Comments and forex-analytics from FBS

[FBS.com_official]

Soros: mechanism to quit euro zone needed

Famous billionaire investor George Soros claims that the euro area will have no choice but to develop a mechanism that would allow weaker economies to exit the monetary union as these countries will inevitably need to abandon euro.

According to Soros, the risk that Greek crisis will spread and contaminate other European nations is high. The specialist underlined that the financial system remains extremely vulnerable. Soros says that the crisis in Europe is still developing. In his view, the region’s authorities are trying to buy time, while time is working against them.

We have already heard Soros speaking in January in Davos that the currency union would dissolve. The well-known market player believes that the European leaders have to adjust their policies both for core and peripheral member states to promote their economic recovery. In his opinion, they have to look for alternative strategies to solve the debt crisis such as taxes for the whole EU.

[FBS.com_official]

Barclays Capital recommends buying USD/CHF

The markets currently find themselves in the situation of high uncertainty: there’s the euro zone’s debt crisis, US economic weakness and potential surprises from the North Africa and the Middle East. So, it’s time to turn to safe havens.

Analysts at Barclays Capital advise investors to buy US dollar versus Swiss franc.

The specialists have determined 4 possible scenarios and tried to analyze how various currencies might perform if each of them realizes. The scenarios are: continued slow growth in the United States, increased problems in the euro area on the back of diminishing fears about the global growth, escalating tensions at the Middle East and, finally, the worst case scenario that combines the negative factors of the others.

Strategists at BarCap have come to the conclusion that in all but one – the mild increase in euro zone periphery problems – the greenback will outperform Swiss currency. The bank believes that if European crisis escalates it won’t be contained within the region, but will affect global financial market. In such case US dollar and Japanese yen may outperform other major currencies as liquidity risk premia go up and currencies move back towards fair value.

In addition, it’s necessary to note that the greenback is currently trading at very low levels under 0.8400 versus Swiss franc and many specialists think that the trend may reverse upwards.

[FBS.com_official]

BIS: central banks need to hike rates

The economists at the Bank for International Settlement think that central banks have to start hiking the rates in order to curb inflation and reduce financial stability risks. According to the institution, the world’s central banks have to be ready to increase the borrowing costs at faster pace than during the previous tightening cycles.

The matter concerns primarily the central banks of developed nations such as the United States, Britain and Japan which plan to keep monetary stimulus for some time more. Among the advanced economies only the European Central Bank began lifting its benchmark rate. Their counterparts in Asia and Latin America have already begun tightening.

BIS warned that global inflationary pressures tend to strengthen quite rapidly provoked by the surge in commodity prices (during the past year crude oil prices gained 20%) and the global recovery facing capacity limits. BIS said that global headline inflation went up by 1% since April to 3.6%. Strategists at ING Group claim that one of the lessons of the financial crisis is that interest rates shouldn’t be left too low for a long period of time.

[FBS.com_official]

MIG bank: technical analysts on USD/JPY

Technical analysts at MIG bank note that the greenback managed to break above the psychological 80.00 zone breaking out the large triangle. The specialists are bullish on USD/JPY in the medium and longer term.

If US currency manages to close above the post G7 intervention maximum at 82.00 and hold there, it will be able to advance to the post March 11 earthquake shock maximum at 83.30 and then to 85.50 (April 7 maximum). If the bulls push the pair above the latter, USD/JPY will rise to 88.70.

The specialists note that support levels are situated at 80.00 (potentially key level for the Bank of Japan) and 79.80 (61.8% Fibonacci retracement). Only if the pair closes below the latter, it will be poised down to 78.80.

[FBS.com_official]

Commerzbank, BNP Paribas: bullish view on EUR/USD

Economists surveyed by Bloomberg News believe that the European Central Bank will raise its benchmark interest rate to 2% by the end of the year, while the Federal Reserve will stay on hold until the first quarter of 2012.

Analysts at Commerzbank believe that the ECB doesn’t seem to be affected by the Greek crisis. The fact that Jean-Claude Trichet signaled the rate hike in order to curb inflation when some of the region’s economies have to conduct severe austerity measures means that the euro area’s central bank’s policy is independent of what’s happening in the indebted nations. According to the specialists, the pair EUR/USD may firstly rise to $1.50 and then ease down to $1.45 by the end of 2011.

Today is the first day of the 3-day debate in Greece on new budget cuts. The law will be discusses and voted on June 30. Strategists at BNP Paribas believe that the situation in Greece will be resolved in a way positive for the single currency. In their view, the fact that Germany has made a concession and stopped insisting on the forced debt restructuring is very good signal. The bank expects the single currency to advance to $1.55 by the year-end.

Economists at JPMorgan Chase claim that the European policymakers seem to be very eager to save the monetary union. If the euro zone’s authorities manage to take the debt crisis more or less under control and there are the signs that the global recovery is gaining momentum, euro will get some support.

[FBS.com_official]

Commerzbank: comments on EUR/GBP

The single currency rose versus British pound overcoming resistance at 0.8939.

Technical analysts at Commerzbank believe that the pair EUR/GBP will reach the top of the 2-year channel at 0.8980, but won’t be able to move above this level.

In their view, euro will drop back to the 0.8820/0.8783 area representing 20-day MA and support line.

[FBS.com_official]

William Pesek: what euro area may learn from Asia

Bloomberg columnist William Pesek gave an interesting view on the situation in the euro area drawing parallels between the current European debt crisis and what Asia experienced in 1997.

In their view, despite all the differences between 2 regions the consequences of the 2 set of events may be much similar. That implies that the euro zone may face serious political problems and deterioration of living standards, while the reputation of the IMF will get tainted.

The specialists have pointed out 5 lessons Europe can take from Asia:

1. Default is inevitable, so the bailouts seem to be vain. As Greece requires more and more funding, financing the nation will weaken other economies of the monetary union.

In Asia after Thailand devalued the baht in July 1997, Indonesia and Korea were contaminated by the crisis.

2. Recovery is quicker when debts are repaid. By now Greek government has lost much credibility. Pesek thinks that Greece has to restructure its debt and if such measures were taken a year ago they would be less painful and didn’t agitate the market that much.

In December 1997 Korea received $57 billion IMF bailout. The nation acted quickly to let weak companies fail, closed insolvent banks, fought tax cheats and came managed to reduce its debt quickly enough.

3. Europe needs to conduct vast reforms to make the region’s economy more competitive. The policymakers can’t count only at the austerity measures.

After the crisis Asian nations put a lot of efforts in advancing the service sectors.

4. It’s necessary to try balancing the budget through promoting higher growth rate, but not by increasing taxes.

Japan was practicing monetary stimulus for nearly 2 decades hoping to achieve 5% growth. Then its deficit dramatically expanded, the country made a huge mistake lifting up consumption taxes in 1997 that got the last air out of the recovery.

5. The conditions of Greek bailout are less strict than those designed for Indonesia, Korea and Thailand 14 years ago.

The main conclusion of the specialist is that all is not as bad as one may think. Asia has managed to survive the crisis and so will Europe. It’s necessary to let Greece do what needs to be done even if the country has to default.

[FBS.com_official]

French banks agreed to the partial rollover of Greece’s debt

Yesterday French banks including BNP Paribas told the French government that they were willing to partly roll over maturing Greek government bonds in order to help the indebted nation avoid default.

Under the proposal discussed in recent days between the French Banking Federation and the French Treasury, bondholders are going to re-invest about 70% of Greek sovereign debt maturing from mid-2011 to mid-2014. 50% percent of the redemptions would go into 30-year Greek securities, with the remaining 20% invested in a fund made of “very-high quality” securities that would back the 30-year bonds.

Greece’s outstanding debt has almost reached 340 billion euro that includes bonds of 100 billion euro maturing by the end of 2014.

Several German banks note that there’s a good purpose in the French banks’ idea claiming, however, that 30 years is too long a period. The bankers are ready to discuss the maturities of 15, 10 or 5 years. There will be more talks on the matter.

Analysts at RBC Capital Markets note that that bank-backed rollover would be only a partial solution of Greece’s crisis as commercial banks are holding just 27% of the nation’s sovereign debt. The ECB that had earlier announced that it wouldn’t participate in the rollover holds 14% while the European Union and International Monetary Fund have the remaining 16%.

[FBS.com_official]

The Guardian: calendar of events in the euro area

In order not to miss anything of importance concerning the situation in Greece, here’s the list of main events of the near future prepared by economic columnists at The Guardian.

Monday 27 June. The Greek parliament began debating the austerity package introduced by George Papandreou's government. At the same time, the Institute of International Finance, a global financial industry association, discusses in Rome the potential involvement of Greece’s private creditors could in the voluntary restructuring of the nation’s huge debt.

Tuesday 28 June. Strikes and demonstrations of the public and private-sector workers are scheduled in Greece to coincide with the austerity debate.

Wednesday 29 June. The Greek parliament votes on the austerity bill.

Thursday 30 June. The second vote on the budget cuts enabling bill that will allow the government to implement austerity measures more rapidly than earlier. This round will take place only if the government manages to win on Wednesday.

Sunday 3 July. Euro zone finance ministers meet to discuss the details of a second bailout package for Greece and decide whether the country has fulfilled its obligations needed for obtaining the 12-billion euro fifth tranche of the initial bailout.

Monday 11 July. Finance ministers from across Europe meet on the Greek issue.

Friday 15 July. Greece has to repay 2.4 billion euro of debt and could default if it has not received the 12 billion euro aid tranche.

Tuesday 19 July. 900 million euro of debt must be repaid.

Wednesday 20 July. 1.5 billion euro of debt must be repaid.

Friday 22 July. 1.6 billion euro of debt must be repaid.

[FBS.com_official]

Barclays, UBS: negative outlook for EUR/USD

The single currency is fluctuating between $1.4230 and $1.4330 versus the greenback ahead of the vote on austerity measures in Greece.

Currency strategists at Barclays Bank note that investors seem to be very nervous. The specialists recommend selling the pair EUR/USD on its advances. Analysts at JPMorgan Chase are also firmly bearish on euro.

Analysts at Rabobank think that the chances that the single currency will gain more upward momentum ahead of this week’s main event are slim. In their view, in the near term EUR/USD will find resistance at the top of the daily Ichimoku Cloud at $1.4397.

Strategists at UBS claim that although euro jumped to the levels in the $1.4300 zone, the general outlook remains bearish. According to the specialists, the pair is on its way down to support at $1.4103 and $1.4074. The bank places resistance at $1.4358.

Analysts at Bank of New York Mellon claim that if all goes well on Wednesday, EUR/USD will bounce, but only temporarily as the fundamental problems of Greece and the euro area still won’t be solved. The economists believe that earlier euro was supported by the external factors such as reserve diversification by the central banks, so the end of QE2 in the United States may slow down this process putting euro under negative pressure.

[FBS.com_official]

UBS reduced forecast for GBP/USD

Bank of England’s policy maker Adam Posen criticized the Bank for International Settlements for calling the central banks of the developed nations to increase the borrowing costs in order to fight inflation.

Posen argued that in the UK and other western advance economies there’s still little or no credit growth, little wage growth beyond productivity and little evidence of rising inflation expectations.

Posen has voted since October to extend the BoE’s bond-buying plan being the only one of the 9-member MPC to do so. Minutes of the committee’s June 8-9 meeting showed, however, that some officials saw a potential need for further asset purchases as the nation’s economic recovery remains very weak.

Analysts at UBS revised down the forecast for British pound versus the greenback by the end of 2011 from $1.63 to $1.50. The specialists changed their mind as they now think that UK central bank won’t raise the rates until February 2012.

Technical analysts at Commerzbank claim that if GBP/USD closes below 1.5937, it will be poised down to the 55-week MA at 1.5855 and then to the Fibonacci target at 1.5510. Resistance for the pair is currently situated at 1.6050.

Pound was also affected today by the discouraging data on Britain’s current account: the deficit narrowed from 13 billion pounds in the final 3 month of 2010 to 9.4 billion pounds in the first quarter of this year, while the economists were looking forward to the slump to 4.7 billion pounds.

According to data from Bloomberg, sterling lost 7.9% versus the developed-market currencies during the past year.

[FBS.com_official]

Eurogroup decides to release vital loans to Greece

The International Monetary Fund (IMF) said it welcomed the Eurogroup's commitment to a financing strategy on debt-ridden Greece.

Eurogroup finance ministers decided on Saturday to release the fifth tranche of loans to Greece to avoid an immediate default of the country.

«We look forward to continue working with the Greek authorities and the European partners in support of the economic program that will contribute to restoring fiscal sustainability, safeguarding financial sector stability, and boosting competitiveness to create the conditions for sustained growth and employment,» noted Atkinson, IMF's chief spokeswoman.

The 12-billion-euro (17.38-billion-U.S.-dollar) tranche of the four-year 110-billion-euro bailout pact that Athens secured last year to avoid default and a supplementary package under discussion over the past few weeks, are considered as essential to the rescue of the country from economic collapse.

The IMF is expected to approve its share of 3.3 billion euros (4.75 billion dollars) of the fifth tranche of loans next week.

But some economists insist that even a second bailout plan would not be enough to put Athens back on track since its debt load, equivalent to 150 percent of the country's gross domestic product, is just too heavy.

In order not to miss anything of importance concerning the situation in Greece, here’s the list of main events of the near future prepared by economic columnists at The Guardian.

Monday 11 July. Finance ministers from across Europe meet on the Greek issue.

Friday 15 July. Greece has to repay 2.4 billion euro of debt and could default if it has not received the 12 billion euro aid tranche.

Tuesday 19 July. 900 million euro of debt must be repaid.

Wednesday 20 July. 1.5 billion euro of debt must be repaid.

Friday 22 July. 1.6 billion euro of debt must be repaid.

[FBS.com_official]

Ichimoku. Weekly forecast. GBP/USD

Weekly GBP/USD

Last week the bulls managed to force some correction of the rate – the prices went up to the Standard line that will act as resistance (1). The next obstacle for GBP/USD will be the Turning line (2) that has already begun moving down.

Although the bullish Ichimoku Cloud still supports the pound, it has significantly narrowed (3). That means that the bullish players are still losing their power.

Daily GBP/USD

On the daily chart the rate’s rebound made the Turning line (2) and the Standard line (1) stop declining and become horizontal. The same happened with the lines limiting Kumo – Senkou Span A and B.

Never the less, the situation on the daily chart seems to be more negative than on the weekly one. Tenkan-sen (2) and Kijun-sen (1) still keep the “dead cross” formed below the Ichimoku Cloud in place – the bearish sign. The Cloud itself (3) is descending that means that the bulls are still dominating at the market. Tankan and Kijun will act as resistance for the prices.

[FBS.com_official]

Ichimoku. Weekly forecast. USD/JPY

Weekly USD/JPY

During the last 2 weeks the pair rose, though the bulls have managed to gain only a little – US dollar was held by the Standard line and the Turning line that has come very close to the former (1). The lagging Chinkou Span (2) isn’t able to get above the price chart yet.

At the same time, the descending Ichimoku Cloud is narrowing (3) that means that bears are getting weaker.

It’s recommended to watch the signals.

Daily USD/JPY

On the daily chart the pair’s consolidation’s coming to an end. Kijun-sen has turned down going to meet the horizontal Tenkan-sen ready to form the “golden cross” (1).

Although the bearish Ichimoku Cloud will continue pressuring the pair providing resistance for the prices, it keeps rapidly narrowing (2) as the bears’ power is decreases.

As a result, if US dollar manages to overcome the Turning line and the Standard line, it may approach Kumo. At the same time, taking into account more negative situation at the weekly chart, it’s necessary to be cautious as all attempts of USD/JPY to push higher are likely to be limited for now.

[FBS.com_official]

Ichimoku. Weekly forecast. USD/CHF

Weekly USD/CHF

On the weekly chart the pair USD/CHF kept consolidating between 0.8275 and 0.8550.

The Turning line (1) and the Standard line (2) are still creating resistance for the prices.

Daily USD/CHF

On the daily chart it’s possible to see a kind of potential breakthrough – for the first time in more than a month the prices managed to close above the Standard line (2) that together with the Turning line (1) will act now as support for the pair. On the upside, declining Ichimoku Cloud – Senkou Span A – plays the role of resistance (3).

The bullish signal will appear if Chinkou Span breaks above the price chart (4). The greenback will likely go up a bit more, though there are still no signs of the major downtrend reversal.

[FBS.com_official]

Commerzbank: comments on EUR/USD

Technical analysts at Commerzbank note that the single currency has found support in the $1.4305/1.4407 area trading versus the greenback. In their view, the chances that the pair EUR/USD will manage to hold above the important level at $1.4129 have increased.

The specialists claim that further support is situated at the 200-week MA of $1.4021, the May minimum of $1.3968 and the intersection with 200-day MA of $1.3887.

According to the bank, as on Friday the pair EUR/USD has closed at the top of the weekly trading range, it’s now more likely be able to break above $1.4732 and climb later to $1.4940/ $1.5145.

[FBS.com_official]

Rabobank: franc’s decline won’t last long

Currency strategists at Rabobank claim that taking into account the improved investors’ risk appetite it’s possible to assume that Swiss franc will decline in the near term.

As the same time, it’s necessary to realize that Greek debt crisis isn’t over yet. The specialists are sure that there are another periods ahead with high risk aversion.

According to the bank, the appreciation of Swiss currency during the recent months was provoked by the US economic weakness and the economic slowdown in China. The analysts warn that these factors will likely keep influencing the market.

As a result, one may probably use the current franc’s decline to buy it on the dips. Rabobank believes that the pair USD/CHF may face resistance later this week.

[FBS.com_official]

BMO Capital advises to sell pounds versus Aussie

Analysts at BMO Capital note that these week there are several central banks’ meetings scheduled. The most important ones are, in their view, the meeting of the Reserve Bank of Australia on Tuesday, July 5, and the one of the Bank of England on Thursday, July 7.

The specialists are sure that both central banks will keep the borrowing costs unchanged. However, there are some differences in Australian and UK situation. The banks points out that there are many concerns about weak British economy, while Australia’s prospects seem to be much brighter.

As a result, the specialists advise selling British pounds versus Australian dollars at 1.5025, stopping above 1.5225 and taking profit at 1.4025.

Strategists at J.P. Morgan share the positive outlook for Aussie. The specialists underline that better than expected economic data from Japan means strong demand for Australian commodities. In addition, investors may still be pricing in some expectation of an interest rate cut in Australia this year and this is very unlikely to happen.

[FBS.com_official]

MIG Bank: EUR/CHF will keep growing

Technical analysts at MIG bank believe that the single currency is going to keep moving up versus Swiss franc.

The specialists note that there are bullish MACD divergences in the daily and weekly timeframes and a “bullish engulfing” candle on the weekly chart.

According to the bank, the pair EUR/CHF is poised up to 1.2560.

[FBS.com_official]

Commerzbank expects USD/CHF to rise

Technical analysts at Commerzbank note that the greenback may rise versus Swiss franc if it overcomes key resistance in the 0.8540/54 area limited by May 31 maximum and May 4 minimum.

The bearish pressure on US dollar will ease, only if it closes above these levels. In such case USD/CHF will be able to rise to 0.8612/30 – the 55-day MA and 23.6% Fibonacci retracement of the decline from the February 11 maximum of 0.9776.

The specialists note that the pair is correcting higher, following the recent divergence of the daily RSI. According to them, there’s a triple divergence now that allows looking forward to strong rebound of US currency. Today the index climbed to the maximal level since May 13 of 52 points.

[FBS.com_official]

BlackRock doesn't recommend buying AUD/USD

Analysts at BlackRock, the world's largest asset manager that’s in charge of about $3.65 trillion in assets in its stock, bond and hedge funds, think that after Australian currency has gained 28% versus US dollar during the past year that’s the most than other greenback’s major counterparts it doesn’t have much potential to keep appreciating.

The specialists point out that to buy Aussie one has to be very optimistic about global economy that’s rather difficult in the current circumstances.

The pair AUD/USD used to be supported by the increasing interest rate differential between Australia and other developed nations and high demand from China for the nation’s commodities. However, Chinese manufacturing growth fell to the minimum since February 2009, while the pace of services industries’ expansion declined to lowest level in 4 months. In addition, according to the data released today, Australian retail sales declined today.

Aussie dropped from $1.0789 on July 1, the maximum since May 11, to trade in the $1.0720 area.

Economists surveyed by Bloomberg News expect Australian currency to weaken to $1.04 by the end of 2011.

[FBS.com_official]

RBA lest the rate unchanged: analysts’ comments

As it was expected, the Reserve Bank of Australia decided to keep the rates unchanged at 4.75%.

Analysts at Barclays Capital expect the central bank to downgrade its growth and inflation forecasts in August. Though the RBA said it expects the economic recovery to boost output in coming months, it projects growth in 2011 to be less strong than previously thought.

The pair AUD/USD declined from $1.0746 to $1.0665. Strategists at Western Union Business Solutions Corporate Dealing place support at $1.0650 and resistance at $1.0730.

Economists at J.P. Morgan pointed out, however, that the RBA is still concerned about inflation that will keep increasing. In their view, the central bank will hike rates once again in the coming months – in August and November.

Analysts at Nomura think that the RBA will consider the option of the rate hike if the second quarter CPI figures are really high. According to the specialists, both headline and underlying inflation would have to show above 0.8% on-quarter growth. In the first quarter Australian consumer prices added 1.6%, while the core CPI increased by 0.9%.

[FBS.com_official]

BNP Paribas, Rabobank about pound’s future

Analysts at BNP Paribas believe that British pound will gain versus the greenback in the second half of the year as the interest rate differential between the United States and Britain widens in favor of the latter as the Federal Reserve is likely to stay on hold. However, the Fed may start tightening monetary policy next year, so that GBP/USD’s uptrend will likely reverse. According to the specialists sterling may return down to $1.50 in 2012.

Currency strategists at Rabobank, on the other hand, expect sterling to be weak during the summer months. Among the reasons for such assumption the specialists cite the poor state of UK economy and the potential further quantitative easing by the Bank of England. In their view, it will depend on EUR/USD dynamics whether pound will get under pressure more versus euro or the greenback.

[FBS.com_official]

Martin Jacomb: Greece needs to quit the euro area

Martin Jacomb, the former member of the Bank of England’s Board of directors, gave rather interesting comments about the future of the euro area. His entire interview can be found in Financial Times.

The economists underline that though the European policymakers are trying to rescue Greece in order to preserve euro and prevent another banking crisis, they won’t succeed this way. According to Jacomb, it’s vital to restore competitiveness of the region’s poorest countries and in order to do that they have to elaborate a totally different approach.

The specialist thinks that Greece can’t get out of the crisis and normalize its debt situation remaining in the euro area as the adoption of euro itself made its economy uncompetitive. In his view, the only way to regain competitiveness for a nation is to devaluate its currency to achieve the reduction of labor costs and living standards.

So, Jacomb’s conclusion is that abandoning euro is the least painful course of action for both Greece and the EU.

[FBS.com_official]

Commerzbank: comments on USD/CHF

Technical analysts at Commerzbank advise investors to buy the greenback versus Swiss franc in the 0.8415/0.8370 zone stopping below 0.8330.

The specialists say the pair USD/CHF will face strong resistance at 0.8528 and 0.8554 – the minimum of the beginning of May and the maximum of the end of May respectively.

According to the bank, if US dollar manages to close above the latter, it will be able to rise above 0.86.