Comments and forex-analytics from FBS

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IG: USD/JPY is rangebound this week

Analysts at IG Markets Securities claim that USD/JPY has traded this month above a support level of about 78.15 yen and below 79.14 yen, the upper end of its daily Ichimoku Cloud.

“Before the Fed event, the dollar doesn’t have enough power to break the range. You may have to wait until September to see moves to the upside or downside.”

Chart. Daily USD/JPY

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Scotiabank: brace for September turmoil

Analysts at Scotiabank claim that relatively quite August will soon change into rather violent September. “September is littered with event risk,” underline the specialists saying that key events will likely sway both euro and US dollar at different times.

The Fed’s Chairman will speak in Jackson Hole on Friday August 31; the ECB President Mario Draghi will give a speech on September 1, while China will release manufacturing PMI. Then there will be the ECB’s meeting on September 6, Germany’s top court decision on the constitutionality of providing aid to troubled euro zone countries and the September 13 Fed’s gathering when then central bank could announce QE3. Moreover, it’s not clear when or whether Spain will request sovereign bailout. In addition, though the while “commentaries following the meetings between Chancellor Merkel, President Hollande and Prime Minister Samaras appear to support the view that Greece will receive its next tranche of 31 billion euro, a negative report would push Grexit back into the headlines.”

Image from chatswood.co.nz

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Commerzbank: comments on EUR/USD

Technical analysts at Commerzbank point out that EUR/USD is trading between $1.2597/1.2600 (78.6% of the move from June and 38.2% of the move this year) and $1.2478 (61.8% Fibonacci retracement).

EUR/USD is now moving up to the upper border of this range. There’s the risk of a double top around $1.2600 as resistance may prove strong enough to stop the second attempt of the bulls to break higher.

The specialists underline that the medium term downtrend will resume only after the pair breaches support of the short-term uptrend. As for further resistance, it lies at $1.2624/26 and $1.2672.

Chart. H4 EUR/USD

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MIG Bank: trading GBP/USD

GBP/USD dipped to $1.5753 that is just above the 100-day MA earlier today before returning to the levels right under $1.5800. Sterling reached 3-month maximum at $1.5912 on August 23.

Analysts at MIG Bank underline that British pound has breached its 2-month consolidation range to the upside. In their view, the pair’s recent uptrend will hold as long as it’s trading above $1.5708. The specialists recommend trying longs at $1.5810 targeting $1.5912/1.6190/1.6302.

Chart. Daily GBP/USD

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RBC: bearish on NZD/CAD

Analysts at RBC Capital Markets recommend selling NZD/CAD. The pair is declining for the third day after it recoiled down from the 50-day MA. On its way down New Zealand’s dollar has already breached 200-day MA at 0.8050 and 100-day MA at 0.8006.

RBC explains their recommendation by the fact that New Zealand’s authorities are concerned about NZD strength. Continuing strength of the NZD is eroding any gains from the improvement in commodity prices. NZ commodity prices (in NZD terms) are at the lowest level since November 2009. Today NZ dairy giant Fonterra reduced its forecast payout for the 2012/13 season. This cut to farmers' incomes is worth ~0.2-0.3% of GDP and poses downside risk to RBNZ's GDP forecasts (from its June MPS). The Bank of Canada, on the other hand, is relatively calmer about CAD.

Chart. Daily NZD/CAD

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EUR/GBP: technical comments

EUR/GBP breached descending trend line resistance from March 28 around 0.7930. It seems that there are some buy limits above 0.7960/65 (August 6, 7 highs). Resistance for the pair lies at 0.8000 (100-day MA, psychological level).

Analysts at Commerzbank say that the medium term outlook for EUR/GBP will remain bearish as long as it stays below 0.7963. At the same time, the pair will resume its downtrend only if it slips below Tuesday’s minimum at 0.7856.

Analysts at RBS claim that increased support for euro zone sovereign bonds through some form of ECB purchases has provided some support for the EUR over the last week. However, it looks unlikely that the market will see any substantive developments ahead of the September ECB meeting. While, short term fair value for EUR/GBP is 0.8109, there is risk of some downside in the near term if Draghi disappoints on September 6.

Chart. Daily EUR/GBP

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August 29: forex news

EUR/USD returned above $1.2500 yesterday and pushed the pair higher. Today its advance has stalled below $1.2575. Italy will offer 6-month bills today and as much as 7.5 billion euro ($9.4 billion) in bonds tomorrow. Italian Prime Minister Mario Monti meets with German Chancellor Angela Merkel in Berlin today.

The ECB President Mario Draghi cancelled his attendance at this week’s Jackson Hole symposium citing his business with work. The markets interpreted this news as a sign that the ECB is preparing something big concerning the awaited bond buying plan. The ECB meets next Thursday, on September 6. Also note that the ECB reported a massive outflow of Spanish bank deposits, while Catalonia asked for 5 billion euro of aid from the Spanish central government. However, these reports didn’t disturb the markets.

In US watch for the release of US Q2 GDP q/q (cons.: +1.7%; prev.: +1.5%) at 12:30 GMT, pending home sales m/m (cons.: +1.1%; prev.: -1.4%) at 14:00 GMT and Beige Book survey of economic conditions at 18:00 GMT. Mixed economic data released yesterday failed to clear up the picture of the potential QE3 timing, so all eyes will be on Ben Bernanke on Friday, though many analysts warn that the Chairman won’t make the things clearer.

AUD was hurt as construction declined in Q2. NZD is still suffering from yesterday’s Fonterra report of reduced payouts to dairy farmers. USD/JPY was range bound inside 78.63/78.50. GBP/USD is flat above $1.5810.

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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: $1.2450, $1.2490, $1.2500, $1.2505, $1.2525, $1.2625;

GBP/USD: $1.5650, $1.5730, $1.5750;

USD/JPY: 78.15, 79.10, 79.15;

AUD/USD: $1.0320, $1.0400, $1.0425, $1.0460;

EUR/GBP 0.7900, 0.7975;

AUD/JPY: 82.50.

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EUR/USD is supported by the ECB expectations

EUR/USD has once again ascended close to $1.2600, but its advance was tempered by $1.2575. After it was announced that the ECB’s Mario Draghi won’t speak at Jackson Hole, the market’s mood brightened on the expectations that the details of the bond buying will be finally released soon.

Photo: Reuters

Nomura: “The only short-term option is to have the ECB buy the government debt of peripheral countries as longer-term answers to dysfunctional government bond market such as fiscal stimulus and a rule that addresses the issue of capital flight will probably take years to implement”.

Sumitomo Mitsui: “We can apparently avert a situation where the debt crisis will trigger a collapse of the euro. Markets are expecting Spain to ask for a bailout, but it will spur the ECB to undertake a measure like the Securities Markets Program.”

TD Securities: “There is a little more room for EUR gains from here, but significant resistance hovers just above, in the 1.2600 area. With a potential balance sheet expansion by the ECB as well as a rate cut, EUR should fundamentally be lower, and we think that should be the case at some point soon.”

Westpac: “Investors will buy EURUSD on any 50-pip pull back. But be careful of excessive investor jitters: downside support levels to watch in EURUSD are $1.2450 and $1.2370-80, so if the common currency moves below those levels, stand aside”.

Chart. H4 EUR/USD

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EUR/AUD: technical picture

EUR/AUD added about 500 pips in August rising from the record minimums around 1.1600 where in formed a double bottom.

Westpac: The pair EUR/AUD will climb at least to 1.2330/50 in the coming weeks. Euro will likely be supported by “unwinding of EUR shorts as the ECB plans intervention in EZ bond markets”, while Aussie – weakened by “ongoing softness in China's data.” “A test of 1.25 would probably require the Fed to not deliver QE3.”

The pair has approached resistance at $1.2145 (38.2% Fibo retracement from May maximums to August lows; February minimums). Further resistance lies at 1.2310/50 (50% retracement, 100-day MA) and 1.2480 (61.8% retracement, 200-day MA). Support lies at 1.2070, 1.2000, 1.1950 (50-day MA, 23.6% retracement). Corrections up to the latter are possible as EUR/AUD seems overbought after its advance and we see divergence at H4 MACD.

 

Chart. Daily EUR/AUD

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CAD is supported by oil prices

USD/CAD has tried to recover from the minimal levels since May around 0.9840, but failed around 0.9950 and once again made a spike down to 0.9840.

Canadian dollar strengthened due to advance in crude oil, the nation’s largest export. Crude inventories were forecast to drop as Hurricane Isaac approached the Louisiana coast and a fire continued to burn at Venezuela’s biggest refinery. Loonie was also against other commodity currencies as Canada is expected to benefit from US economic growth, while Australia’s and New Zealand’s economies will suffer from the Chinese economic slowdown.

National Bank of Canada: “Crude oil is still posting plus-$96. Any supply disruptions from Isaac could put a bid to the Canadian dollar. There are reasons to want to be long the Canadian dollar from a reserve diversification perspective. Month-end flows will be reasonable and will be biased for US dollar selling given the positive performance by most equity indices.”

Scotiabank: “Canadian dollar has a strong correlation with equities, confirming our view that the most important risk for the currency is the FOMC decision on QE3. That leaves the Canadian dollar particularly vulnerable to Jackson Hole.”

Also watch for Canadian June GDP release on Friday. Economists predict that Canadian economy expanded for a fourth straight quarter.

Chart. Daily USD/CAD

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August 30: forex news

The markets were going through consolidation phase in Asia. Equities remained weak as Japanese retail sales fell by 0.8% in July and investors are now in doubts that the Fed will announce further stimulus soon.

AUD keeps moving down affected by the declining iron ore price as it accounts for 20% of Aussie exports. In addition, a report showed that home-building approvals dropped by 17.3% in July from a month earlier, the largest decrease since November 2002. AUD/USD approached 200-day MA at $1.0308. NZD/USD was supported by 0.8000 and went higher.

USD/JPY is trapped in the 78.80/45 area. GBP/USD is moving sideways in the $1.5840/10 zone. USD/CHF is consolidating above 0.9550. EUR/USD was once again stopped by resistance around $1.2575, though the pair remains well supported.

In Europe all attention will be focused on Italian 10-year bond auction. Also watch for German unemployment change at 07:55 GMT. The President of the European Commission Jose Manuel Barroso speaks at 09:00 GMT. The ECB President Mario Draghi said in German weekly Die Zeit yesterday that it’s in Germany’s interest to consent to extraordinary steps to preserve the single currency. In US watch for the unemployment claims and consumer spending (cons.: +0.4%; prev.: 0.0%). The Jackson Hole symposium finally starts today.

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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: $1.2400, $1.2410, $1.2415, $1.2500, $1.2520, $1.2550;

USD/JPY: 78.50, 78.70, 80.00;

USD/CHF: 0.9600;

AUD/USD: $1.0250, $1.0350, $1.0400;

NZD/USD: 0.8100.

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Nomura: Beige Book and Jackson Hole

The Fed released the Beige Book yesterday – the assessment of current economic conditions. According to the central bank, US economy continued to expand “gradually” in July and early August as improvement in housing and retail sales helped outweigh weakness in manufacturing.

Nomura: “The Beige Book suggests the anemic pace of growth in the economy continued into the third quarter, an assessment that does not seem to qualify as the sort of ‘substantial and sustainable strengthening’ needed to dissuade many FOMC members that ‘additional monetary accommodation’ would be needed. It does not alter expectation for the Chairman’s remarks at Friday’s Jackson Hole Summit, nor does it alter our judgment that the FOMC will eventually embark on QE3 in response to persistently high unemployment and greater downside risks in H2 2012. We expect the chairman's remarks to reinforce the key themes from the minutes of the last FOMC meeting, which include absent a significant improvement in the outlook further easing will be warranted, and large-scale asset purchases remain the most effective tool available to the FOMC.”

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RBS: EUR may slide vs. AUD, CAD

The markets are stirred ahead of Bernanke’s speech tomorrow and the ECB meeting next Thursday. Analysts at RBS, however, say that there’s “no reason to take the gambles and run large risk over the events.” In their view, it’s necessary to “wait and see, have the events out of the way.”

In the medium term, RBS still favors selling euro versus commodity currencies such as Australian and Canadian dollars. The specialists are worried about the “ever ballooning” ECB balance sheet, and he thinks more liquidity will help the commodity currencies.

RBS thinks that EUR/AUD could fall to the 1.1200 range in the next couple of months adding that euro may experience “similar moves against the Canadian dollar.”

Chart. Weekly EUR/AUD

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IFR: the chance to buy AUD/NZD

Analysts at IFR Markets underline that AUD/NZD has visited trend line support so far and recoiled up managing to close yesterday above 50/200-day MAs around 1.2890. Today the pair revisited yesterday minimums.

The specialists recommend buying Aussie at the current levels. According to IFR, the pair has completed the 3-wave correction from July maximums and is now to resume its advance and break above 1.3050.

Chart. Daily AUD/NZD

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GBP/USD: technical & fundamental

British pound is moving up versus the greenback. GBP/USD has left the daily Ichimoku Cloud last week and crossed 200- and 100-day MAs bottom-up – now these lines and the top of consolidation range around $1.5750 play the role of support for sterling.

For the last 2 days the pair is trading in a narrow range of $1.5840/10 ahead of the Fed’s meeting in Jackson Hole. Any hints from Ben Bernanke on further stimulus would hit US dollar pushing GBP/USD to 3-month maximum at 1.5912 reached last week.

Analysts at Morgan Stanley expect GBP/USD to strengthen in the near-term to $1.6050. The specialists, however, claim that the medium-term outlook is negative due to concerns about UK economic weakness. Britain is still in recession, so the Bank of England may do more QE later in the year.

There’s strong resistance for sterling around $1.6000 (top of the weekly Ichimoku Cloud, downtrend resistance line connecting highs of 2011 and 2012). In addition, investors may be selling sterling versus euro ahead of the ECB meeting next week.

Chart. Daily GBP/USD

Chart. H1 GBP/USD

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EUR/USD: failure is a matter of time

EUR/USD keeps moving sideways in the $1.2575/20 area. At the same time, such calm won’t obviously last long. The closest support is provided by the 100-hour MA at $1.2528, while the closest resistance is created by the very short-term resistance line around $1.2568. There’s more resistance at $1.2587 (100-day MA), $1.2592 (23.2% Fibo retracement of 2012 decline). Support also lies at $1.2500, $1.2475, $1.2435, $1.2385 (50-day MA).

UBS: “There is still scope for upside in the near-term. A break above 1.2595 would open the way to 1.2664/95.”

Commerzbank: The medium term outlook for EUR/USD will remain bearish as long as it’s trading below $1.2740 (June maximums). If euro drops below the uptrend support around $1.2382, its decline will accelerate.

Societe Generale: “Recession and more monetary accommodation isn't a recipe for a turnaround, so further weakness is just a matter of time.”

Chart. Daily EUR/USD

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August 31: forex news

Demand for safe havens flared as Spanish Prime Minister Mariano Rajoy delayed seeking a sovereign bailout for his country. Moody’s Investors Service said its review of Spain’s debt rating (Baa3) will continue through September and reiterated the risk of a possible downgrade.

USD/JPY has tested today support line at 78.38 yen. Yen held its weekly gain even after a report showed that core CPI fell by 0.3% y/y in July, while industrial production unexpectedly declined in the same period increasing the odds of more easing from the BOJ.

AUD/USD closed below 200-day MA at $1.0308 yesterday, so did NZD/USD (0.7986). USD/CAD is trading on the upside around 0.9925. Canada’s GDP is released at 12:30 GMT.

EUR/USD returned to $1.2500 after testing this week resistance around $1.2575 earlier this week. In Europe watch for German retail sales at 06:00 GMT, Italian unemployment 8:00 GMT and flash EU CPI and unemployment rate at 09:00 GMT. Later in the US Chicago PMI is released at 13:45 GMT.

All eyes are focused on Ben Bernanke’s speech titled “Monetary policy since the crisis” at 14:00 GMT at the Fed’s symposium in Jackson Hole. The speculation about whether the Fed’s chief will announce more easing continues; the greenback is supported.

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The Day of Ben or Big Ben Day

This day has finally come. Remember last year when we were also counting days to Jackson Hole and Bernanke neither ruled out further stimulus, nor signaled an impending move? Well, there certainly is the risk that Bernanke will be vague this year as well saying that the Fed is actively considering another round of monetary easing, but stopping short of signaling another bond-buying program is imminent.

Analysts at BNP Paribas and JPMorgan claim that as the last FOMC meeting minutes were dovish – many of the FOMC admitted the need of action in the absence of the substantial and sustainable economic recovery – it would be difficult for Bernanke to sound firmer, because this would be considered as pre-emptive action on his part of the FOMC next meeting on September 12-13.

Stock markets will be disappointed in case of the lack of concrete detail on the likely course of action as they have gained so far on the expectations of intervention from both the Fed and the ECB.

According to Reuters’ poll released yesterday, only 44% of investors surveyed expect the Fed to announce QE3 in September, down from 70% in July.

Photo from topnews.in

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Gaitame: levels for AUD on the downside

Analysts at Gaitame.com Research Institute think that AUD/USD may drop in September to the minimal level since the end of June.

Aussie closed yesterday below the 200-day MA of $1.0315. The specialists say that if the pair slides below $1.0219 (38.2% retracement of the advance from June to August), it will get vulnerable for a slide to $1.0098 (50% retracement).

Chart. Daily AUD/USD

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USD/CHF: technical picture

USD/CHF is consolidating between 0.9260 and 0.9550 after a powerful decline made at the start of last week when the pair’s trading range shifted about 150 pips lower.

If US dollar manages to rise above 0.9635 (this week’s high), it will be able to get to 0.9660 (August 22 maximum, June 29 high). This level and the 50-day MA at 0.9696 will provide a considerable resistance. Only the break above this level will mean that the decline from July highs is over.

Support for the greenback lies at 0.9550/38 (100-day MA, last week’s minimum). Below these levels the descending trend will be confirmed and the pair will be poised for a decline to 0.9460. Area of 0.9420 will likely provide grounds for a correction back to 0.9550. Moreover, there’s a 200-day MA nearby, 0.9388.

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EUR/USD close to 8-week highs

EUR/USD rose to 100-day MA at $1.2582, but then declined as the sell orders clustered in the $1.2580/00 area come into play.

According to flash estimates released today, euro zone’s CPI edged up to 2.6% in August (cons.: 2.5%; prev.: 2.4%). Euro zone unemployment rate remained unchanged in July at 11.3%.

Euro increased ahead of Ben Bernanke’s speech in Jackson Hole. US dollar weakened against all but two of its 16 major counterparts after Atlanta Fed President Dennis Lockhart said that US central bank has a tough decision on whether to add further stimulus to promote a stronger economic recovery.

Still…

"We're not expecting him (Bernanke) to announce that QE would start any time soon," Christian Schulz, senior economist at Berenberg Bank. "We expect him to announce that the Fed stands ready to act if things deteriorate but there's no sign of that at the moment. Those people who are betting on QE to start imminently will be disappointed and, yes, that would mean that markets would turn south.”

Daily EUR/USD

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Market talk: Buba's Weidmann may resign

There’s talk of Bundesbank President Jens Weidmann’s potential resignation.

It’s a common knowledge that Weidmann has negative attitude towards the ECB’s bond purchase program as he sees it “too close to state financing via the money press.”

To satisfy Bundesbank, the ECB President Mario Draghi might have to put a lot of conditions in the program risking diminishing its impact considerably. A Bundesbank spokesman declined to comment on a report in the Bild newspaper.

Weidmann told Der Spiegel on Sunday: “I can do my task best if I stay in office. I want to work to ensure that the euro is just as hard as the mark was.” We think the odds are that Weidmann won’t give up keeping pressuring Draghi.

Chris Ratcliffe/Bloomberg

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September 3: forex news

On Monday the risk aversion is high. AUD/USD opened a new 5-week minimum at $1.0240 on negative data releases. Worse than expected China manufacturing PMI released on Saturday made the pair open with a gap lower on Monday. Pressure on the Aussie increased after the much worse than expected Australia retail sales data (-0.8% in July vs. a +0.3% forecast and a revised +1.2% in June). Later on the pair bounced back to the $1.0270 levels. NZD/USD also opened with a gap lower and touched $0.7980, but then rebounded towards $0.8015. USD/CAD declines for a second consecutive day.

EUR/USD remains relatively flat around $1.2580, close to a two-month high. GBP/USD consolidates above $1.5850. Meanwhile, USD/JPY moves on a downside as demand for safe currencies increased on the back of concerns on concerns the global growth slows down. Demand for the greenback was limited on speculation the Fed will expand stimulus measures which tend to debase the US currency.

Today watch for important PMI releases in Spain, Italy, Great Britain and the EU and the ECB president Mario Draghi will speak at 13:30 GMT. There are bank holidays in US and Canada.

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