Comments and forex-analytics from FBS Brokerage Company

[FallenDC]

EUR/GBP: technical comments

The EUR/GBP cross is trading sideways since early May. Most analysts expect the pair to continue a downward movement: the ECB is going to lower rates in the forthcoming months, while the sterling will benefit as a safe haven within Europe. For instance, strategists at BNP Paribas expect the pair to reach 0.7899 pounds.

According to analysts at RBS, however, in a short term the EUR/GBP cross is not likely to leave the 0.7951/0.8220 range, because there is a number of important levels inside.

Resistance:
0.8140 (Aug.2010 minimum);
0.8220 (former support).

Support:
0.8066 (June 2010 minimum);
0.7951(2012 minimum);
0.7695 (2010 minimum).



Chart. Daily EUR/GBP

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[FallenDC]

EUR: Spain’s bailout and French elections

There’s much to discuss after an eventful weekend – and it’s all about Europe.

Firstly, after all the talk Spain’s bailout deal has finally been decided: European governments agreed to provide the nation 100 billion euro ($126 billion) in order to save its banking system. Spanish Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize banks without external help. Spain is the fourth euro zone member after Greece, Ireland and Portugal to get financial help. EUR/USD opened the week with a gap up at 2-week maximum in $1.2640 area. The single currency gained as the markets saw uncertainty diminish and the European policymakers willing to act.



Mariano Rajoy. Photo ITAR-TASS


Secondly, he first round of French parliamentary elections took place on Sunday. President François Hollande’s Socialist Party and its allies are leading in the race for the 577-seat lower house. The final results will be clear only after another round of voting next Sunday as few candidates got more than the 50% of the vote required to win their seats outright. Hollande needs a majority in the legislature to ensure a Socialist prime minister and to more easily pass legislation to keep his campaign promises (such as tax increases on the wealthy and corporations). The upper house, the Senate, already passed to the Socialist control.



François Hollande. Photo Laurent Cipriani / AP


Euro’s current recovery is viewed as correction. EUR/USD has already retraced about 38.3% of its May decline. The scope for the rebound is to $1.2785 (50% retracement). CFTC reports that euro shorts reached last week another record maximum, so these positions may be unwound – positive factor for euro. As for the factors acting against EUR, one should name this week’s economic data (may confirm that the regions is craving for ECB’s monetary stimulus) and Greek elections on June 17.



Chart. Daily EUR/USD

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[FallenDC]

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, $1.2510, $1.2650;
USD/JPY: 78.00, 78.10, 78.15, 78.25, 78.60, 79.00, 79.15, 80.00;
EUR/JPY: 100.00;
AUD/JPY: 78.60.

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[FallenDC]

Euro area in June: meetings & bond auctions

Just to be ready – here’s the info on the euro area’s coming debt auctions and the meetings’ agenda:

- Tuesday, June 12: Greek T-bill auction. Dutch 20-year government bond auction.
- Wednesday, June 13: Italian T-bill auction. German bond auction. German parliament will decide whether it will vote on ESM/fiscal pact before end June.
- Thursday, June 14: Italian bond auction.
- Sunday, June 17: Second round of French parliamentary elections. Greek national elections.
- Monday, June 18: G20 Leaders summit in Los Cabos, Mexico.
- Tuesday, June 19: Spanish T-bill auction, Greek T-bill auction [tentative]. G20 leaders summit.
- Wednesday, June 20: German bond auction.
- Thursday, June 21: Spanish and French bond auction. Euro-zone finance ministers meeting.
- Friday, June 22: European Union finance ministers meeting. German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy meet in Rome.
- Monday, June 25: Belgian bond auction.
- Tuesday, June 26: Spanish T-bill auction, Italian bond auction. Dutch 10-year government bond auction.
- Wednesday, June 27: Italian T-bill auction. Allotment of ECB three-month long-term refinancing operation.
- Thursday, June 28: Italian bond auction. EU heads of state summit
- Friday, June 29: EU heads of state summit.

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[FallenDC]

CFTC traders positioning data

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that during the week to June 5 speculators’ positioning changed the following way:



EUR: the net short position rose by 11K contracts to the new record of 214.4K.

GBP: the net speculative position switched from long to short of 3K contracts for the first time since the end of April.

JPY: the net speculative position switched from short to long of 12.1K contracts for the first time since the end of February.

CHF: the net short position rose from 30.6K to 33.6K contracts – not much of a change.

CAD: the net long position decreased by almost 20K to just less than 15K, the smallest since the end of February.

AUD: the net short position increased from 35.5K to 51.2K contracts. Until recently, the largest net short position since at least 1993 was recorded in 2006 just below 32K contracts – the bears are multiplying.

USD: traders betting on the greenback’s advance held a net $40.06 billion in wagers, up 5% from the previous week. That is similarly a record since at least 2007.

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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[FallenDC]

Spanish bailout: mixed feelings

Euro’s reaction at the announcement that Spain will get 100 billion euro to refinance its banks was impressive: the pair EUR/USD opened 130 pips above Friday’s close. However, there are many things which still remain unclear.

Analysts at Danske Bank note that, firstly, it’s not clear who will be providing the funds – the EFSF or ESM? Secondly, the big question is how the rating agencies will react on the news taking into account the fact that the bailout means another 10% of GDP in debt – European nations will lend money not to Spain's banking system directly, but to Spain. Spain’s Prime Minister Mariano Rajoy called the money “a credit line” and not a “bailout”, but that doesn’t seem to reflect the reality. Although this debt will be cheaper than borrowing at the market, it will still increase the nation’s debt burden.

What’s even more important to ask: will 100 billion euro be enough? Although the IMF claimed $50 billion could be an appropriate amount, JPMorgan Chase analysts recently estimated that Spain could need as much as 350 billion euro. Another unknown is how much time Spain will be given to pay back the cash and what kind of conditions could be applied. If Spain gets better terms than other bailed out euro zone countries, this may lead to tensions, particularly with Ireland. Anyway, looks like we’ll get a lot of details in the next few weeks. In addition, don’t forget that there’s the risk that investors’ attention will turn elsewhere, for example, to Italy, whose banks are also in trouble and whose own borrowing costs are rising.



Cartton by Paresh Nath, The Khaleej Times, UAE

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[FallenDC]

RBS: GBP/USD may break higher

British pound keeps rebounding versus the greenback from 4-1/2 month-minimum at $1.5268 hit on June 1. Today sterling opened with a gap higher following euro and other riskier currencies on relief that Spain will get external funding for its troubled banks.

Analysts at RBS note that the reliable support at $1.5300, which had been tested for several times since 2010, has managed to hold the bears. As a result, the specialists see the chance of sterling’s return to the $1.6000/50 area. In their view, the outlook for the British currency for the rest of the months has improved and GBP/USD has more chances to break higher than EUR/USD.

Resistance: $1.5602 (March 12 minimum, June 7 maximum), $1.5664 (38.2% retracement of the decline in May), $1.5786 (50% retracement).

Support: $1.5514 (23.6% retracement of the decline in May), $1.5300, $1.5233 (2012 minimum).



Chart. Daily GBP/USD

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[FallenDC]

June 12: economy and currencies



EUR/USD began today’s trading day edging higher. However, the pair’s staying below the strong psychological resistance of $1.2500. On Monday the common currency has sharply declined when the initial optimism caused by the Spain’s bailout request began dissolving as investors realized that the region’s crisis is far from over. Italy’s 10-year bond yields reached 6.03% on yesterday’s auction, while Spain’s borrowing costs have already overcome the 6.50% threshold. Riskier currencies such as Australian and New Zealand’s dollar recovered from yesterday minimums, but the trade promised to be quite choppy this week, so be careful.

The Japanese yen declines against its major peers after the International Monetary fund said that the currency is overvalued and the Bank of Japan should ease the monetary policy further. In other words, the IMF justifies the potential BoJ intervention at forex market. The next BoJ policy meeting is scheduled on Friday, June 15. Note that Japanese tertiary industry activity went down by 0.3% in April (consensus-forecast was +0.4%). USD/JPY consolidated above Kijun-sen at the daily Ichimoku chart in the 79.10/80 area.

Events to watch today:

Euro zone: Greek T-bill auction.

Great Britain: A bunch of important figures is to be released: manufacturing and industrial production data and NIESR GDP estimate. According to economists, manufacturing production increased by 0.1% in April compared with a 0.9% growth in March.

U.S.: Federal budget balance is expected to show $107.2 billion deficit in May after $59.1 billion surplus in April.

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[FallenDC]

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, $1.2540, $1.2625;
USD/JPY: 78.00, 79.00, 79.05, 79.25, 79.30, 80.00;
EUR/JPY: 99.80;
AUD/USD: $0.9700, $0.9770, $0.9950, $1.0000;
EUR/GBP 0.8050.

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[FallenDC]

Commerzbank: euro’s recovery may be over

Technical analysts at Commerzbank claim that euro’s correction versus the greenback may be over as EUR/USD didn’t manage to overcome resistance at $1.2672 (38.2% Fibonacci retracement of May decline). In addition, the specialists spotted divergence on the H4 RSI chart. As a result, the bank recommends selling the single currency. As the same time, the analysts don’t completely rule out the possibility of euro’s advance to $1.2786 (50% retracement) and even $1.2825 (May 21 maximum) if EUR/USD overcomes resistance and rises above June maximums. On the downside, below $1.2435 (June 8 minimum) euro will be vulnerable for a decline to $1.2288 (2012 minimum) and then to $1.2058 and $1.2000.



Chart. H4 EUR/USD

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[FallenDC]

Wednesday, June 13: economy and currencies



Risk sentiment is affected by lack of details in a loan agreement to help Spain recapitalize its banking sector and concerns that the bailout will aggravate the country’s huge public debts. Italian yields went up to 6.3% yesterday, the highest level since end of January. Spanish borrowing costs rose to 15-year maximum of 6.83%. EUR/USD is trading below 23.6% Fibonacci retracement of its decline in May.

Demand for safe havens strengthened after Fitch Ratings predicted Spain will miss budget-deficit targets. Moreover, the agency downgraded 18 Spanish banks yesterday. US dollar strengthened versus its major peers. USD/JPY remains seated in the 79.10/80 area, above Kijun-sen at the daily Ichimoku chart.

Aussie should have gained on comments of the RBA Governor Glenn Stevens who said that the strength of the nation’s currency benefits consumers and though “a number of sectors are really struggling with the exchange rate where it is, we shouldn’t wish too quickly for a low exchange rate.” However, AUD followed euro stalling its progress against the greenback, unable to overcome the parity level.

Events to watch today:

Euro zone: Industrial production in the region is forecasted to drop by 0.9% in April after a 0.3% decline in March. Germany holds a 10-year bond auction. Italy holds a T-bill auction.

U.S.: Retail sales are expected to decrease by 0.1% while core retail sales (excluding automobiles) – to increase by the same percent. Producer price index may go down by 0.6% in May. The April disappointing results, when a 0.2% decline was recorded, reinforce the worries about the further monetary policy easing. Business inventories may increase by 0.4% April. Later in the day a 10-year bond auction will be held.

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[FallenDC]

EUR/USD: negative pressure’s again here

The single currency is consolidating versus the greenback above $1.2500, but below 23.6% Fibonacci retracement of its decline in May. Euro’s chances for rebound are limited ahead of Italian debt auctions (especially the sale of Italian debt maturing in 2015, 2019 and 2020 which will take place tomorrow) and Greek elections on Sunday.

Spain’s 10-year bond yields surged to 6.83% (the highest since 1997), after the nation became the fourth euro zone member to ask for an international bailout. On Tuesday Fitch ratings downgraded 18 Spanish banks and added that the country is likely to remain in recession until late 2013. Italian yields went up to 6.3% yesterday, the highest level since end of January.

The ECB and the European Commission propose to create a tight banking union that will supervise the biggest banks and provide a deposit guarantee scheme. German officials, however, oppose the quick establishment of the union. In their view, the current level of economic and financial integration isn’t high enough. Meanwhile, the IMF chief Cristine Lagarde underlined yesterday that the euro block has only 3 months left to solve its problems, otherwise it will become difficult to avoid a breakup. The market’s speculating that the issue with the banking union may be adressed at the G20 meeting on June 18-19.

Bank of Tokyo-Mitsubishi UFJ: “Euro is going to drift around $1.25 before the weekend. It’s also possible that even on Monday we may still know very little about who’ll be in government in Greece. That's why we have to brace ourselves for more uncertainty ahead.”

Commerzbank: bearish pressure on EUR/USD will decline only above $1.2672.

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[FallenDC]

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, $1.2440, $1.2445, $1.2455, $1.2465, $1.2500, $1.2550, $1.2570, $1.2650.
USD/JPY: 79.55;
USD/CHF: 0.9850;
AUD/USD: $0.9800, $0.9870, $0.9950;
EUR/GBP: 0.8030, 0.8050;
GBP/USD: $1.5500, $1.5600, $1.5685.

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[FallenDC]

RBNZ is unlikely to cut rates

The Reserve Bank of New Zealand is likely to leave the official cash rate at 2.5% when it meets on Thursday, June 14. Despite the increased uncertainty in the euro zone and the slowdown of the global economic rebound, further rate cuts, according to the RBNZ Governor Alan Bollard, could cause a new credit boom.

The rate cut expectations declined sharply in recent weeks: after about 80% of probability a few weeks ago, these days only 20% of economists believe in the chance of a cut.

Specialists at JPMorgan expect a rate cut to happen in the next few months, because the CB needs more information on the global economy prospects to take the right decision.

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[FallenDC]

Westpac: trading AUD/NZD

Analysts at Westpac claim that one should wait until the pair AUD/NZD rises on the RBNZ rate-cut talk, and then sell the Australian dollar versus its New Zealand’s counterpart around 1.2870, targeting 1.2600 and stopping at 1.2960.

The Reserve Bank of New Zealand will be meeting Wednesday night. Westpac believes that the central bank won’t lower the borrowing costs, so trade on the market’s expectations seems like a good opportunity.

According to Westpac, the RBA will cut rates a couple more times, but the RBNZ will remain on hold for the rest of 2012.

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[FallenDC]

Sumitomo: EUR/JPY may slide to record low

Analysts at Sumitomo Mitsui claim that euro versus has completed a “head-and-shoulders” pattern Japanese yen at the end of May. According to the specialists, the first shoulder was formed on January 26 (102.20 yen), the head – on March 21 (111.43 yen) and the second shoulder – on May 22. The bank says EUR/JPY may drop to the new record minimum of 88.51 yen – this target is calculating by subtracting the distance between the neckline and the head from the neckline.

If we look at the daily Ichimoku Chart, we’ll see that the pair’s testing Kijun-sen (blue line) as well as the psychological resistance at 100 yen. Downward pressure on euro will strengthen if it fails at this point and slides below support of Tenkan-sen (red line) in the 98.30 zone.

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[FallenDC]

Commerzbank: comments on USD/CAD

Technical analysts at Commerzbank note that the greenback has eased down from June maximum in the 1.0450 area versus its Canadian counterpart consolidating above 1.0200.

The specialists claim that if USD/CAD breached the support mentioned above, it will slide to 1.0124 (50% retracement of the May advance) and then to at 1.0105 (200-day MA).

However, the bank’s baseline scenario is positive for US currency: US dollar may recoil up from 1.0200 and travel upwards during the next few weeks. The targets on the upside above 1.0450 are 1.0523 (November maximum) and 1.0583 (200-week MA).

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[FallenDC]

Thursday, June 14: economy and currencies



The euro strengthens for the third day against the greenback ahead of CPI data release (if it shows the inflation declines, the chances for the new monetary easing will grow). The U.S. retail sales keep slowing dowm for the second month. The Fed is holding its next policy meeting on June, 19. According to Ben Bernanke, the Fed is ready to take any actions to support and protect the U.S. financial system and economy.

Another reason for the euro’s strength comes from Greece: there is a speculation that Greek may modify its austerity program in order to remain in the currency bloc. According to recent surveys, 26.1% of the population supports the pro-bailout New Democracy party, while 23.6 % - leftish Syriza. Moody’s agency has cut Spain’s rating Cyprus’s bond rating yesterday.

NZD/USD gains after the Reserve Bank of New Zealand, as widely expected, left its official cash rate at 2.5% today. The bank officials underlined that the national economic outlook has worsened since March. The aussie and the loonie strengthen against the greenback.

Events to watch today:

Switzerland: The Swiss Libor rate is expected to remain unchanged at 0-0.25%. The announcement is to be accompanied by the central bank’s quarterly monetary policy statement and followed by a press conference. The SNB is also to publish its financial stability report on Thursday.

Euro zone: The ECB is to issue its monthly bulletin, which reveals the statistical data that the ECB Governing Board evaluated when making the latest interest rate decision, and provides detailed analysis of current and future economic conditions. The regional CPI growth in May is forecasted remain at 2.4%, while core CPI – at 1.6%. Italy holds a bond auction.

Canada: Housing price index, a key indicator of the housing industry’s health, may increase by 0.5% in April after a 0.3% growth in March.

U.S.: Core CPI is predicted to gain 0.2% in May, while CPI is expected to decline by 0.2%. A slight rise of unemployment claims to 378,000 is expected. In the previous week the number of people applying for unemployment benefits dropped to 377,000 from 389,000, while economists expected claims to reach 381,000. U.S. holds a 30-year bond auction.

Great Britain: The Bank of England Governor Mervyn King is to speak.

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[FallenDC]

Friday, June 15: economy and currencies



On Friday the yen strengthens against its major counterparts after the Bank of Japan left its monetary policy unchanged. On June 21, however, Japan may elect two dovish policy council members, what may influence the regulator’s policy.

EUR/USD is consolidating around the $1.26 area, supported by the speculation that the Fed may ease the policy on a next meeting. According to yesterday’s release, the number of unemployment claims increased to 386K, while CPI fell by 0.3% on the back of the decline in energy prices.

The sterling declined after the BoE Governor Mervyn King said additional stimulus in the U.K becomes more and more likely. In addition to looser policy, the regulator may activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating within weeks to boost lending in the economy.

The MSCI Asia Pacific Index (MXAP) of stocks added 0.6% today. The Aussie and the loonie weaken, while the kiwi moves upward, though for now the daily change is small.

Events to watch:

Euro zone: The ECB President Mario Draghi speaks.
Canada: Manufacturing sales, a leading indicator of economic health, are expected to go up by 2.2% in April after a 1.9% growth in March.
Great Britain: Britain’s trade deficit is expected to decline slightly to 8.5B.
U.S.: Empire State Manufacturing Index in June is to decline to 14.1 from the previous 17.1 print, while the industrial production in May is likely to increase by 0.1% vs. a 1.1% growth in April. Capacity utilization rate, a leading indicator of consumer inflation, is expected to remain at 79.2%. Economists forecast the preliminary UoM consumer sentiment index to decline to 77.5 in June. In May the key indicator of the consumer spending reached its highest level in four years (79.3), what is a good sign for the U.S. economy.

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[FallenDC]

Сapital flows out of the euro area

According to analysts at Nomura Securities, in recent months there is an evident capital flight from the euro zone. If the trend continues, the single currency will trade much lower as it was a traditional emerging market currency crisis.

Specialists believe that on this matter the Europe’s debt crisis may be divided on three phases. In their view, during the first phase (April 2010-June 2011) investors sold assets from peripheral countries and tied up capital in the safe countries. In the second phase (July 2011-January 2012) the investors concerns on Spain and Italy started to grow. However, according to analysts, big amounts of money were still repatriated back to the euro zone.

These days the economy is in the third phase, when huge amounts of money are draining abroad. Meanwhile, Switzerland and Denmark are making efforts to retain control on their strong national currencies.

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