Comments and forex-analytics from FBS

[ryuroden]

Westpac: advises for trading NFP

May Non-Farm Payrolls release is approaching (Friday, June 1, 12:30 p.m. GMT). The report will be especially closely watched taking into account weak US economic rebound.

Consensus forecast is +150K after +115K in April.

Data from forexfactory.com

Analysts at Westpac say that if NFP exceeds 150K one should sell USD/CAD. If the readings come in around 115K or lower, the trade should be quite the opposite as the greenback will strengthen on its safe haven status.

The specialists think that the odds of the first outcome are higher. The bank underlines that manufacturing that usually precedes the payroll data will not be coming out, increasing the chances that forecasters will not be able to adjust for an upside shift. As a result, Westpac recommends selling USD/CAD at 1.0320, stopping 1.0450 and targeting 1.0075 (200-day MA). However, we would recommend you to be really careful out there as USD/CAD looks rather strong from the technical perspective.

Chart. Daily USD/CAD

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Euro: is there any cope for rebound?

Bank of Tokyo-Mitsubishi UFJ insist that the fact that euro’s is now so oversold can provoke a rebound to $1.2640, $1.2680/85 and possibly to $1.2720 if the bulls manage to push EUR/USD above $1.2610. At the same time, the specialists can’t help admitting that the resolute progress is Europe is unlikely anytime soon. The recovery, if there is such, will certainly remain a correction. BOTMUFJ still see euro sliding to $1.28 by the end of Q2, to $1.25 – by the end of Q3, to $1.23 – by the year-end and to $1.18 by the end of Q1, 2013.

Nomura specialists underline that the overall economic weakness and political crisis ought to be enough to weigh on euro. The specialists warn that there’s evidence that euro zone investors are exiting themselves and buying other currencies such as US dollar. In their view, euro’s ability to rebound will be limited, so one better sell around $1.26 stopping at $1.2850 and looking for a move to $1.20.

Chart. Daily EUR/USD

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May 28 - June 1: main events of the week

Monday, May 28 – Tuesday, May 29

Japan: According to analysts, Japan’s household spending in April may increase by 2.5% vs. a 3.4% growth in March. April retail sales are expected to grow by 6.2% after a 10.3% growth in March.

US: CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.

Euro zone: Italy holds a T-bill auction.

Wednesday, May 30

Australia: Seasonally adjusted retail sales growth may slow down to 0.2% in April after a 0.9% increase in March, indicating decreased consumer spending. Construction work done in Q1 is forecasted to grow by 3.1% after a 4.6% decline in Q4 (lowest since 2001).

Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.

Euro zone: Italy holds a 10-year bond auction; the previous bond auction, which was held a couple of weeks ago, went well, but the rate reached 5.66%. Later in the day ECB

President Mario Draghi will be speaking in Brussels with the potential for a hint toward the ECB's actions in front of the following week's rate decision.

US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March. U.S. holds a T-bill auction.

Thursday, May 31

New Zealand: NBNZ business confidence for May index is released (in April index reached 35.8). Most analysts expect the economic conditions to improve in May due to a surge in retail and services sectors. However, strong national currency keeps bugging exporters.

Australia: Building approvals in April to increase by 0.7% after a 7.4% growth in March. Private capital expenditure in Q1 may surge by 4.1% after a 0.3% contraction in Q4, indicating an improved economic health.

US: A bunch of important US data will be released. ADP estimate of US non-farm payrolls in May is expected to reach 139K after 119K in April. Preliminary GDP release is expected to show a 1.9% growth in Q1 compared with a 2.2% growth in Q4, indicating that the US economy is not strong enough to drive global growth on its own. Chicago PMI in May is forecasted to increase to 56.8 vs. 56.2 in April. A small decline in unemployment claims during the last week is expected (369K vs. 370K).

Euro zone: German retail sales in April are expected to increase by 0.2% after a 1.6% surge in March; number of unemployed people in April may decline by 7K. French consumer spending in April may grow by 0.3% after a sharp decline in March. Euro Area Flash Estimate of Annual Inflation in May is expected to decline slightly to 2.5%. If the inflation rate estimate will change direction and increase, it may lower the chances of the ECB interest rate to remain low. Ireland holds a referendum on EU fiscal compact. The vote is crucial as it determines a crossroad for Ireland: the ‘Yes’ vote to the treaty could bring economic progress and financial stability together with unavoidable austerity measures. The ‘No’ vote will enhance downward pressure on the common currency.

Friday, June 1

China: Manufacturing PMI is forecasted to drop to 52.1 in May from 53.3 in April (reading above 50 indicates industry expansion).

Switzerland: Retail sales growth may slow down to 3.6% compared with a 4.2% growth in April.

Great Britain: According to forecasts, manufacturing PMI will decrease to 49.7 in May from 50.5 in April, indicating industry contraction and augmenting concerns on the U.K. economic conditions. Great Britain holds a 10-year bond auction.

Canada: GDP in March is expected to grow by 0.3% after the Canadian economy unexpectedly contracted by 0.2% in February.

US: Analysts expect the U.S. non-farm payrolls to increase by 152K. However, in April the labor market didn’t fulfill expectations rising only by 115K, far below the 172K consensus forecast. The March unemployment rate is predicted to remain unchanged at 8.1%. The unemployment declined to 8.1% in April from 8.2% in March, despite lower NFP job gains. The ISM manufacturing PMI in May is expected to drop slightly to 54.1 compared with 54.8 in April. However, the Markit index showed a slide to 53.9 in May.

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[ryuroden]

Hopes for BOJ near-term easing are dashed

The greenback declined versus Japanese yen recoiling down from the downtrend resistance line. It happened as the minutes of the Bank of Japan’s April 27 meeting (when Asset Purchase Program was increased) ruined the speculation that the central bank will boost monetary easing.

According to the minutes, the BOJ is carefully trying to tell markets that the large-scale stimulus measures in February and April were exceptional and won't be easily repeated. The central bank acted to decrease expectations of frequent easing, though as yen surged reacting at the news, so that Governor Masaaki Shirakawa had to emphasize that there was no change to the bank's powerful easing stance.

The BOJ has to buy 20 trillion yen more of government bonds by June 2013. This month, however, Japanese monetary authorities failed to meet their asset-buying targets. This means that it may be difficult for the central bank to prop up the APP as often as earlier. In addition, even though the inflation goal of 1% is still far away (consumer prices added 0.2% in March y/y), the interest rates are already extremely low, while the markets are drowned with cash, so the odds are additional easing won’t be much of a help.

Analysts at Credit Suisse claim that the BOJ actions confuse the markets: “What markets want to hear is not what Shirakawa thinks is right but the BOJ's strong determination to beat deflation.”

Chart. Daily USD/JPY

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Commerzbank: comments on EUR/USD

Here’s another piece of bearish comments about EUR/USD.

Technical analysts at Commerzbank point out that the single currency closed last week at below the 78.6% Fibonacci retracement of its move from June 2010 minimum to 2011 May maximum. The specialists also note that one may spot some divergence of the daily RSI. All this means that that there will be a decline after a slight rebound.

Resistance for EUR/USD is found at $1.2681 and $1.2796/1.2825 (interim maximum and Fibonacci retracement of advance from January minimums to February maximums). Support lies at $1.2490 and $1.2067 (55-month MA). In the longer term euro could target $1.1876 (2010 minimum) and $1.1641 (2005 minimum).

Chart. Daily EUR/USD

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BBH: Aussie’s prospects may improve

Today Australian dollar bounced versus its US counterpart on improved risk sentiment.

Analysts at Brown Brothers Harriman claim that Australian dollar has poor prospects on the fundamental part as the markets remain all in all in the risk-aversion mode and expect more easing by the Reserve Bank of Australia.

At the same time, the specialists underline that AUD/USD didn’t breached support provided by November minimums in the 0.9660 area, although euro hit 2-year low an equities declined. If Aussie manages to hold for a while, the outlook for the pair will become better as some technical indicators may turn in its favor.

Resistance for AUD lies in the 0.9930 zone (May 22 maximum). There’s also resistance at 0.9875 (Ichimoku Cloud at H4 chart).

Chart. Daily AUD/USD

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May 29: currencies in focus

Today’s trading day began with risk aversion. EUR/USD is testing $1.2500 on the downside staying close to 2-year minimum which was hit on Friday.

GBP/USD is consolidating in the $1.5630/5730 area after last week’s sharp decline.

AUD/USD dipped to 0.9800 as Australian markets fell, but then managed to return to 0.9860 during the Asian session.

USD/JPY edged a bit higher once again approaching downtrend resistance line. A bunch of important data was released early Tuesday in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).

CHF retains its strength despite the SNB’s President Thomas Jordan yesterday hinted at the possibility of introducing capital controls on foreign deposits, a measure which hasn't been used since the 1970s. This means that despite the threats of the nation’s monetary authorities traders still want to hold Swiss currency.

Events to watch:

Euro zone: Germany will announce key inflation results for May: experts anticipate 0.1% decline. Italy holds a T-bill auction (the market will be also awaiting Italian 10-year bond auction tomorrow).

Britain: CBI index of retail sales may fall from -6 in April to -7 in May.

US: Case-Shiller HPI is seen losing 2.7% in March (y/y). CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.

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[ryuroden]

Citigroup: trading GBP/AUD

Analysts at Citigroup recommend going long on the sterling against the Australian dollar. In their view, GBP/AUD may fall to A$1.53 (50% Fibonacci retracement from Feb. 15 - May 23 rally).

According to specialists, the Aussie is currently oversold due to risk aversion (last week number of short positions on AUD/USD reached its maximum since September 2008). Analysts underline that before the selloff, started on May 23, market participants went long, but now the situation seems to change.

Chart. Daily GBP/AUD

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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: $1.2500 (large), $1.2550, $1.2625, $1.2630, $1.2650, $1.2700;

USD/JPY: 79.00, 79.25, 79.30, 80.00, 81.00;

EUR/GBP: 0.8000;

AUD/USD: 0.9860, 0.9865, 0.9875, 0.9900, 0.9950;

USD/CAD: 1.0230.

Photo from Reuters

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[ryuroden]

Standard Chartered lowered forecast for EUR

Economists at Standard Chartered claim that Greece is now more likely to leave the euro area than to stay in it. In their view, that means that the current recession in Europe may deepen.

Such assumptions made the specialists revise down their forecasts for EUR/USD by the year-end from $1.32 to $1.18. According to the bank, euro will hit this mark if Greece is the only nation to leave the currency bloc. If other problem nations depart, the single currency may slump to $1.08 by the end of 2012.

At the same time, Standard Chartered still believes that the latter won’t happen as the European Central Bank and other member countries will come up with an effective firewall to stop the contagion after Greece quits euro. The analysts think that the ECB would respond to a Greek exit through significant monetary easing, so euro will surely keep depreciating.

Chart. Weekly EUR/USD

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GBP/JPY may keep declining

Technical analysts at Gaitame.com Research Institute expect British pound to lose more versus Japanese yen.

The specialists point out that GBP/JPY is now hovering right above 200-day MA in the 124.20 area.

If sterling breaches this support, the pair will drift down to 123.48 (61.8% Fibonacci retracement of the advance from January 13 minimum to March 21 maximum) and 122.77 (December 22 maximum).

Chart. Daily GBP/JPY

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Markets keep choosing US dollar

The greenback has risen against its 16 major counterparts from last year low in July. These days CDS on the U.S. debt are trading less than 100 b.p., indicating the risk is close to zero. The greenback remains resilient even despite the two rounds of quantitative easing, launched by the Fed between December 2008 and June 2011.

However, the main driver for the U.S. dollar’s strength is the sharp decline of the single currency. The resumed uncertainty in the euro zone saps the demand for euro-denominated debt on account of the low quality of the assets. Moreover, the need of the financial institutions to comply with Basel III standards also supports the greenback.

In the last quarter of 2011 the dollars share in the global foreign-exchange reserves surged to 62% (maximum since June 2010). According to analysts, euro may rebound before June 17 (Greek elections), because these days it is strongly oversold. However, in a longer period EUR/USD is expected to resume the downtrend.

Chart. Allocated foreign exchange reserves in US dollars

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[ryuroden]

RBS: trading GBP/USD

Analysts at RBS recommend going long on GBP/USD targeting at $1.5820/1.5929 and with a stop at $1.5606.

In their view, the downtrend of the cable has definitely slowed down. According to specialists, it’s too early to tell the trend has become bullish, because the signs of improvement are too modest. However, a close above $1.5674 (current level and a 5-day МА) would indicate a trend reversal.

Support:

1.5666 (38.2% Fibonacci retracement from a Jan.-Feb. rally);

1.5606 (March minimum);

1.5580 (50% Fibonacci retracement);

1.5504 (61.8% Fibonacci retracement).

Resistance:

1.5767 (23.6% Fibonacci retracement);

1.5820 (strong March support);

1.6000 (psychological).

Chart. Daily GBP/USD

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[ryuroden]

USD/JPY: technical comments

The USD/JPY cross keeps trading on a downside despite the fact that today it edged a bit higher once again. Analysts at Standard Chartered expect USD/JPY to stay between 79.00 and 81.00 yen until the risk sentiment improves. In their view, the pair may rise to 83.00 yen on positive Greek vote results, improved U.S. economic data and a monetary policy easing from Bank of Japan. Strategists at UBS opine the Bank may intervene if USD/JPY falls below 78.00.

Support:

79.35 (May 24 minimum);

79.21 (May 23 minimum);

79.16 (61.8% Fibonacci retracement from Jan. – Feb. rally);

79.06 (May 21 minimum).

Resistance:

79.83 (May 25 maximum);

80.08 (May 23 maximum);

80.15 (May 22 maximum).

Early Tuesday a bunch of important data was released in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).

Later this week watch for Japan’s data releases:

• Wednesday: manufacturing PMI; BoJ Governor M.Shirakawa speaks

• Thursday: preliminary industrial production; housing starts

• Friday: capital spending

Chart. Daily USD/JPY

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[ryuroden]

May 30: economic background

The pair EUR/USD has once again renewed 2-year minimum versus the greenback and tested today the levels below $1.2500. The market’s focus has slightly shifted from Greece to Spain.

The Financial Times reported citing unidentified officials that the ECB rejected the plan of Spanish government to recapitalize BFA-Bankia, the nation’s third- biggest lender, which has been nationalized earlier this month through an injection of treasury debt instead of cash. Spanish 10-year bond yields rose yesterday to the maximal level since November getting close to the critical level of 7%.

Risk sentiment was also affected by the fact that Chinese authorities have no plan to introduce large-scale stimulus measures to support growth. AUD/USD dipped below $0.9800. Aussie was also hurt by discouraging retail sales data (-0.2% m/m in April). USD/JPY is little changed for the second day trading just under downtrend resistance line.

Events to watch today:

Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.

Euro zone: Italy holds a 10-year bond auction. The previous one, which took place a couple of weeks ago, went well, but the interest rate reached 5.66%. Later in the day ECB President Mario Draghi will be speaking in Brussels and may unveil the central bank's position ahead of the rate decision next week.

US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March.

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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: $1.2450, $1.2475, $1.2600, $1.2675 and $1.2700;

USD/JPY: 79.50 and 80.00;

EUR/JPY: 100.00;

AUD/USD: $0.9705 and $0.9800;

GBP/USD: $1.5650, $1.5735 and $1.5800;

EUR/GBP: 0.8000;

USD/CAD: 1.0200.

Photo by Reuters

[ryuroden]

Gloomy days for the euro area

The fundamentals for the single currency remain bad and the majority of experts see EUR/USD declining to $1.20 or even to the parity level. For example, Commerzbank targets 55-month MA at $1.2067.

Euro tries to edge up this week as the Greece's pro-bailout parties regained an opinion poll lead ahead of the elections on June 17, but failed to overcome resistance at $1.2625 (January minimums) showing that the bulls are extremely weak. More negative news added to the poor sentiment such as the problems with Spanish banks recapitalization and the nation’s downgrade by Egan-Jones Ratings.

Some specialists say that there may be some positive developments at EU summit on June 13, just a few days ahead of the Greek elections, as the European authorities will feel the need to something to persuade Greeks say ‘yes’. Most Greeks want to see the terms of an international financial rescue revised even as they acknowledge that not abiding by austerity measures required for the funds may lead to the country leaving the euro area.

Societe Generale notes that the situation in Greece is already terrible: unemployment reached 21.7%, while GDP is contracting by 7.7%. The biggest Greek lender NBG claims that is the nation leaves the currency union, its GDP will contract by at least 22%, jobless rate – rise to 34%, inflation – climb to 32% and lending rates – surge to 37% with new drachma devalued by around 65%.

In the nearer term the markets will be looking at ECB’s meeting next week. Analysts at Standard Chartered claim that the central bank to cut its benchmark rate one more time by 25 bps to 0.75% in Q3 before going on hold.

Chart. Weekly EUR/USD

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Commerzbank: USD/CHF broke above resistance

Technical analysts at Commerzbank note that the greenback has at last managed to overcome resistance in the 0.9572/95 area (January maximums) trading versus Swiss franc, so the pair USD/CHF reached new 2012 highs and March 2008 minimum at 0.9636.

The specialists think that US currency may climb to 0.9950. In their view, support for the pair will be found at 0.9529/00 (May 28 minimum, May 18 maximum), 0.9368/35 (May 22 minimum, March maximums) and 0.9478 (Ichimoku Cloud support at H4 chart).

Chart. Daily USD/CHF

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Bank of America: comments on USD/CAD

Analysts of Bank of America expect the Canadian dollar to fall to its lowest level since October as commodity prices keep declining. Strategists recommend going long on USD/CAD at current levels, targeting at C$1.0528 and with a stop at C$0. 9950.

Specialists note that raw materials account for half of Canada’s export revenue. The CRY (CRB) commodity index fell below 281 (the lowest level since September 2010). Moreover, specialists at Bank of America forecast a further decline to 257 in a near-term.

Net long positions on the Canadian dollar declined twofold (70K on May 4 vs. 38K on May 22). According to analysts, net longs were opened in February - March when the pair was trading at C$1.0053-0.9700. As a result, a further downward movement of the cross is expected.

Chart. Daily USD/CAD

Chart. The Thomson Reuters/Jefferies CRB Index

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[ryuroden]

Why is a Greek exit so dangerous?

A Greek exit from the single currency bloc is a burning question: words “increased uncertainty” have become a fixed collocation in recent months. Market participants massively abandon the common currency: EUR/USD has fallen 6% in May. Why does a tiny Greek economy strike terror into the hearts of investors?

According to analysts at Bank of America and JPMorgan, a so called “Grexit” would create a domino effect to other European countries: sovereign defaults, bank runs, credit crunches, recessions and, finally, new exits.

Economists at JPMorgan estimate that 1% economic slump in the euro zone economy will trigger 0.7% decline in the other countries. All the exporting countries are extremely vulnerable to Europe’s crisis, no matter if it is Great Britain, Russia or China. U.S., however, is forecasted to cope with upcoming problems with a smaller damage for the economy.

In case of exit analysts at Bank of America forecast the euro zone’s GDP to contract by at least 4% during the recession, what is close to the decline after Lehman Brothers collapse in 2008. The common currency is expected to fall to $1.20 levels. Other euro zone’s countries except Germany would suffer from increased borrowing costs (Spain’s bond yields have already reached critical 7%). However, strategists expect Greece to remain in the euro zone because of the high cost of the alternative.

According to economists at University of California, the influence of the Grexit on the global economy will depend on the preventive measures, taken to limit the contagion. If the efforts prove to be insufficient, the economic system will get beyond the control. Citigroup analysts are convinced that Greece will leave the euro zone on January 1, 2013.

Cartoon: Tom Janssen

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[ryuroden]

May 31: economic background

Trading volumes and monetary flows are high as asset managers and corporations adjust their positions in the last trading day of the month.

In Australia building approvals gave a negative surprise coming at -8.7% (m/m) in April vs. 0.3% expected gain. The readings of private capital expenditure and private sector credit, however, were good enough.

Elsewhere the data was generally quite positive: Swiss economy added 0.7% in Q1 (q/q), while economists saw it unchanged, German retail sales were above the forecast last month (+0.6% vs. +0.1%), though the index gained less than in March (+1.6%).

Spain and its banking sector remain the main source of the market’s pain. The nation’s 10-year bond yield rose reached 6.70% yesterday.

EUR/USD edged slightly higher, but remains close to the 2-year minimum at $1.2358. AUD/USD once again tested the levels below 0.9700, but then managed to recover a bit. JPY strengthened versus all of its major peers as investors want it as a safe haven. EUR/JPY is falling for the eighth day in a row showing the longest decline in almost 2 years. USD/JPY slid to more than 3-month minimum at 78.70.

Data to watch today:

Euro zone: euro area flash annual inflation is expected to decline slightly from 2.6% in April to 2.5% in May. If inflation changes direction and increase, it may lower the chances of the ECB interest rate to remain low. Ireland holds a referendum on EU fiscal compact. The vote is crucial as it determines a crossroad for Ireland: the ‘Yes’ vote to the treaty (the baseline scenario) could bring economic progress and financial stability together with unavoidable austerity measures. The ‘No’ vote will enhance downward pressure on the common currency.

US: A bunch of important US data will be released. ADP estimate of US non-farm payrolls in May is expected to reach 139K after 119K in April. Preliminary GDP release is expected to show a 1.9% growth in Q1 compared with a 2.2% growth in Q4, indicating that the US economy is not strong enough to drive global growth on its own. Chicago PMI in May is forecasted to increase to 56.8 vs. 56.2 in April. A small decline in unemployment claims during the last week is expected (369K vs. 370K).

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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: $1.2500, $1.2560, $1.2570, $1.2625 and $1.2650 (large);

USD/JPY: 79.00, 79.80 and 80.00;

AUD/USD: $0.9820, $0.9850, and $0.9900;

NZD/USD: $0.7600;

USD/CHF: 0.9600;

EUR/GBP: 0.8100 and 0.8125.

[ryuroden]

AUD is weighted by weak equities

According to Bloomberg Correlation-Weighted Indexes, Australia’s dollar has lost 2.6% this year being the worst performer among 10 main developed-nation currencies after Sweden’s krona. Today AUD/USD once again tested the levels below $0.9700, but then managed to recover a bit, to $0.9730.

Building approvals gave a negative surprise coming at -8.7% (m/m) in April vs. 0.3% expected gain boosting the speculation the Reserve Bank of Australia will cut its benchmark rate on June 5. The readings of private capital expenditure and private sector credit, however, were good enough.

Analysts at Westpac claim that AUD/USD has potential for rebound in the near term: 14-day RSI was at 28.9, below 30 – the decline off Australian currency may have been too rapid and it has a chance for retracement. However, the specialists underline that Aussie’s prospects will be seriously affected by the declines in regional equities: Australian shares pared early losses but the main indexes post losses of more than 7% – one of the worst months since the global financial crisis erupted.

Strategists at Rochford Capital worry about Spanish problems and their negative impact on the market’s risk sentiment. In their view, AUD/USD will inevitably slide to a very important support area in the $0.9500/9450 area.

Chart. Daily AUD/USD

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SocGen: you should be short on EUR/JPY

Analysts at Societe Generale are bearish on the single currency versus Japanese yen. In their view, EUR/JPY will surely hit at least 97.03 (January 2012 minimum). So, the specialists recommend either maintaining shorts if you are already selling euro or open new ones with stops around 101.00. According to SocGen, EUR/JPY is a good trading choice as euro’s weak due to the region’s problems, while yen is demanded as a safe haven.

The bank underlines that EUR/JPY could reverse upwards only in case of some major development in the current euro zone’s state, which seems unlikely for now. Societe Generale points out that the next important dates are 17 June (Greek elections) and 28-29 June (European summit). In addition, all news from Spain will be of great importance as well.

Moreover, SocGen remind of EUR/JPY’s correlation with core euro zone bond yields and the dynamics of EUR/USD. From this view, the pair’s prospects are negative: as 10-year German bund yield is at a historical low under 1.35%, while EUR/USD remains close to 2-year minimum and is expected to go even lower.

Chart. Daily EUR/JPY

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EUR as usual looks vulnerable

The single currency rose today versus the greenback after 7 consecutive days of losses.

The market’s confidence in euro improved a bit as polls showed Ireland will vote for European Fiscal Pact at today’s referendum. In addition, German retail sales increased for the second month, while Spanish 10-year bond yields subsided from 6-month maximum and the ECB President Mario Draghi underlined that the central bank cannot resolve the problems caused by the lack of fiscal prudence and governance in the euro area.

Although the markets took some breath, euro still looks extremely vulnerable. Morgan Stanley thinks that there may be “a very brief pause in the downtrend in the euro because of the Irish referendum, but beyond that the news is fairly negative”. “Things are starting to look ugly. It seems like the market is making Spain its next target after Greece,” said analysts at Bank of Tokyo-Mitsubishi UFJ.

Analysts at BMO Financial Group recommend selling euro on potential rallies. The specialists advise to go short in the $1.2625 area (January minimum) stopping at $1.2725 and targeting $1.2325. In their view, “this is momentum and strong trend trading”.

Chart. Daily EUR/USD