December versus the greenback. According to Bloomberg forecast, the currency will end 2012 at $1.04.

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GBP/USD: is the demand back?

Demand for sterling grows regardless of the increased risk aversion on the currency markets: GBP/USD strengthens on Monday after declining last week for five consecutive days.

The cross has already overcome its Friday’s closing price and reached $1.6172 level. However, only a strong break above $1.6200 resistance will reverse the bearish trend.

On Tuesday watch out for UK retail sales and housing prices data releases.

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UBS: outlook for the US dollar

Last week the US Dollar Index increased from 78.60 on Monday to 79.60 on Friday. According to analysts at UBS, the greenback was supported by the worrisome data coming from Europe and by the low likeliness of new round of QE in US. According to analysts, poor Friday’s NFP were offset by an improvement in other key indicators.

Specialists at UBS continue to believe in the greenback as they do not expect the US economy to slow down sufficiently to allow the Fed’s doves to push for additional asset purchases.

Chart. US Dollar Index

Source: Bloomberg

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CharmerCharts: trading GBP/USD

The sterling continued weakening against the greenback on Tuesday after yesterday's growth. Bank holiday in UK on Monday hindered the reaction of the pound on the results of French and Greek elections.

Analysts at CharmerCharts see the target dor the cable at 1.6110/085 levels. They believe the break below 1.6065 may cause another wave of selling pressure which should drive the price lower for 1.6005 to 1.5990.

Resistance for GBP/USD lies at 1.6180, 1.6200 and 1.6245. On the downside, supports might act at 1.6135 and 1.6115.

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BBH: outlook for AUD/USD

The Aussie weakens against the greenback on Tusday after weak trade data report.

Trade deficit in March reached 1.59B vs.1.38B deficit forecasted and 0.75B deficit in February. The Australian Government, however, remains forecasting a return to surplus by 2012/13, as promised last year.

According to analysts, tight fiscal policy and eased monetary policy will continue pushing the AUD/USD pair down. Strong resistance for the pair lies at 1.0220 level. In a longer-term analysts expect the pair to fall to 0.9860.

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Taylor: Greece will abandon euro in June

The resent changes on European political landscape made some analysts come up with more radical forecasts of euro’s future than they used to have before. For example, John Taylor, the head of the world’s largest currency hedge fund FX Concepts, now thinks that Greece may leave the euro area already in June.

The specialist warns that the nation’s government will soon have no more cash, while European institutions won’t be able to give it more money due to the emerging political split between France and Germany. Greece itself is in the situation of uncertainty: if the policymakers fail to form a governing coalition, there will be other Parliament elections in the middle of the next month.

“I think that people are feeling the implications of a Greek exit aren’t so bad. If Greece leaves the euro, Europeans will turn around and huddle together and say, ‘how do I help Portugal and Spain?” Taylor says.

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Deutsche Bank: outlook for USD/JPY

The yen strengthens against the greenback this week as the Japanese currency benefits from its “safe haven” status.

Analysts at Deutsche Bank, however, recently revised their forecast for USD/JPY to bullish after being bearish since 2008. They now expect the pair to rise to 82 yen by the end of 2012, compared with previous forecast 75 yen.

In their view, USD/JPY may strengthen in a short term, but the trend is descending.

[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: 1.2700 (large), 1.3000, 1.3050, 1.3065,1.3075 1.3095, 1.3105, 1.3210;

USD/JPY: 79.65, 76.75, 75.80, 80.25, 82.50;

GBP/USD: 1.6100, 1.6125, 1.6295, 1.6300;

AUD/USD: 1.0200, 1.0230, 1.0275, 1.0300;

AUD/JPY: 83.65;

USD/CHF 0.9100, 0.9250.

Have a profitable trading day!

[ryuroden]

Analysts: BoE may extend QE program

On Thursday, May 10, the Bank of England holds its monthly meeting. Some analysts expect the regulator to extend its asset purchase program tomorrow.

According to the BoE governor Mervyn King, the inflation in the U.K. is too high and the nation's economic recovery too slow. The annual rate of inflation, which was 3.5% in March, remains well above the BOE's 2% target. Mervyn King said last week that the current crisis is far from over.

Investec: In conditions of sticky inflation versus stuck economy the BoE may add another £25bn to its £325bn program of QE on its Thursday meeting. The committee will worry more about low growth than an inflation rate that is taking longer to come down than it predicted.

Capital Economics: The BoE may add £25bn to its asset purchase program in autumn.

Commerzbank: The BoE may adopt the wait-and-see approach: despite the fact that in a longer term the QE extension is possible, now we expect the bank to leave the room for maneuver in case if the markets require support.

Photo: Daniel Jones

[ryuroden]

Scotia Capital: better to sell EUR vs. GBP

Analysts at Scotia Capital recommend selling the single currency versus British pound as an alternative for trading volatile EUR/USD which has been fluctuating this year in the $1.30/35 area, so that many traders burned their fingers. “EUR/GBP is still really euro, but the risk/reward is better than with EUR/USD.”

The specialists note that Europe’s future looks dim in both cases: either the currency union will continue with austerity measures and there will be a long period of slow growth in the region, or it won’t, so the crisis will dramatically escalate. According to Scotia Capital, EUR/GBP will slide to 0.77 by the end of 2012.

[ryuroden]

Euro may rise against… Aussie

Analysts at Commerzbank believe that the single currency may rise versus its Australian counterpart to 1.2906/1.3004 (200-day MA, 2010-2011 minimums, April 2012 maximum).

The specialists say that euro’s advance is likely to end there. However, if the resistance is breached, EUR/AUD may climb to 1.3111. The bank remains bullish on the pair in the short-term as long as it’s trading above 1.2646.

According to the bank, if euro slips below 1.6246 (April minimum) and 1.2641 (55-day MA), it will slide to 1.2571 (April 30 minimum), the level below which the pair’s prospects will become negative.

[ryuroden]

RBS: betting on USD/CHF advance

The current turmoil in Europe makes analysts come up with more and more ideas of how to avoid exposure to risks associated with the single currency.

Strategists at Royal Bank of Scotland propose selling US dollar versus Swiss franc. In their view, the Swiss National Bank will continue to maintain EUR/CHF floor, so that franc won’t have chance to appreciate. At the same time, the bank is bullish on the greenback due to relatively positive economic reports released so far. RBS thinks USD/CHF may strengthen to 0.9950.

[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, $1.3085, $1.3100, $1.3130 and $1.3150;

USD/JPY: 79.05,80,00 and 80.25, 81.00;

EUR/JPY: 106.35;

GBP/USD: $1.6060, $1.6300;

AUD/USD $1.0000, $1.0195, $1.0200;

AUD/JPY: 83.00.

Have a profitable trading day!

Image from http://idenull.blogspot.com

Edited May 10, 2012 by ryuroden