Comments and forex-analytics from FBS

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EUR/USD: technical comments from Commerzbank

Analysts at Commerzbank claim that there is considerable divergence on H4 chart, so they expect a corrective rebound today.

Chart. H4 EUR/USD

At the same time the situation on the daily chart remains negative. Commerzbank targets $1.2624 (January minimum) with support at $1.2809 (January 17 maximum). Rebound will become possible if EUR/USD overcomes resistance at $1.3080 (May 4 minimum) and $1.3233/50 (late April/ early May highs area).

Chart. Daily EUR/USD

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Bloomberg Poll: hard times for Europe ahead

The market is always about sentiment. During the last 2 years we have been continually discussing the possibility of disintegration in Europe. More than half of the experts surveyed by Bloomberg think that the 17-member currency union will once again become 16-memer one and that this will happen in 2012.

According to Bloomberg Global Poll, 57% out of the 1,253 investors believe that Greece will quit euro zone this year. In addition, 80% of respondents foresee more stress for the European bond markets.

Note that 47% of interviewed expect Spanish default, 63% – the one of Portugal and about 25% – the one of Italy or Ireland. As for Greece, 94% of investors said it will default on its debt. The nation has already restructured its debt to private bondholders.

The survey was conducted on May 8.

Lloyds Banking: “Another flare-up of the crisis is likely. The key variable for Europe is domestic politics.”

Photo by Bloomberg

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Merkel’s firm on austerity plans

In her speech to Bundestag today German Chancellor Angela Merkel said that:

· Europe's only hope is to implement structural reforms alongside austerity measures.

· Economic growth may be reached through structural reforms. The calls for growth through debt would throw the region back to the beginning of the crisis.

· It would take a long time to overcome the crisis.

Germany keeps favoring austerity measures in the euro area, but will anyone follow its lead now when Merkel’s main ally – France – no longer supports such approach?

Image from debatepolitics.com

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Barclays: bearish on EUR/GBP

Analysts at Barclays are bearish on the single currency versus British pound. This week euro hit the minimal levels versus sterling since 2008.

In their view, EUR/GBP will weaken to firstly to 0.7960 and then to 0.7700 (October 2008 minimum) and 0.7300 in the medium and long terms.

According to the bank, the pair’s prospects will remain negative as long as it's trading below 0.8075/0.8100.

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2 ways of trading GBP/USD

Danske Bank: sell GBP/USD at $1.6155 targeting $1.6055 and stopping at $1.6208.

Commerzbank: try small longs at $1.6085 targeting $1.6300 with tight stops at $1.6065/50.

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BOTMUFJ: comments on AUD/JPY

Technical analysts at Bank of Tokyo-Mitsubishi UFJ believe that there’s a chance of Australian dollar to start gaining versus Japanese yen.

Yesterday AUD/JPY hit 3 1/2-month minimum at 72.06, but today it returned above key support levels at 80.35 (50% Fibonacci retracement of the pair’s advance from October minimum to March maximum) and 80 yen (psychological level).

The specialists think that if the bulls manage to hold the rate above these levels, the pair will get chance to strengthen to 84 yen (90-day MA).

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Will good jobs data keep RBA from cutting?

The Australian dollar strengthens on the back of the unexpectedly positive employment data released on Thursday.

The unemployment rate fell to 4.9% in April compared with 5.3% forecast and 5.2% in March. Australia’s economy surprisingly added 15K new jobs this month against a 4.8K decline forecasted and a 37.6K decline in March. Payrolls rose mostly due to the part time work, which added 26K jobs to payroll, while the full time employment declined by 10.5K.

However, many analysts still expect the Reserve bank of Australia (RBA) to cut rates by 25 b.p. on its next meeting in June in order to stimulate economic growth. ANZ Banking and Westpac think that risk aversion together with loose fiscal and monetary policy will put Aussie under pressure.

Societe Generale, on the other hand, claims that today’s positive employment figures change the game. According to the specialists, rate cut in June is not likely, so close to the recent 50 b.p. reduction; the next cut is expected in August. Employment figures show a large deviation from expectations, but the full-time employment still continues to decline. The April employment gain, therefore, will generate less additional household income than if it had come from full-time employment.

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May 11: today's economic focus

Risk aversion continues to dominate markets on Friday, weighing on the high-yield currencies.

Data released in China confirms that the economy may extend losing streak. Industrial production in April rose by 9.3% compared with March's 11.9%, sharply underperforming expectations. Retail sales also underperformed forecasts for an annual growth of 15.2%, rising instead by 14.2% in April from a year earlier.

China’s CPI slowed down from 3.6% in March to 3.4% in April. Now the nation has more scope for monetary easing. According to Reuters poll, the market consensus is for 150 bps of more RRR cuts this year. Nomura analysts claim that the policy focus will remain on promoting growth to support the economy.

Risk sentiment was hurt during US session as JP Morgan announced $2-billion losses in credit derivatives trades. UK Nationwide consumer confidence fell from 52 in March to 44 in April.

Later today watch British PPI Input data (decline’s expected), Canada’s labor market figures (forecast: lower increase of payrolls, higher unemployment rate) and US PPI and consumer sentiment (consult FBS economic calendar). Also note that there will be an Italian BOT auction around 9 a.m. GMT.

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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: $1.2900 (also barrier), $1.2950, $1.2975, $1.3000 and $1.3100.

GBP/USD: $1.6050, $1.6150 and $1.6200.

EUR/GBP: 0.7970.

AUD/USD: $0.9950, $1.0120, $1.0150, $1.0195 and $1.0200.

AUD/JPY: 83.00.

USD/JPY: 79.50, 80.00, 80.10 and 81.00.

Image from http://seoklass.ru

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To risk or not to risk?

The markets remain in the cautious mode. The situation has become highly driven by the politics that immensely complicates any attempts to predict its further developments.

The highest risks are currently concentrated in Greece (elections in June?), France (Hollande vs. Merkel?) and Spain (can it survive on its own?). With all that in mind it’s difficult to expect much risk appetite in the foreseeable future. Surely on Monday (G7 meeting) the leaders of the advanced economies won’t be able to avoid the discussion of European problems, but we’ve already seen that the European leaders tend to maintain uncertainty and deliver some measures only when there’s already almost no air for breathing. All eyes will be focused on Hollande-Merkel meeting on Wednesday, May 16.

There is, however, some positive news. Though Greece will likely get stuck in political indecisiveness for weeks, the EFSF has agreed to pay out its next 5.2-billion-euro tranche, while Spain, nationalized troubled Bankia-BFA. The question is whether it enough to sustain positive risk sentiment. The answer is: hardly. The markets will likely continue pricing in grim prospects. Does that mean that we favor safe havens?

Goldman Sachs thinks that the “currency of last resort” is still gold, not the safe-haven greenback as US economic recovery remains unstable. Both Goldman and Bill Gross from Pimco believe that the Fed is moving closer to announce additional asset purchases.

Apart from gold and dollar vs. commodity currencies, we’re looking to yen, bearish on EUR/JPY and AUD/JPY. The Bank of Japan’s board member Sayuri Shirai claimed that sufficient firewalls have been set in Europe to prevent the crisis from going global, so the BOJ will have some time to take a thorough look at how its latest policy action will affect the economy. Note though that yen’s attractiveness is a very relative thing: the central bank’s still under heavy pressure from the real sector. We also recommend watching the RBA’s monetary policy meeting minutes on Tuesday, May 15. After the positive jobs report released this week, the central’s bank rate cut in June is no longer that evident, although with disappointing Chinese data (remember: main trading partner) Australian authorities may feel the need for stimulus all the same.

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Demand for EUR as reserve currency is illusive

Despite the serious debt problems in the region, the common currency still remains resilient. The key support for the euro is created by the demand on it as on a reserve currency.

However, according to analysts at Deutsche Bank, the euro’s status as a reserve currency may be more vulnarable than meets the eye.

Specialists point the regulators increase reserves mainly in order to weaken its national currency and to support exports. For example, 35% of the overall allocated euro reserve growth in 2011 was achieved due to the Swiss National Bank, buying euro to maintain the 1.20 peg for the Swiss franc.

The regulators do not have real confidence in the euro, and the shift in structure of central bank's reserves may badly influence the currency.

Source: Bloomberg

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Commerzbank: comments on EUR/JPY

Technical analysts at Commerzbank claim that the single currency’s consolidating versus Japanese yen after it has reached 102.54 (61.8% Fibonacci retracement of advance from January minimums to March maximums).

The specialists claim that all attempts of the bulls to push EUR/JPY higher will look unconvincing until the pair’s trading below 104.625 (April minimum). If euro breaches support at 102.50, it will become vulnerable for a decline to 100.12/00 where the bank expect market to try to base. According to Commerzbank, if EUR/JPY manages to rise above 105.56 (May 4 maximum), the picture will turn positive.

Chart. Daily EUR/JPY

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Greece's political impasse: a beam of light

EUR/USD consolidates for the second consecutive day after a decline on the back of optimism that Greece’s politicians will reach an agreement on forming a new government that will leave the indebted country in the euro zone.

According to Antonis Samaras, leader of Greece’s New Democracy Party, four parties have vowed to remain in the euro if they form part of the next administration.

Rabobank: The latest development may provide some support for the euro, but the impact is likely to be limited. There’s still a huge amount of uncertainty in the euro region, and Greece remains closer to an exit than it has ever been.”

Alexis Tsipras, the leader of the radical leftist party Syriza, is to meet on Friday (17:00 GMT) with the Socialist party chief, Evangelos Venizelos.

If Greece’s political leaders fail to create a new government, the new elections will follow.

Photo: REUTERS

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May 14: today's economic focus

News, influencing the markets on Monday, is contradictory. Euro still remains under pressure due to uncertainty, coming from Greece. On Monday Greece’s President Karolos Papoulias meets the political party leaders in a final attempt to form an emergency coalition. However, no one already believes in the success of the discussions. These days Greece’s prospects are negative: either the default or exit from the euro zone.

China has cut its reserve ratios (RRR) by 50 bps over the weekend, adding stimulus to support the economy. That was the third reduction in six months. According to Reuters poll, the market consensus is for 100 bps of more RRR cuts this year. High-yield currencies benefit from the RRR cut.

Asian shared opened this week in red after losing 4.4% last week (MSCI Asia Pacific Index). AUD/USD tested today the levels below parity on weak risk sentiment, though managed to hold above 1.0000 helped by the news about China’s RRR cut and the fact that the nation’s home approvals unexpectedly rebounded in March.

Data to watch today:

• Euro zone: industrial production: no surprise that a decline in growth is expected in March.

• Italy: 10-year bond auction (previous: 5.84|1.5).

• Europe’s finance ministers meet in Brussels in the evening: Greece may be on the agenda.

• Switzerland: SNB Chairman Jordan Speaks. Last month Jordan reaffirmed his commitment to the EUR/CHF threshold at 1.20, saying the franc is overvalued and that he expects it to weaken.

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BOTMUFJ: comments on EUR/USD

The single currency hit today more than 3-month minimum versus the greenback at $1.2878.

Analysts at Bank of Tokyo- Mitsubishi UFJ claim that as EUR/USD breached last week support at $1.2954 (61.8% Fibonacci retracement of the pair’s advance from January 13 minimum to February 24 maximum), it’s vulnerable for a decline to $1.2828 (76.4% Fibonacci retracement).

On the way down we would add support at $1.2858 (December 29 minimum) and $1.2839 (January 19 minimum). On the upside, resistance for euro is provided by recent session’s maximums and $1.2905/12 (May 9 and 11 minimums), $1.2955 (May 7 minimum) and $1.2980 (May 10 maximum).

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May 14-18: Events to watch

Beginning from Tuesday. To learn about Monday’s events, go here.

Tuesday, May 15

• Australia: Monetary Policy Meeting Minutes. After the positive jobs report released this week, the central’s bank rate cut in June is no longer that evident, although with disappointing Chinese data (remember: main trading partner) Australian authorities may feel the need for stimulus all the same.

• Euro zone: there’s a number of Q1 preliminary GDP releases: French (0.2% previous, 0.0% forecast), German (-0.2% previous, 0.1% forecast), Italian (-0.7% previous, -0.6% forecast). The region is expected to enter an official recession contracting by 0.2% in the first 3 months of the year (second quarter in a row), while Spain and Italy are already there. German figures are especially important: if the leading euro area’s economy disappoints, this will hit an already feeble sentiment sending US dollar and Japanese yen up versus their peers as safe havens. In addition, watch German May ZEW Economic Sentiment and follow the news about ECOFIN Meetings. Newly elected French President Francois Hollande meets German Chancellor Angela Merkel in Berlin. According to German government, Hollande's visit is a "strong signal" regarding the determination of both countries to continue their strong relationship. Euro zone’s leaders are expected to discuss the development of the region's monetary and fiscal policy. As is known, they have contradictory views on austerity.

• US: data for April. Economists look forward to a decline in American retail sales (both core and headline), while the CPI growth may slow down from 0.3% to 0.1%, though the core reading is seen unchanged. We will also get info on the demand for US debt: TIC Long-Term Purchases are expected to increase from 19.4B in February to 10.1B in March.

Wednesday, May 16

• Great Britain: A lot of important news for pound will be released. Claimant count in April may rise by 4.9K compared with 3.6K rise in March. The Governor of the Bank of England Mervyn King in his speech is expected to signal that interest rates will not rise from their record low until late 2013 at the earliest, as the UK's growth disappoints. Inflation report may leave the door open to the possibility of more QE, either explicitly or by forecasting that inflation will probably fall below the 2% target within 2-3 years without a change in policy. According to analysts at Citi, such a forecast could prepare the ground for the MPC to resume QE (bond purchases) in coming months if activity data and the European monetary union crisis worsen, or if the inflation worries diminish.

• U.S.: The release of the important housing market data is scheduled on Wednesday. According to forecasts, annualized number of building permits in April may to grow by 0.73M after a 0.75M growth in March. Number of housing starts in April is expected to increase by 0.69M against 0.65M in March. Industrial production in April may grow by 0.6% after remaining unchanged in March. FOMC Meeting Minutes are not expected to give any hints on policy easing - during the last meeting in April Bernanke stated in his press conference that "all the options are on the table", but the chances seem to fade away.

• Euro zone: The speech of ECB President Draghi will be scrutinized by the investors, aiming to forecast the euro zone’s future. Germany holds a 10-year bond auction.

Thursday, May 17

• Euro zone: Banks in France, Germany and Switzerland will be closed because of the national holidays. Spain holds a 10-year bond auction.

• New Zealand: Producer price index in Q1 may remain unchanged after a 0.5% growth in Q4.

• Australia: Inflation expectations data will be published.

• Japan: Preliminary GDP growth in Q1 may reach 0.9% after a 0.2% contraction in Q4.

• US: The number of unemployment claims fixed last week may grow by 370K vs. the previous print 367K. Later on Thursday Philly Fed Manufacturing Index will be released: in May is forecasted to grow to 10.6. Philadelphia region manufacturers' index declined more than expected in April reaching 8.5 from 12.5 in March, demonstrating the biggest drop in six months. However, most analysts believe improved consumer spending will provide further growth to the manufacturing sector.

Friday, May 18

• Great Britain: 10-year bond auction will be held.

• Canada: Core CPI growth in April is expected to remain unchanged at 0.3%. CPI may grow by 0.3% after a 0.4% growth in March.

• All: US President Barack Obama will host a two-day G8 Meetings at Camp David. The Group of Eight (G8) is a forum, where the eight of the world's most industrialized nations meet to discuss key topics and provide solutions for global issues. The G8 includes Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States.

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CFTC traders positioning data

The latest Commitments of Traders (COT) report for the week to May 8, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• The net long US dollar position rose by 62% to $20.5 billion.

• The net short euro position increased by 32% to 143.9K contracts ($23.4 billion, the most since February).

• The net short yen position decreased by 18% to 41K contracts ($6.4 billion).

• The net short pound position rose by 50% to $6 billion.

• The net short Swiss franc position was increased by 13% to 16K contracts ($2.2 billion).

In addition, speculators continue to think the Canadian, Australian, and New Zealand dollars will appreciate against the greenback, though the bets were slashed. Investors lost confidence mostly in Aussie: longs fell by 53% from the previous week to $2.5 billion.

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.

Image from etftrends.com

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[ryuroden]

Danske, Westpac, UBS: bearish on EUR

Danske Bank: sell EUR/USD at $1.3024 targeting $1.2802 and stopping at $1.3014.

Westpac: sell EUR/USD in the $1.3000 area targeting $1.2700.

UBS: EUR/USD will be trade around $1.3000 in June and then decline to $1.2500 during the next 3 month.

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Spain: auction results

Spanish government sold 2.9 billion euro of 12/18-month bills out of targeted 2-3 billions. The yields and the cover ratio were slightly worse. See the detail below:

- 2.19 billion euro of May 17 2013 letra, yield 2.985% (last 2.623%), cover 1.8 (from 2.9);

- 0.71 billion euro of October 18 2013 letra, yield 3.302% (last 3.11%), cover 3.2 (from 3.77).

Photo by Pedro Armestre / AFP / Getty Images

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When to return to AUD longs?

Australian dollar has been rapidly falling against the greenback since the beginning of the month. Today AUD/USD hit 0.9963, the minimal level since December 2011.

Analysts at ANZ claim that the attempts of the bulls to push Aussie up versus its US counterpart will be limited by resistance in the $1.0080/1.0110 zone. In their view, the downside risks for the pair will subside only if it overcomes $1.0225. If it happens, one may try returning to AUD longs.

The specialists think that on a broad scale we see consolidation of AUD/USD and recommend closely watching momentum and price action during the pair’s retracements up in order to find ideal entry levels and timings.

Chart. Daily AUD/USD

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Ichimoku. Weekly forecast. GBP/USD

Weekly GBP/USD

British currency opened the week on the upside versus the greenback after 2-week decline from 2012 maximum in the $1.6300 area.

Pound was supported by the Turning line (1) which is still going up on the weekly chart and the upper border of the descending Ichimoku Cloud (3). The Standard line (2) is moving sideways and pointing at potential consolidation. Among the positive things one should note that the bearish Cloud has narrowed and may switch upwards in the near term reflecting stronger positions of the bulls.

Now everything depends on the ability of the prices to hold above the Cloud. If they manage to do it, the consolidation between the current levels and this year’s highs will likely continue. If they don’t, sterling will ease down to Senkou Span A (4).

Chart. Weekly GBP/USD

Daily GBP/USD

Pound’s currently testing support provided by Kijun-sen (1) ($1.6050). A bit lower, in the $1.6000 area, British currency will be able to count on the support line connecting the minimums of January 13, March 12 and April 16. In addition, the level mentioned above is very important from the psychological point of view.

If this support is breached and the prices head towards Ichimoku Cloud, the downside risks will increase as Kumo is rather thin in that zone. At the same time, there’s a 38.2% Fibonacci retracement level of the advance made by pound this year ($1.5890), which will increase the chances of the prices’ recoiling up (making us expect the “head and shoulders” pattern to form). Although bullish Kumo has started narrowing, it’s too early to speak about the potential reversal of the trend downwards – watch 3 support levels mentioned above.

The main resistance for sterling is provided by Tenkan-sen (2) which has recently turned down and was capping sterling during the whole last week.

Chart. Daily GBP/USD

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RBS: bearish on EUR/GBP

Analysts at RBS recommend selling the single currency versus British pound targeting 0.7695 (2010 minimum) in the longer term and stopping at 0.8110 (May 3-4 minimums).

The specialists claim that support levels for EUR/GBP lie at 0.7999 (May 10-11 minimum) and 0.7695, while the resistance ones – at 0.8069, 0.8077 (lower border of the gap), 0.8096 (upper border of the gap), 0.8192 (April 19 maximum), 0.8222 (previous significant support) and 0.8500 (61.8% retracement from the pair’s advance after 2008 credit crunch).

Chart. Daily EUR/GBP

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May 15: economic background

Asian session was surprisingly quite. The RBA released its last meeting minutes showing that last month 50 b.p. rate cut was caused by the easing growth and inflation.

The stalemate in Greece persists: Alexis Tsipras, the head of Syriza party which opposes the bailout and austerity, wouldn’t attend a meeting called by President Karolos Papoulias today – no doubt, bad news for risk sentiment.

Moody’s Investors Service downgraded 26 Italian banks including Unicredit SpA and Intesa Sanpaolo SpA citing weakened earnings and the country’s economic prospects.

Yesterday euro area’s industrial production came in even worse than expected contracting by 0.3% in March. Now the markets prepare to hear about the region’s falling into official recession. The forecast is for the currency union’s GDP to contract by 0.2% in the first 3 months of the year (second quarter in a row). Spain and Italy are already suffering from recession. The release is at 9:00 a.m. GMT. France has already reported 0.0% (q/q) change in line with sonsensus forecast. German economy, however, exceeded expectation adding 0.5% (q/q) versus 0.1% estimate. Italian Q1 data (-0.7% previous, -0.6% forecast) is due in 2 hours. In the medium term, the majority of forecasts for euro are bearish.

Also to watch today:

In addition, watch German May ZEW Economic Sentiment and follow the news about ECOFIN Meetings. Newly elected French President Francois Hollande meets German Chancellor Angela Merkel in Berlin. According to German government, Hollande's visit is a "strong signal" regarding the determination of both countries to continue their strong relationship. Euro zone’s leaders are expected to discuss the development of the region's monetary and fiscal policy. As is known, they have contradictory views on austerity.

US will release data for April. Economists look forward to a decline in American retail sales (both core and headline), while the CPI growth may slow down from 0.3% to 0.1%, though the core reading is seen unchanged. We will also get info on the demand for US debt: TIC Long-Term Purchases are expected to increase from 19.4B in February to 10.1B in March.

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[ryuroden]

AUD/USD: not quite encouraging prospects

The Australian dollar fell below parity with the greenback for the first time this year on Monday. The uncertainty in Europe doesn’t influence the Aussie directly, but saps the global risk appetite.

According to the RBA meeting minutes, released on Tuesday, last month 50 b.p. rate cut was caused by the easing growth and inflation. Policymakers are still concerned by the weakness in the housing sector; the mining sector, however, performs strongly.

The Aussie is trading on a downside since April 30 after the RBA cut rates to 3.75%. The still-reasonable Chinese FDI data (0.7% annualized drop in April vs. 6.1% drop in March) helped lift the AUD/USD towards session highs.

However, without any positive news from Europe (and who believes in that nowadays?) AUD/USD may fall below the $0.9850, $0.9600 and $0.9400 support levels. Strong resistance lies at $1.0000. These days the pair is trading far below the daily Ichimoku Cloud.

National Australia Bank: AUD/USD may trade at $0.9800 by September instead of at a previously expected $1.0200. By the year's end the pair may trade at $0.9700 instead of at $1.0100.

Commonwealth Bank of Australia: The outlook declined to $0.9800 by June from an originally forecast $1.0800, and to $1.0500 by December instead of $1.0900.

Westpac: The pair may trade at $0.9800 by the end of the September instead of $1.0200, but is retaining $1.0400 as a year-end target. In the near term a test of $0.9900 is likely.

Chart. Daily AUD/USD

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[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: $1.2750, $1.2800, $1.2850, 41.2925, $1.2950;

GBP/USD: $1.6100;

USD/JPY: 79.50, 79.55, 79.75, 80.00;

AUD/USD: $1.0000 (large), $1.0150.

Amage from yourmoneydictionary.com

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