Comments and Forex-analytics from FBS Brokerage Company

[FBS_Official 10]

PBOC may let yuan significantly appreciate

 

Wang Yong, a professor at the Chinese central bank’s training center, claims that in order to stem inflation the People’s Bank of China has to widen yuan’s daily trading band, reports Bloomberg.

 

Faster yuan appreciation is a direct and effective way of curbing imported inflation, which tend s to determine the upward dynamics of consumer price. The specialist also said that Chinese government should strengthen supervision of capital flows as yuan gains may also attract hot money boosting liquidity and increasing inflation pressure.

 

Such opinion corresponds to the recent comments of China’s authorities – Premier Wen Jiabao prices and deputy central bank governor Hu Xiaolian – who have both underlined so far that more yuan flexibility would help to fight inflation.

 

The Chinese currency is currently allowed to deviate from a daily reference rate set by the People’s Bank of China by 0.5%. Today’s mid-point for the pair USD/CHY was established at the record minimum of 6.5156.

[FBS_Official 10]

Deutsche Bank: Greece won’t leave the euro area for a long time

 

The single currency lost 3.45% versus the greenback during the final 2 days of last week, though even after this slump euro remained 2011 best performer (up 9.7% since January 12 when German Chancellor Angela Merkel pledged to do everything to support the currency).

 

The pair EUR/USD hit $1.4315 on May 6 after reaching the strongest since December 2009 at $1.4940 on May 4.

 

Euro dropped as the ECB signaled that it isn’t in a hurry to raise the rates and Der Spiegel magazine claimed that Greece may leave the euro area.

 

The yield spread between 10-year Greek bonds and the similar German securities expanded from 2.73 percentage points in January 2010 to 12.33 percentage points. The yields on 2-year Greek bonds have exceeded 25%.

 

The European authorities try to convince the market in their eagerness to keep the region together. On May 6 there was an unannounced meeting on which it was decided to ease the terms of the 110 billion-euro ($158 billion) bailout Greece received last year. EU officials think the country will need additional aid as its funding costs are increasing.

 

Currency strategists at Deutsche Bank think that Greece would first try to restructure its debt before thinking about leaving the euro zone. The specialists note that it’s too early to say that the nation may abandon the European currency.

 

Analysts at HSBC Holdings believe that euro may have appreciated too rapidly this year and is now at risk as the Federal Reserve is going to end its $600 billion quantitative easing program in June. In their view, EUR/USD may slide to $1.40.

[FBS_Official 10]

Commerzbank: comments on EUR/USD and GBP/USD

 

Technical analysts at Commerzbank note that on Friday the pair EUR/USD has broken through the key support in the 1.4450/34 area. In their view, euro may fall to the November 2010 maximum at 1.4283 and April 18 minimum at 1.4145. On the upside, the specialists see the resistance for the single currency at 1.4572.

[FBS_Official 10]

Will dollar get growth stimulus after the end of QE2?

 

Many analysts believe that US currency will get a lot of positive momentum when the Fed’s quantitative easing ands in June. It’s more difficult to foresee, however, how long dollar will enjoy the support.

 

Westpac has been selling the greenback versus riskier currencies and took some profits last week on the Dollar Index. The bank’s analysts note that Treasury yields are still very low that keeps USD under negative pressure.

 

The specialists believe that the market will be extremely nervous when the QE2 expires. In their view, the event will help US dollar only if it will be accompanied by the strong US economic data.

 

Marc Faber, publisher of the Gloom, Boom & Doom report, is almost sure there will be the third round of the quantitative easing. According to his forecast, the United States will be running trillion dollar budget deficits for the next 10 years. As it’s not possible to finance all of this through bond issuance, the Fed will have to at least partially monetize the debt to keep interest rates low.

[FBS_Official 10]

UBS, RBC: Australia and China posted trade surplus

 

According to the data released today, China's trade surplus surged from $139 million in March to $11.4 billion in April while the economists were looking forward only to $1.0 billion figure. Economists at UBS Securities expect China show annual trade surplus of $140-$150 billion in 2011. According to UBS, the nation will post monthly trade surpluses for the rest of this year.

 

Analysts at Royal Bank of Canada believe that after this data release US pressure on China for yuan’s appreciation will strengthen. At the same time, Chinese authorities may agree to allow stronger national currency in order to fight inflation. The specialists think that yuan may rise to 6.40 yuan per dollar by the middle of the year and to 6.20 by the end of 2011.

 

Chinese data has the negative impact on Australia’s currency as the possibility of the rate hike in China increased making investors sell Aussie, notes TD Securities. The analysts advise to focus attention on China’s inflation figures due tomorrow.

 

Australia also posted growth of trade surplus that advanced to A$1.74 billion in March from February’s deficit of A$-0.09 billion, while the economists were looking forward only to A$500 million surplus.

 

Australian dollar was supported versus its US counterpart on the news at the beginning of the trading day, though RBC Capital Markets strategists think that the pair AUD/USD will be curbed ahead of Thursday's employment data and the technical picture that’s not encouraging for Aussie. In their view, the employment data should be rather high to make Australia’s currency resume the uptrend.

[FBS_Official 10]

Barclays Capital: Greece’s future seems uncertain

 

Analysts at Barclays Capital claim that the single currency remains affected by the uncertainty connected with how the European authorities are going to act in order to help Greece solve its debt problems. Although the EU officials met over the weekend to discuss the matter there is no official information delivered to the public.

 

Yesterday Standard & Poor's reduced the country’s debt rating from BB- to B. It was Greece’s fourth downgrade by this agency since April 2010. Credit-default swaps on Greek debt bounced to the record maximum of 1,369 yesterday that means that probability of the nation’s default within 5 years is estimated at 69%.

 

The markets speculate about the potential Greek debt restructuring and such outcome is now seen as quite probable. European Central Bank Governing Council member Ewald Nowotny said that Greece was thought to be able to refinance itself via the market next year and now there are more and more signals that it wouldn’t be able to do that.

 

As a result, the single currency may correct downwards. The pair EUR/USD has already dropped to the 6-week minimum at $1.4254.

 

In such circumstances Greece is selling today 182-day Treasury bills of 1.25 billion euro ($1.79 billion).

[FBS_Official 10]

Deutsche Bank: Euro’s decline may continue

 

Analysts at Deutsche Bank say that the improving labor market is very important for the United States. In their view, if American economy outperforms the German one, the pair EUR/USD will get under negative pressure.

 

US employment data on Friday was released on Friday was very encouraging: Non-Farm Payrolls increased in April by 244,000 that helped US dollar climb to 6-week maximum. Many analysts think that the greenback is able to strengthen versus euro.

 

Strategists at J.P.Morgan Asset Management say that the recent comments of the ECB president Jean-Claude Trichet made investors’ hopes for the central bank’s June rate hike shrink. The specialists think that the ballyhoo over Der Spiegel’s report that Greece was considering quitting the euro zone could lead to further weakness of euro.

 

Strategists at BMO Capital advise investors to sell the single currency at $1.4510 stopping at $1.4655 with target at $1.4210.

[FBS_Official 10]

Commerzbank: comments on EUR/USD

 

Last week the single currency broke down below the 5-month uptrend line and is trying to find support at the 55-day MA at 1.4233.

 

Technical analysts at Commerzbank think that this support won’t be able to hold the bears. In their view, the pair EUR/USD will fall to 1.4145/55 representing 38.2% retracement of this year’s advance and April 18 minimum.

 

The specialists think that if euro tries to move up it will face resistance at 1.4440 and 1.4600. In their view, euro will fail to overcome the latter for now.

[FBS_Official 10]

BoE may lower its economic growth forecasts

 

Trading the pair GBP/USD one has to pay great attention to the inflation report released tomorrow by the Bank of England.

 

Pound’s rate has decreased today even though the figures published today showed the growth in retail sales and house prices. GBP/USD went down from maximums in the 1.6750 area at the beginning of May to the levels close in the 1.6360 zone.

 

It’s thought that British central bank may cut its forecasts for the nation’s economic growth. In such case, the possibility of the BoE rate hike diminishes. On May 5 the Bank of England decided to leave its key interest rate at the record minimum of 0.5%.

 

Analysts at Bank of Tokyo say that UK economic data is mixed. In their view, sterling will get weaker in the near future. Strategists at Lloyds Bank Corporate Markets also regard the British currency as vulnerable against the majority of its counterparts.

 

Confederation of British Industry yesterday lowered its estimate for the UK GDP growth in 2011 from 1.8% (February estimate) to 1.7%.

[FBS_Official 10]

UBS: currency forecast for majors

 

UBS analysts give the following forecasts for the major currency pairs:

 

EUR/USD: Neutral. Resistance is found at 1.4442, support lies at 1.4205 and 1.4158.

 

USD/JPY: Bearish. If the greenback breaks below 80.00, it will be poised down to 79.57 and 78.83. Resistance is at 81.28.

 

GBP/USD: Neutral. As long as resistance at 1.6464 holds, it’s necessary to pay attention to support at 1.6271.

 

USD/CHF: Bearish. US dollar stays under pressure below 0.8893. Support levels are at 0.8677 and 0.8554.

 

AUD/USD: Bullish. If Aussie overcomes 1.0878, it will be able to climb to 1.0953. Support is at 1.0697.

 

USD/CAD: Neutral. Resistance is at 0.9654, support lies at 0.9505.

[FBS_Official 10]

Commerzbank: USD/JPY may rise to 82.93

 

US dollar recovered from last week’s minimums in the 79.55 area rising above the short-term downtrend channel resistance in the 80.70 zone.

 

Technical analysts at Commerzbank claim that the pair USD/JPY is trying to stabilize above support at 80.00/79.80 and get higher.

 

The specialists think that the greenback may rise to 82.34/93 levels that represent 55- and 200-day MA. If US currency manages to overcome 82.93, it will be able to climb to the 4-year downtrend at 84.68.

 

According to the bank, support levels are found at 80.15 and 79.57.

[FBS_Official 10]

Societe Generale: comments on USD/CHF

 

Technical analysts at Societe Generale claim that US dollar’s advance versus Swiss franc is likely to be limited by Fibonacci resistance at 0.8840.

 

The specialists say that the pair USD/CHF may fall to the record minimum of 0.8552 hit last week, on May 4.

 

According to the bank, support levels for US currency are found at 0.8710 and 0.8675.

[FBS_Official 10]

Daiwa: China’s economy isn’t overheated

 

Analysts at Daiwa Capital Markets claim that although Chinese inflation is still high, the country’s economy isn’t overheated. As a result, the specialists think that more aggressive policy tightening is not necessary.

 

According to the data released today, China’s CPI added 5.3% in April on the annual basis after gaining 5.4% in March.

 

Never the less, the strategists note that as inflation is still elevated, the nation’s monetary policy loosening in the second or third quarter seems very unlikely.

 

Daiwa warns that if the tightening policies are not loosened in time in the third quarter, the odds of China’s economic growth slowdown in the final quarter of the year will significantly rise.

[FBS_Official 10]

JPMorgan: yen will gradually rise versus the greenback

 

Analysts at JPMorgan claim that Japanese yen will once again rise to this year’s maximum versus the greenback as Japanese investors avoid investing in overseas assets willing to reduce risk following the nation’s biggest earthquake that took place on March 11.

 

The specialists estimate repatriation performed by Japan’s investors and companies by 10 trillion yen ($123.5 billion). In their view, such situation is opposite to what may be seen in elsewhere in the world where the demand for higher-yielding assets is increasing.

 

In addition, it’s necessary to take into account that Japan has one of the biggest current-account surpluses in the world that also creates upward pressure on yen’s rate. The data is released tomorrow. Economists surveyed by Bloomberg News expect that the nation’s current-account surplus increased from 1.64 trillion yen in February to 1.75 trillion yen in March. The bank’s strategists don’t think that the current account may fall into deficit even as the impacts of the disaster may shrink the nation’s trade surplus.

 

Weaker demand for the greenback is one more positive factor for yen. Specialists at JPMorgan claim that for the pair USD/JPY to stabilize, US interest rates have to be much higher than those in Japan, while now these 2 countries pursue the same policies of the extremely low borrowing costs. The analysts think that the Federal Reserve won’t raise the rates earlier than at the end of 2012.

 

According to JPMorgan, US dollar will fall to 78 yen by the end of March next year. The bank doesn’t expect more currency interventions of Japanese authorities to weaken the national currency as the market has become less volatile since the earthquake. The specialists think that any intervention decision will based on volatility and not on a certain level of exchange rate, so Japan won’t be preventing yen from gradual appreciation.

[FBS_Official 10]

RBC: the single currency is likely to recover from the recent decline

 

The single currency lost more than 5% versus the greenback during the recent days falling from the levels in the $1.50 area to $1.4250. Euro was affected by the increased concerns about euro zone’s debt problems.

 

Currency strategists at RBC Capital Markets don’t think that the current weakness of the pair EUR/USD means that the market’s sentiment has significantly changed. According to the latest data on currency futures, the number of long positions on euro has been the maximal since 2007. As for US currency, there were over 100,000 net short futures contracts on dollar almost every week of this year.

 

The specialists underline that yield and rate differentials are still in favor the European currency. In their view, investors will continue thinking that the European Central Bank will raise rates ahead of the Federal Reserve.

 

However, as the analysts try to foresee how high euro will be able to rise they wonder if it’s good for the euro area to have the common currency so high.

[FBS_Official 10]

MIG Bank: comments on USD/JPY

 

The pair USD/JPY found support in the 79.55 area bouncing up and coming closer to the resistance at 82.00 representing post G7 intervention maximum. Technical analysts at MIG Bank think that the greenback has to overcome this level to gain bullish momentum. The next resistance levels are found at 83.30 (post earthquake shock maximum) and 84.50 (December 16 maximum). If US currency manages to rise above the latter, the pair may resume potential long-term bull cycle.

[FBS_Official 10]

BMO Capital Markets looks for euro to weaken

 

Currency strategists at BMO Capital Markets claim that the European currency will decline versus the greenback. In their view, European authorities will soon make some announcements about Greece and these announcements won’t be positive for the country. The EU officials are likely to say that the nation has to make more efforts to get the bailout, expects BMO.

 

At the moment the analysts advise investors not to go short on euro directly, but to bet on the Norwegian krone rising versus US dollar. According to BMO Capital Markets, Norway’s economic position is firm: the country’s unemployment is a low 3.1% and its central bank is thought to lift up the rates today. The trade recommendation is to buy krone at 5.5050 stopping at 5.5550 and taking profit at 5.4050.

[FBS_Official 10]

RBC: factors influencing Canadian dollar

 

Analysts at Royal Bank of Canada note that Canadian dollar weakened versus US dollar as the data released yesterday showed that US crude oil inventories reached the 2-year maximum making oil price decline, stocks fall and demand for higher-yielding assets shrink. Crude supply in the United States, Canada’s major trading partner, surged during the week before May 6 by 3.78 million barrels to 370.3 million.

 

Trading against the single currency loonie gained on speculation Greece may restructure its debt while Canada’s economy grows stronger. Canada’s payrolls increased by 58,300 in April after 1,500 slide in March, while the unemployment rate unexpectedly dropped from 7.7% to 7.6%. In addition, in March the nation had the strongest trade surplus of C$627 million ($658 million) since November 2008, while the economists surveyed by Bloomberg were looking forward only to C$400 million.

 

The nation’s Finance Minister Jim Flaherty said this week that the strengthening national currency reflects confidence in the Canadian economy and that the government’s goal is not to let extreme currency fluctuations.

 

The pair USD/CAD rose from 0.9445 on May 2 getting above 0.9600. The pair EUR/CAD fell by 1% to the levels in the 1.3652 zone.

[FBS_Official 10]

Commerzbank: comments on EUR/USD

 

The single currency went down below 1.4900 on May 5 renewing the week minimums below 1.4255/70 (55-day MA). Technical analysts at Commerzbank expect the pair EUR/USD to consolidate in the 1.4200 zone.

 

The specialists think that euro is poised for a decline to 1.4145/55 (38.2% retracement of 2011 advance and April 18 minimum). In their view, these levels will manage to constrain the initial attack of the bears.

[FBS_Official 10]

HSBC: yuan will become reserve currency in 5-7 years

 

Analysts at HSBC think that in 5-7 years Chinese yuan will become a global reserve currency. In their view, it would happen more due to the growing demand for it than because of the actions of the nation’s authorities and yuan will attain nearly full convertibility.

 

The specialists expect that yuan will be strengthening at the lower pace during the coming years than it has been doing so far. As a result, now it’s necessary to focus attention not on the pace of yuan’s appreciation, but on its internationalization.

 

According to HSBC, within the next 3-5 years China’s rapid economic growth will make yuan one of top three currencies used in global trade. The strategists note that the central banks have to diversify their foreign exchange reserves with multiple currencies, including the CNY, reducing the share of the greenback.

[FBS_Official 10]

John Taylor: higher-yielding assets have reached maximums

 

John Taylor, chairman and founder of FX Concepts, the world's largest currency hedge fund, claims that the advance of the higher-yielding assets that began in the first half of 2009 will soon be over. In his view, the euro zone debt problems will once again come to the centre of market’s attention.

 

According to Bloomberg survey, investors are becoming less optimistic about the prospects of American and world’s economy and the demand for commodities is likely to decline during the next half of the year.

 

So, equities, euro and emerging market currencies have either reached their maximums or will do so by end of July, says Taylor.

 

The S&P 500 that has increased more than in 2 times since March 2009 lost 1.1% since May 2 on the signs that US economic growth is slowing down and the speculation that hedge funds were exiting bets on growth.

 

The pair EUR/USD hit yesterday 6-week minimum at $1.4123 having lost 4% since reaching $1.4940 on May 4. Taylor is currently bearish on the single currency. According to the specialist, euro will eventually fall to parity with the greenback.

 

Analysts at FX Concepts seem very pessimistic about Greece advising investors to get ready to the potential default of the country. The yield on 2-year Greek bonds climbed yesterday to 26.77%. As the yield spread between Greek and German securities is rapidly widening, there is going to be the crisis soon, think the specialists.

[FBS_Official 10]

Commerzbank: outlook for euro is still negative

 

Technical analysts at Commerzbank think that the outlook for the single currency versus the greenback remains negative.

 

The specialists note that if the pair EUR/USD breached support in the 1.4145/55 zone, it will be poised down to 1.3996.

 

According to the bank, resistance for the pair is found at 1.4440/65.

[FBS_Official 10]

BNY Mellon: EU authorizes should come up with a plan on Greece

 

Currency strategists at BNY Mellon claim the things in Greece and the euro area can’t continue in their current state of extreme uncertainty.

 

Although the EU authorities met last Friday to discuss the country’s issues, nothing was announced. While France represented by finance minister Christine Lagarde spoke in favor of granting Greece financial help, Finnish opposition voted against of any future bailouts. BNY Mellon analysts underline that it would be very difficult to find the way out acceptable for all parties.

 

Although the simplest solution in the short term is to provide Greece with money, northern members of the currency bloc aren’t likely to agree to that. Another variant – the restructuring of the country’s debt in terms of maturities – won’t help Greece much leaving it in a very pitiful state. If addition, if Greece gets looser terms of the bailout other indebted nations such as Portugal and Ireland may also ask for concessions.

 

Despite all these difficulties European officials have to come up with something as the constant uncertainty propels Greek funding costs and the unrest in the country is escalating.

 

BNY Mellon is bearish on the single currency which the bank regards as is overvalued. According to the economists, the pair EUR/USD may return to the levels of low $1.30s it was trading at the beginning of 2011.

[FBS_Official 10]

Mizuho: USD/JPY will test 80.00 yen

 

Technical analysts at Mizuho Corporate Bank note that the pair USD/JPY went down below the Ichimoku Cloud and the Fibonacci resistance. The specialists advise investors to sell the greenback. In their view, US currency will dip to a very important support at 80.00 yen.

[FBS_Official 10]

IMF: comments on the situation in euro area

 

The International Monetary Fund said yesterday that despite bailouts for Greece, Ireland and Portugal, core euro zone economies and emerging Eastern Europe may still be contaminated with the debt crisis.

 

The organization expressed readiness to provide Greece with more financial support if requested, though underlined that the country still had plenty of potential to raise funds on its own selling the state assets.

 

According to IMF, in order to prevent the debt crisis from spreading peripheral European states have to make “unrelenting” reforms.

 

The IMF economists warned the European Central Bank that it has to be careful with further rises in the interest rates. In their view, euro zone may afford relatively accommodative monetary policy. Jurgen Stark, ECB policymaker, said, however, that the central’s bank priority is stemming inflation in the region strengthening investors’ hope for another rate hike.