Comments and Forex-analytics from FBS Brokerage Company

[FBS_Official 10]

Commerzbank: comments on EUR/USD

 

The single currency declined on Friday versus the greenback breaching support in the 1.4145/55 area.

 

Technical analysts at Commerzbank think that the pair EUR/USD will drop this week to the 200-week MA at 1.3998 and then fall to 1.3770 and 1.3431/1.3375 (55-week MA and 11-month support).

 

According to the bank, resistance levels for euro will be found at 1.4260/70 and 1.4341. If the European currency closes below the 55-day MA at 1.4270, the outlook will be regarded as quite bearish.

[FBS_Official 10]

Euro area: important decisions on the agenda

 

The situation around Greece is getting tenser. Today the country will ask the EU and the IMF to increase 110 billion-euro ($155 billion) bailout it got last year or give it more time to repay official loans. The problem is that Europe’s donor countries, primarily Germany, demand that in return Greece should deepen austerity measures.

 

Things got more complicated from the political point of view due to the scandal with IMF Managing Director Dominique Strauss-Kahn who was arrested in the United States for the sexual assault. Strauss-Kahn used to be French finance minister and it was widely thought that he will call for helping the euro area.

 

According to the European Commission forecasts, in Greece’s 2011 budget deficit will be equal to 9.5% of GDP that exceeds 7.4% target established last year.

 

The pair EUR/USD fell to the minimal level since March at 1.4047. Analysts at BMO Capital advise to sell euro versus the greenback at $1.41 stopping at $1.4210 and taking profit at $1.3450.

 

In addition, there are other two important questions for the European finance ministers to decide today – the approval of 78 billion-euro aid package to Portugal and the nomination of Bank of Italy Governor Mario Draghi as the candidate for the post of the ECB president.

[FBS_Official 10]

Analysts about the prospects of British economy and pound’s rate

 

British pound was the worst-performer after the greenback during the past 3 month. Sterling is at 35-year minimum versus the currency basket (Bloomberg Correlation-Weighted Indexes) as slowing growth forces the Bank of England to keep the borrowing costs low while inflation keeps rising.

 

Currency strategists at Lloyds Bank Corporate Markets claim that the main effect of the UK austerity measures will be seen during the next 2 quarters. The specialists think that the Bank of England would prefer the pound to stay weak. On the other hand, despite the fact that spending cuts will likely affect the nation’s economic growth, they reduce the risk associated with investing in the UK as the ratings agencies and investors see that British authorities do their best to cut the budget deficit.

 

Analysts at Barclays currently regard sterling as one of the weakest currencies. Low GBP may be explained by very low real interest rates in the UK, so if the rates go up, so will the pound. According to the bank, pound will advance to 80 pence per euro in a year and to $1.72 in 3 months and $1.80 in 12 month. The economists are looking forward to 2 BoE rate hikes this year.

 

Analysts at Mizuho Corporate Bank, on the contrary, claim that monetary tightening at the time of severe fiscal tightening will cause the disaster. In their view, higher rates in such case won’t encourage pound’s appreciation.

 

British authorities are planning to decrease the budget deficit from 9.6% of GDP in the year through March 2011 to 2.5% of GDP by 2015.

[FBS_Official 10]

BMO Capital Markets: USD/CAD is likely to rise

 

Canadian dollar declined versus its US counterpart from maximum of 0.9445 hit on May 2 to 0.9769 today. The pair USD/CAD managed to break above the 9-month bearish trend line at 0.9758.

 

Currency strategists at BMO Capital Markets claim that if the greenback closes the day above this level, the short-term trend will reverse upwards within the longer-term downtrend from October.

 

The specialists expect that the greenback will firstly consolidate at the current levels or even pull lower before the next upward move. In their view, the pair may climb to 0.9915/1.0060.

[FBS_Official 10]

UBS: EUR/USD may go down to $1.39

 

Technical analysts at UBS claim that the outlook for the single currency against US dollar will remain negative as long as it’s trading below resistance at 1.4340. In their view, the pair EUR/USD is poised down to 1.4021 and 1.3903.

 

As for the longer term, the specialists expect the greenback to rebound ahead of the end of the Fed's QE2 program in June. According to UBS, investors have already begun unwinding significant short positions on US dollar.

[FBS_Official 10]

Danske Bank: the outlook for EUR/USD

 

Currency strategists at Danske Bank claim that although the single currency was under strong pressure during the past month, future dynamic of the currency markets will be determined primarily by the interest rate differential that are in favor of euro versus the greenback.

 

The specialists think that the European authorities won’t support the idea of early Greek debt restructuring and this will help to constrain investors’ concerns. In addition, according to Danske, Greece’s debt problems won’t keep the ECB from lifting up the interest rates. Danske expects the next hike to come in July. As for the greenback, the economists think that it’s going to stay weak as the Federal Reserve has no intention to raise the borrowing costs.

 

However, the elevated risk premium made the specialists revise downwards the forecast for the pair EUR/USD: 3-month forecast – from 1.50 to 1.48, 6- and 12-month forecasts from 1.50 and 1.40 to 1.46 and 1.38. In the second half of the year US currency will get more support as the Fed’s QE2 program expires in June.

[FBS_Official 10]

Danske Bank: 10 reasons for BoE to stay on hold

 

Here is more interesting analysis from Danske Bank. The specialists give 10 reasons why the Bank of England will keep rates unchanged this year:

 

1) The output gap is too large, the economy hasn’t recovered enough from the last recession and the economic growth rate is low. In order to help production recover to the pre-recession level a substantial amount of monetary stimulus is necessary.

2) High unemployment (around 3% points above its structural level), the private sector won’t manage to absorb the projected public lay-offs. As a result, many people are likely to lose their jobs when the public sector shrinks.

3) Current inflation is high but inflation expectations are leveling off and there is no wage pressure. There is actually a risk that in the medium term inflation will undershoot the Bank of England’s 2% target. The MPC hasn’t lost its credibility as some critics argue.

4) Consumer sentiment is already very negative as with previous recessions and this may lead to a setback in private consumption.

5) Growth in disposable income for households, measured by earnings growth minus retail price growth, has been negative for more than a year. Higher borrowing costs will squeeze households further and increase insolvencies.

6) Business sentiment is deteriorating. Economic conditions are challenging and indicators show that there’s a threat of contraction during the next months.

7) Broad money growth, closely associated with prices according to the quantity theory of money, has now turned negative – fundamental sign for policy makers not to tighten monetary policy.

8) The UK debt burden is rapidly growing. The cost of servicing debt will rise if interest rates rise too fast. Official projections for government debt rely on too optimistic projections for economic growth, which can be difficult to achieve.

9) Exporters need all the support they can get. If pound strengthens, the trade balance that is already in the bad shape will worsen more. Sterling’s true “undervaluation” might be smaller than believed by most.

10) The hawks in the Monetary Policy Committee are losing faith in the need monetary tightening. Recently Martin Weale, who has been voting for rate hikes since January, indicated that he may vote for rates to be left on hold due to the latest poor data. Danske specialists believe that Spencer Dale, the BoE’s chief economist, has similar considerations.

[FBS_Official 10]

Strauss-Kahn scandal won’t affect euro

 

Currency strategists at RBS claim that the scandal with IMF Managing Director Dominique Strauss-Kahn won’t affect the single currency as the institution’s decisions on such important issue as bailing out the indebted nation doesn’t depend on one singular individual but is collectively made. In their view, the pair EUR/USD will return upwards to $1.44.

 

Analysts at Bank of America Merrill Lynch note that John Lipsky, who has stepped in for Mr. Strauss-Kahn at the IMF, is well regarded by market players. According to them, the single currency has settled in range between $1.35 and $1.45. The «violent selloff in the euro» during the last 2 weeks means that investors begin regarding euro as a funding currency and sell it versus higher-yielding emerging market and commodity currencies.

[FBS_Official 10]

J.P. Morgan: how to choose a safe haven currency

 

Currency strategists at J.P. Morgan Asset Management give market players some advises on how to choose a safe haven currency. According to the specialists, it’s necessary to focus on 3 main features.

 

Firstly, this should be a currency of the country with small current account deficit or surplus as % of GDP. A surplus means the country does not require net capital inflows to offset trade-account outflows. Examples: most emerging Asian countries, Switzerland, Norway.

 

Secondly, safe havens are usually low-yield currencies: when the risk sentiment is on investors tend to borrow in low-yielding currencies to buy higher-yielding ones; when the market’s risk aversion strengthens and the carry trade isn’t used, demand for the low yielders, on the contrary, increases.

 

The last but not the least is that, refuge currencies tend to be liquid.

 

So, speaking about the greenback, it’s possible to say that though it doesn’t suit the first condition – no need to remind how huge US current account deficit is – it has low yields and very liquid bond market that seems enough for it to be bought during risk-off time except the moments when risk aversion is the result of high oil prices. Swiss franc is a great save haven especially when the concerns about the euro zone crisis arise. Yen is also in the list, though it’s necessary to be careful about Japan’s debt dynamics and finding the right entry point taking into account its recent strength. Among the emerging Asian currencies other than Indian J.P. Morgan prefers Chinese yuan and Singapore dollar. Finally, the specialists mention Norwegian krone that’s connected to oil, but enjoys strong safe-haven fundamentals.

 

The economists at Deutsche Bank think that the end of the Federal Reserve’s QE2 in June will mark the shift in risk sentiment towards its deterioration.

[FBS_Official 10]

Commerzbank: negative outlook for EUR/USD

 

Technical analysts at Commerzbank are bearish on EUR/USD. In their view, the single currency is on its way down to 1.3998 (200-week MA), 1.3770 and then to 1.3431/1.3375 (55-week MA and 11-month support).

 

The specialists claim that some bounces of euro are possible, but they won’t be of great significance to the general negative picture. According to the bank, upward moves will be limited by the resistance of 1.4225/65 and 1.4341.

[FBS_Official 10]

Mizuho: comments on USD/JPY

 

The pair USD/JPY went down from 2-week maximum at 81.77 reached on Tuesday.

 

Technical analysts at Mizuho Corporate Bank claim that dollar’s advance during the last 8 days was an inverted “flag” and that small “spike high” versus Japanese yen made yesterday may be regarded as the new interim maximum.

 

The specialists expect the greenback to fall below 9-day MA at 80.92 retesting this week support at 80.00. According to the bank, it’s necessary to sell US currency at 81.50 stopping above 81.80 and taking profit at 80.35.

[FBS_Official 10]

Moody's downgraded major Australian banks

 

Moody's Investors Service cut the ratings of Australia's big-four banks from Aa1 to Aa2. These banks are Westpac Banking Corp., Australia and New Zealand Banking Group Ltd., National Australia Bank and the Commonwealth Bank of Australia.

 

The pair AUD/USD declined on the news easing down from today’s maximum at 1.0665 to the levels in the 1.6000 area.

 

However, the analysts weren’t concerned much by Moody's move. Economists at Westpac note that the ratings agency has brought its estimate of Australia’s major banks in line with S&P and Fitch ratings. Strategists at RBS note that Moody's should have made this 2 years ago.

[FBS_Official 10]

Analysts about the prospects of Greece’s debt restructuring

 

The advance of the pair EUR/USD was limited as the European finance ministers admitted yesterday that there’s a possibility that Greece may have to restructure its debt.

 

Economists at SEB believe that if Greece is allowed to restructure one way or another, the single currency will get under severe pressure as the haircut may undermine investors’ confidence in the euro area. The specialists say that the market players will soon start doubting about how sensible is it to keep holding euro longs.

 

If the restructuring path is, nevertheless, chosen, there are different views on how intense this process should be.

 

Strategists at ING claim that in order to keep Greece’s debt/GDP ratio sustainable the nation will need to restructure at least 30% of its debt. Greek 10-year bonds yield reached 15.495%.

 

Analysts at Credit Suisse say that the situation in Spain and Italy will remain stable if Greek restructuring involves only maturity extension. At the same time, forced restructuring with principal sums reduction is likely to increase systemic risk threatening other peripheral European nations.

[FBS_Official 10]

Goldman Sachs lowered US dollar forecasts

 

Currency strategists at Goldman Sachs reduced US dollar forecasts versus the single currency, Japanese yen and British pound due to the poor US economic data. The bank believes that the Federal Reserve won’t raise the borrowing costs until 2013.

 

According to the specialists, the greenback will decline to $1.45 per euro in 3 months, to $1.50 in 6 months and $1.55 in a year. In addition, Goldman lowered 3-month estimate of the pair USD/JPY from 84 to 82 yen, 12-month prediction was also down from 90 to 86 yen. The target for GBP/USD was increased from $1.79 to $1.85.

 

The analysts note that the prospects of US economic growth are less convincing than the outlook for many other nations as America faces a lot of problems among which there are high unemployment, weakness in the real estate sector and the inevitable fiscal consolidation. As a result, investors aren’t confident enough to invest more in the United States on the long-term basis.

 

US currency has lost 6.4% against euro since the beginning of this year, while the Dollar Index has fallen by 4.9%. US GDP showed in the first quarter annual growth of 2.3% that is less than 2.5 % in Europe and 9.7% in China.

[FBS_Official 10]

Japan’s economy contracts: analysts’ comments

 

According to the data released today, Japan’s GDP showed in the first 3 months of the year annual drop of 3.7% (-0.9% from the previous quarter) after losing 3% in the final quarter of 2010, while the economists were looking forward only to 1.9% decline.

 

Analysts at Mizuho Securities warn that the second quarter slump may be even greater as consumer spending and exports contract. In their view, in the third quarter Japanese economy may start recovering helped by the fixing of the supply-chain disruption and the beginning of reconstruction process.

 

Specialists at Daiwa Institute of Research claim that even though Japan’s economy may begin rebounding in the fourth quarter, it will fall by 0.4-0.5% in the fiscal year ending March 2012. Economists at RBS Securities note that Japanese companies that have seriously suffered after the earthquake won’t be much eager to increase business spending as the situation remains too uncertain.

 

Analysts at Barclays Capital are looking forward to see a V-shaped recovery in Japan in the period from July to September and afterwards driven by the self-sustaining recovery in production, an increase in government consumption and reconstruction.

[FBS_Official 10]

Bullard gives the outlook for the Fed’s monetary policy

 

Federal Reserve Bank of St. Louis President James Bullard claimed that US central bank is likely to keep its monetary policy unchanged until late this year. In his view, declining inflation expectations let the Fed to maintain monetary stimulus measures.

 

Bullard regards Treasuries as the key indicator of the public’s views on inflation. The yield spread between 10-year notes and Treasury Inflation Protected Securities fell from 2.67 points on April 11 to 2.26 percentage points today.

 

According to Bullard, he and other Fed members expect US economy to gain 4% during the rest of the year, while economists surveyed by Bloomberg name 2.7% for the year.

 

If the real growth lags Bullard’s optimistic projection, the central bank won’t hurry to tighten policy. So, everything depends on the US economic performance, underlined Bullard.

 

The St. Louis Fed President thinks that the tightening should begin by shrinking the Fed’s balance sheet that may be done in 5 years if the Fed stops reinvesting maturing mortgage-backed securities or outright asset sales.

[FBS_Official 10]

Commerzbank: comments on GBP/USD

 

Technical analysts at Commerzbank note British pound will test one-year uptrend support line at 1.6082/45 trading versus the greenback. In their view, these levels will be able to hold initial bearish attack.

 

However, the specialists think that the longer-term bullish trend is wearing out as sterling gets closer to 200-week MA at 1.6969. The strategists also underline that the weekly RSI has turned lower.

 

According to the bank, if the pair GBP/USD falls below 1.6074/45, it will be poised down to 1.5935 and 1.5683 (55-week MA).

[FBS_Official 10]

World Bank: dollar's hegemony will be over by 2025

 

The World Bank expects that by 2025 the greenback will lose its dominant role in the global economy, reports the Financial Times. The economists believe that the European currency and Chinese yuan will occupy the equal position with US dollar in new multi-currency monetary system.

 

According to the World Bank, the emerging market economies will grow at 4.7% rate between now and 2025, while the advanced ones – only by 2.3% over the same period. 6 countries – Brazil, China, India, Indonesia, Russia and South Korea will account for more than half global growth in 14 years.

 

Euro is regarded as the main rival of US currency and its importance will increase provided that the euro area finds the way out of the debt crisis and the problems associated with bailing out European countries are solved.

[FBS_Official 10]

UBS: loonie will fall to C$1.05 per dollar by the year-end

 

Canadian dollar keeps strengthening against US dollar helped by the advance of crude oil price that has reached $100 a barrel. Raw materials including oil account for about half of Canada’s export revenue. The pair USD/CAD fell from 0.9792 on May 17 to the levels in the 0.9665 area today.

 

Strategists at UBS claim that Canada’s central bank isn’t in the mode of raising the borrowing costs yet. In their view, loonie will fall to C$1.05 versus its American counterpart by the end of the year. The specialists note that the country’s policymakers will be concerned by the risks of fiscal contraction in the United States and slowdown of the emerging-market growth.

 

Analysts at TD Securities have put off their forecast of Bank of Canada’s rate hike from July to September. Economists at Canadian Imperial Bank of Commerce decided to keep the forecast of July tightening, leaving though the option to change opinion in case the world’s economic outlook gets worse.

 

Look for Canada’s CPI report released tomorrow: economists surveyed by Bloomberg expect annual inflation pace to have risen from 3.3% in March to 3.4% in April.

[FBS_Official 10]

Commerzbank: comments on USD/JPY

 

Technical analysts at Commerzbank note that the greenback is testing Fibonacci resistance at 81.85 trading versus Japanese yen.

 

In their view, the pair USD/JPY will be limited on the upside the 100-day MA at 82.25. The specialists are looking for dollar’s consolidation ahead the next move up to 200-day MA at 82.77. If US currency manages to rise above this level, it will be poised up to the key resistance of the 4-year downtrend at 84.49.

 

According to the bank, if the pair declines, it will meet support at 80.98, 80.15 and the recent minimum of 79.55.

[FBS_Official 10]

Gaitame.com: comments on GBP/USD

 

Technical analysts at Gaitame.com Research Institute expect British pound to drop to the minimum since April 1.

 

The specialists claim that the trend line from January 7 to March 28 minimum might have limited sterling’s upward momentum as it went lower. Moreover, Gaitame.com underlines that the pair GBP/USD is currently below its 20- and 60-day MA.

 

As a result, the analysts conclude that bullish trend is wearing off and the pound will get weaker for some time. According to Gaitame.com’s forecast, GBP/USD may fall to the $1.6065 level that’s situated on the trend line that connects December 28 and 29 minimums.

[FBS_Official 10]

CBA: Australian companies expect AUD/USD to advance

 

Commonwealth Bank of Australia conducted survey among Australia’s small and medium companies.

 

The nation’ exporters think that by September Aussie will reach maximum at $1.16. In their view, their position is very unfavorable as this level is situated 25% above the mark when they lost price competitiveness. The survey showed that 48% of Australian exporters are going to hedge their currency exposure over the next 3 months selling A$5 million ($5.3 million)-A$500 million a year. Australia’s importers believe the pair AUD/USD will peak at $1.14 by the end of 2011.

 

Analysts at Commonwealth Bank sum up noting that Australian enterprises expect the national currency to stay significantly above the parity this year and at the beginning of 2012 renewing its post-float record highs.

 

Australian dollar has added 31% against its US counterpart during the past year rising from $0.8072 on May 21, 2010 to $1.1012 on May 2, 2011.

[FBS_Official 10]

BofT-Mitsubishi UFJ: US dollar will keep rising versus yen

 

Analysts at Bank of Tokyo-Mitsubishi UFJ think that US dollar’s recent uptrend versus Japanese yen may continue. In their view, the trade may shift higher to the range between 81.00 and 82.50.

 

The specialists note that USD/JPY may be encouraged by the better-than-expected American economic data as it was yesterday when the nation’s economy posted only 409,000 initial jobless claims during the week before May 14, down from 438,000 the week earlier. As there is not much selling pressure from Japan exporters in recent weeks following the March 11 earthquake, there aren’t many factors to stop dollar’s advance.

 

According to the bank, it’s necessary to pay attention to US bond auctions scheduled on Tuesday, Wednesday and Thursday as investors tend to watch the moves of US Treasury yields.

[FBS_Official 10]

Mizuho: forecasts for EUR/USD and GBP/USD

 

Analysts at Mizuho Corporate Bank note that during the last 5 days British pound was trading sideways versus its US counterpart getting support from the daily Ichimoku Cloud and Fibonacci retracement levels. The specialists say that the outlook for the pair GBP/USD will become bullish if it closes the week above 1.6350.

[FBS_Official 10]

Goldman Sachs increased NZD/USD forecast

 

Analysts at Goldman Sachs increased their forecasts for the pair NZD/USD.

 

According to the specialists, even though New Zealand’s dollar is significantly overvalued it will be stronger versus its American counterpart then they have projected earlier due to the improving economic recovery in the country and persistent weakness of the greenback.

 

The 3-month target for kiwi was lifted up from $0.75 to $0.78 and the 12-month prediction – from $0.76 to $0.78.

 

Economists surveyed by Bloomberg News, expect New Zealand’s currency to end the year at $0.76.