Comments and forex-analytics from FBS

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July, 16: economy and currencies

On Monday the single currency remains close to a two-year low vs. the greenback ahead of today’s releases. European inflation is likely to stagnate, while consumer confidence – to weaken. According to the latest comments of Angela Merkel, Germany hasn’t changed her position about the austerity measures for the problem European nations. However, Merkel said she is confident the majority of German members of parliament will support aid package for Spain’s ailing banking sector.

The MSCI Asia Pacific added 0.3% as Asian shares rose. Japan’s financial markets are closed for a holiday. Safe currencies benefit from a risk aversion as markets are expecting more easing from the world’s major central banks. Investors are looking forward to Ben Bernanke’s semi-annual report on US economic outlook to Congress tomorrow. Market participants will also pay special attention to today’s IMF growth forecasts.

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UBS: bearish outlook for EUR

Analysts at UBS note that euro fell to the record minimums versus Australian, New Zealand and Canadian dollars, but remains well above the all-time lows against US dollar, Japanese yen, British pound and Swiss franc. Such dynamics reflects foreign exchange intervention by the SNB and loose monetary policy of the Fed, the Bank of Japan and the Bank of England.

According to specialists, if the Fed and the BoJ continue to disappoint investors looking for further easing then the euro’s further decline will become likely. Analysts continue to target EUR/USD falling to $1.15 this year.

Image: Bloomberg

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Westpac: the Fed won’t signal easing

The Fed Chairman Ben Bernanke is going to testify to the Congress on Tuesday and Wednesday.

Analysts at Westpac point out that Bernanke has said he is ready to take action as warranted, but so far he has been vague about what that means. If the Fed’s chief doesn’t signal that monetary stimulus is inevitable, the demand for riskier assets will fall. In this case the specialists recommend selling AUD/USD. On the other hand, if US central banker signals that there may be more easing, one should buy Aussie.

Westpac thinks that the first outcome is more likely as the Fed may decide to wait for more reports on employment and, probably, Greek bond redemption before deciding on a course of action. As a result, the bank’s recommendation is to sell AUD/USD at $1.0250 targeting $1.0100 and stopping at $1.0330.

Ben Bernanke, chairman of the Federal Reserve

Photo: Bloomberg

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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 - $1.2175, $1.2200, $1.2250, $1.2300, $1.2325, $1.2350

USD/JPY - Y79.25, Y79.70, Y80.00

GBP/USD - $1.5500, $1.5490, $1.5450

AUD/USD - $1.0150, $1.0165, $1.0190, $1.0300

EUR/AUD - A$1.2000

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Westpac: NZD/USD and the Fed

NZD/USD remains flat and close to a 200-day MA since July 9 after trading in an upward channel since the end of May. Specialists at Westpac expect the pair’s further movement to depend on the Ben Bernanke’s testimony on Tuesday and Wednesday.

According to analysts, NZD/USD will move higher to $0.8075 before Wednesday. Any positive outcome (a hint on QE3 or a verdict) would likely push it to $0.8200, while negative – to pull it down to $0.7840 and then to $0.7000 during the weeks ahead.

Chart. Daily NZD/USD

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Analysts: USD/CHF will reach parity

On Monday the greenback keeps strengthening vs. the Swiss franc as risk aversion dominates the global markets and concerns continue to weigh on the euro area. According to analysts at largest Swiss banks, USD/CHF is moving up towards parity following the depreciating euro.

Credit Suisse: If the euro weakens due to global risk aversion toward $1.20, we would expect USD/CHF to reach parity.

UBS: If the SNB is intervening to defend the cap, they are essentially recycling the euros into a series of other currencies, 50% of which are going to be dollars, what is going to push USD/CHF higher.

Last week the pair reached its highest level since December 2010. The next resistance for USD/CHF lies at 0.9873 and 0.9904, while support - at 0.9838, 0.9807, 0.9772 and 0.9741.

Chart. Daily USD/CHF

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HSBC: currency outlook

Analysts at HSBC gave the following comments on the currency pairs:

AUD/USD: Aussie is dominated by changes in risk appetite. There are plenty of external headwinds for a highly “risk-on” currency out there, and global developments will continue to be the main determinants of the price action, so AUD seems vulnerable.

USD/CAD: CAD has stabilized and recovered following its risk-related declines in May. Recent Canadian economic data shows the economy holding up fairly well. Other factors also seem quite positive for loonie: stabilization and partial recovery in oil prices and the fact that Canada is one of the only triple-A credits left in the world.

USD/JPY: Everyone expects USD/JPY to rise. This has fostered a prejudice that interprets most breaking Japanese news in terms of potential adverse implications for the JPY. The latest example is the recent weakness of the JPY as Japan moves ever closer to a possible consumption tax hike. The logic behind the resultant rally in USD/JPY is flawed and will reverse. Looking further out 2012 will finish with a lower dollar.

HSBC points out that as the central banks all over the world are easing their policies. As a result, the market’s sentiment is risk-on even though state of the global economy is deteriorating. “This risk rally comes with contradictions for the USD, because the upswing in financial assets is USD bearish while the worsening economy is USD bullish. The USD resilience may not last. The focus may shift to the fiscal cliff facing the US,” warns HSBC.

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Credit Suisse: sell EUR/USD on a pullback

EUR/USD has strengthened after the US retail sales have come out worse than expected. Retail sales contracted in June by 0.5% m/m, while core retail sales (excluding the auto sector) – by 0.4%. The released data added to investors’ concerns about the possibility of new monetary easing by the Fed. NY Empire state manufacturing index jumped to 7.39 in July from 2.29 in the previous month; these positive figures, however, were completely offset by the retail sales contraction.

Specialists at Credit Suisse remain bearish on the single currency regardless of a current pullback higher. Analysts recommend going short on EUR/USD at $1.2295, targeting $1.2000 and with a stop at $1.2348. What is more, the pair has all the chances to break $1.2163 and $1.2151 support levels and to reach key support at $1.1985/1.1876. Resistance at $1.2276/89/97 is forecasted to limit the upward correction of the euro. If the EUR/USD manages to overcome $1.2335/40, a surge to $1.2749 will become possible. However, in current economic environment the bearish scenario looks more realistic.

Chart. Daily EUR/USD

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July 17: economic & forex news

Ben Bernanke is once again the hero of the market’s expectations: investors expect to hear his hints on further monetary easing as he testifies to Congress today. It’s obvious that US economic recovery really is stumbling: data released yesterday showed that retail sales fell for a third month in June, contracting by 0.5%. The Fed’s chief is speaking in front of the Senate Banking Committee and the House Financial Services Committee tomorrow. US dollar’s weakening versus the majority of its counterparts on the news.

Also watch for US CPI data later today. Median forecast is that US CPI was unchanged last month from May when it declined by 0.3% (m/m). Annual inflation is seen sliding from 1.7% in May to 1.6% in June, below the Fed’s 2% medium-term target – another argument for more QE.

EUR/USD trades on an upside for a third consecutive day ahead of the ZEW economic sentiment release. The release may show today that the index of German investor expectations slid to minus 20 this month (the lowest since January) from minus 16.9 in June. Moody’s rating agency downgraded 13 Italian banks tonight. The IMF has slightly lowered its outlook for global growth in latest report on the world economy.

AUS/USD appreciates as the RBA meeting minutes released today made the new rate cuts less likely. The Australian policymakers reveal confidence in economy: national labor market looks stronger, China's economy wasn't slowing as much as previously anticipated and the overall mood in euro area seems to be better on the back of progress made by EU leaders late June. However, the euro zone’s debt woes still threaten the Australian economy. NZD/USD is up despite a CPI release (inflation in Q2 increased by 0.3%, what is below a forecasted 0.5% growth).

The MSCI Asia Pacific Index (MXAP) of shares advanced 0.6%. The overall market sentiment is positive ahead of Bernanke’s testimony: demand for USD and JPY vs. the other key currencies has dropped. USD/JPY strengthens after a three-day decline after touching the lowest since June 18 yesterday. According to Japan’s finance minister Jun Azumi, gains in the yen were “speculative” and officials will “take decisive action if needed.”

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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: $1.2100, $1.2190, $1 .2200, $1.2250, $1.2300, $1.2400;

USD/JPY: 78.00, 79.00, 79.15;

AUD/USD: $1.0250;

EUR/GBP: 0.7970;

USD/CHF: 0.9800, 0.9900.

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USD/JPY: technical comments

USD/JPY remains within the broad triangle. The pair has been trading important psychological resistance at 80 yen, but then turned lower to 78.70 (support line connecting February and June 4 minimums and June 15-20 minimums) before returning higher to 79 yen. The bulls are now trying to hold above the key 200-day MA.

Now resistance lies at 79.40: as long as the greenback’s trading below this level, the outlook for the pair will remain bearish. One may see a bearish channel on H1 chart. Sell on the breach of the 78.70 support. Between these levels, in the recent consolidation zone, the outlook is neutral.

Other resistance levels: 80.62 (June maximum), 81.78 (mid-April maximum) and 84.19 (March maximum). As for support, it seems that the Bank of Japan won’t let USD/JPY sing below 78 yen.

Comment from Wells Fargo: “Longer-term, we see some moderate yen weakness as global economic and market conditions improve. The recent crossing of the 20-day MA above the 50-day MA suggests a bullish technical bias for USD/JPY”.

Chart. Daily USD/JPY

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CFTC trader positioning data

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

• The US dollar long positions increased to $24.58 billion on July 10 from a total long position of $23.58 billion on July 3.

• The net short euro positions rose to 166K contracts on July 10 from the previous week’s total of 146K net short contracts on July 3.

• The net long yen positions edged higher to 8,9K contracts following a total of 4K net long contracts the previous week.

• The net long pound positions fell to 7.6K contracts following 5K net short contracts the previous week.

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CFTC trader positioning data part 2

• The net short Swiss franc positions declined to17.5K contracts following 19K net short contracts the previous week.

• The net long Canadian dollar positions contracted to 4.3K contracts following 8.7K net long contracts the previous week.

• The net long Australian dollar positions rose to 19K contracts after rising to 9.3K net long contracts the previous week.

• The net long New Zealand dollar positions increased to 5.6K contracts following a total of 4.3K net long contracts the previous week.

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.

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EUR/USD: ZEW, Fed, technical levels

German ZEW economic sentiment index came at -19.6 in July from -16.9 in June. Negative figures were pretty much expected. Reuter’s median forecast was of -20.0. The index for the euro area was at -22.3 from -20.1 last month.

EUR/USD slightly retreated from today’s peak at $1.2317. The market’s awaiting Ben Bernanke’s Congressional testimony later today/tomorrow. There’s the speculation that the Fed may cut deposit rate like the ECB did.

Technical analysts at Commerzbank claim that EUR/USD won’t be able to overcome resistance at $1.2365/1.2425 (38.2% and 50% Fibonacci retracements of July decline) and will slide to $1.2053 (200-month MA) and $1.1876 (2010 minimum).

Chart. Daily EUR/USD

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USD/CAD: BOC left rates unchanged

As it was expected, the Bank of Canada left rates unchanged at 1%.

In its statement the central bank pointed out that financial conditions have deteriorated since April. At the same time, the policymakers believe that domestic economy will keep feeling well enough. GDP growth forecasts for 2012 and 2012 were revised down in comparison with April estimated – from both 2.4% to 2.1% and 2.3% respectively. All in all, the BOC maintained its hawkish tone, signaling potential rate hikes even though it acknowledged gloomy external factors.

TD Securities: “The bias is still clearly towards tightening, but it’s a very weak tightening bias. USD/CAD is still stuck around 1.0140.”

BBH: “The 1.0100 area is the lower end of the recent range and a convincing break may spur a move towards parity.”

Support: 1.0130, 1.0115 and 1.0100;

Resistance: 1.0160, 1.0200 and 1.0250.

Chart. Daily USD/CAD

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July 18: economic & forex news

There are 2 main blocs of data today: releases in the UK at 8:30 GMT (Claimant count change, MPC meeting minutes, unemployment rate) and in the US and Canada at 12:30 GMT (US building permits, housing starts and the Beige Book and BOC monetary policy report and press conference). The Beige Book survey of business conditions in 12 American districts is the most important publication as it will be closely studied for the signs of the deteriorating economic conditions in the US.

The Fed’s Chairman Ben Bernanke will once again appear in front of US Congress later today. Investors generally think that US economy will need more easing. Analysts widely believe that QE3 will become more than likely in case of strong downside surprise to growth or the lingering softness in US labor market. Such attitude of the market is negative for the greenback.

Demand for euro was limited before Germany’s lower-house lawmakers vote tomorrow on aid to recapitalize Spanish banks. Angela Merkel will likely get the majority needed to for this piece of legislation to pass successfully. EUR/USD briefly tested the levels above $1.2300, but didn’t manage to hold there.

The Bank of Japan released minutes from its June 14-15 meeting. The policymakers agreed to monitor effect of asset-purchase program. Some of them warned that CPI main be flat longer than expected. USD/JPY is consolidating above 79 yen (H1).

AUD/USD returned to July maximums around $1.0300 helped by better than expected Australia Westpac May leading index.

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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: $1.2200, $1.2250, $1.2300, $1.2400

GBP/USD: $1.5425

EUR/GBP: 0.7865

USD/CHF: 0.9900

AUD/USD: $1.0200

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Citigroup: bullish on JPY vs. EUR and USD

Technical analysts at Citigroup claim that EUR/JPY may decline to the minimal levels since 2000.

The specialists claim that if euro falls below 95.50 (level close to June 1 minimum), it will slide to 92 yen. On the Ichimoku chart the pair dropped below conversion and base lines which formed the “dead cross” below the Cloud – a bearish signal.

As for the fundamental factors, they are also in favor of Japanese currency: persistent risk-off sentiment and no additional easing announced by the BOJ last week.

As for USD/JPY, it may decline to 77.66 if it breaches the 78.61 level.

Chart. Daily EUR/JPY

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AUD/USD: technical comments

AUD/USD trades on a downside on Wednesday, but remains above $1.0300 and the 200-day MA as currency markets are waiting for the US Beige Book release. Will the US economic conditions give a hint on a necessity of a new QE round? Yesterday the Aussie plummeted right after Ben Bernanke’s testimony in the US Congress, but then rebounded and overcame the $1.0300 mark. The pair trades in an upward channel since early June.

According to analysts at NAB, the Australian currency remains extremely sensitive to changes in risk appetite even despite the positive domestic signals. In their view, AUD/USD will move on a downside as the euro zone’s crisis is far from resolution, US growth remains sluggish and China raises concerns.

Resistance: 1.0318/20 (yesterday’s and July 4 maximum), 1.0328 (July 5 maximum), 1.0370, 1.0469 (April maximum).

Support: 1.0300 (psychological), 1.0277 (200-day MA), 1.0260 (78.6% Fib. retracement), 1.0215 (100-day MA), 1.0200 (psychological), 1.0155 (July 9 minimum).

Chart. Daily AUD/USD

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UBS: comments on forex majors

EUR/USD: Euro won’t be able to sustain gains. The single currency will soon come under renewed negative pressure. As long as EUR/USD is trading under the key resistance of $1.2365, it’s vulnerable for a decline to $1.2163.

GBP/USD: Resistance is at $1.5722, while support is found at $1.5554.

USD/JPY: If the pair drops below 78.61, it will risk sliding to 77.99 ahead of 77.66. Resistance is at 79.39 and 80.10.

USD/CHF: resistance is at 0.9873. Above this level the greenback will head to 0.9951. Support lies at 0.9686.

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NZD/USD: technical comments

NZD/USD fell to $0.7930 on Tuesday right after the Fed’s Chairman Ben Bernanke refrained from indicating if the regulator is considering new monetary measures, but then bounced back. On Wednesday the pair continues a downward movement and trades below a 200-day MA. Today’s Bernanke’s speech is unlikely to have a strong influence on the pair. NZD/USD traded in an upward channel, but left it in late June and has been moving sideways since then.

According to specialists at Westpac, NZD/USD is likely to trade higher towards a new $0.8005/75 range in a short term, as the market starts to price in a new round of money printing by the Fed.

Some analysts, however, believe the kiwi is strongly overvalued. Analysts at Commerzbank, for example, expect the pair to drop to $0.7800 (55-day MA) in the forthcoming weeks. They will remain bearish until NZD/USD breaks above $0.8316 (April maximum).

Chart. H4 NZD/USD

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EUR/GBP: technical comments

EUR/GBP has been trading in a downward channel since July 2011 and is likely to continue the decline. As can be seen from the daily chart, 55-, 100- and 200-period MAs are heading down.

Analysts at Westpac recommend going short on EUR/GBP at current levels, setting a stop at $0.8025 and a target at $0.7650. According to specialists, euro zone’s problems will remain a cloud over the market for weeks and, therefore, will weigh on the single currency.

Chart. Weekly EUR/GBP

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EUR/USD: comments & technical levels

The single currency had dropped from the levels in the $1.2270/2300 area to the day’s minimums around $1.2330.

Euro fell on a media report that quoted German Chancellor Angela Merkel as saying she could not be sure the European project would work. The markets are turning risk-off. In addition, EUR finds itself under pressure after yesterday’s testimony of Ben Bernanke who refrained from discussing specific stimulus measures. The majority of the economists believe that today’s speech of the Fed’s Chairman will be quite similar to what we’ve heard on Tuesday.

Support: $1.2188 (July 17 minimum), $1.2175 (July 16 minimum), $1.2163 (July 13 minimum) and 1.2151 (June 29, 2010, minimum).

Resistance: $1.2317 (July 17 maximum), $1.2334 (July 10 maximum), $1.2365 (July 5 minimum) and $1.2400 (July 6 maximum).

Bank of Tokyo-Mitsubishi UFJ: EUR/USD may slide to $1.2050 during a week from now as the hopes for more easing from the Fed will be gradually weakening. Resistance lies at $1.2450.

Chart. H1 EUR/USD

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USD/CAD: bullish views of the banks

Technical analysts at Commerzbank believe that the greenback may bounce up versus its Canadian counterpart after the retracement to 1.0123/1.0085 (50% Fib of April-to-June rise, the 200-day MA) is over. The specialists think that USD/CAD’s advance may resume after correction in June and July. In the medium term the bullish outlook will be confirmed when the pair rises above 1.0362 (June maximum). In this case the longer-term targets will be 1.0523 (November maximum) and 1.0575 (200-week MA).

Chart. Daily USD/CAD

Analysts at MIG Bank point out that USD/CAD is holding above the key support of 1.0100 (close to 200-day MA) and even if US dollar dips below this level, it will be only a short-term move. In this case the bank recommends buying USD at 1.0050. According to MIG, the medium term outlook for the pair will change from bullish to neutral only if it slides below 0.9800.

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GBP/USD: down on BoE minutes

The bulls were pushing GBP/USD up for three consecutive days and the sterling nearly managed to overcome the resistance of the downward trend, existing since June. However, the pair returned to the channel today on the back of the important UK data releases and now trades close to the strong $1.5600 level.

The BoE meeting minutes held on July 4-5 revealed the MPC voted unanimously in favor of maintaining the interest rate at 0.5%, while 7 members voted in favor of expanding the QE by a further £50 billion. According to analysts at ING, the increased support for additional QE means that it will possibly be expanded to £450 billion by the end of 2012. A new QE round is expected to weigh on the British currency. The unemployment rate in Britain unexpectedly declined to 8.1%.

Commerzbank specialists expect GBP/USD’s growth to be limited on the upside by 55- and 200-day MA’s ($1.5685 and $1.5751). They forecast the pair to decline towards the $1.5407/1.5393 support area (June 8 and July 12 minimum). The next support lies at $1.5270/35 (2012 minimums).

Chart. Daily GBP/USD

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