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Comments and Forex-analytics from FBS Brokerage Company

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ECB also started seeing the risks

Thursday, May 17, 2012 - 11:30

 

As the tensions in Europe strengthened, even the European Central Bank dadmitted that the situation’s becoming too dangerous.

 

The ECB President Mario Draghi announced yesterday that it will temporarily stop lending to some Greek banks to limit its risk. Draghi said that until the banks in question sufficiently boosted their capital, the responsibility for lending to them will be shifted to the Greek central bank (within so-called Emergency Liquidity Assistance). Earlier ECB President acknowledged for the first time that Greece could leave the monetary union.

 

Greece’s four biggest banks are waiting for European Union’s approval to receive 18 billion euro of bonds issued by the HFSF (Hellenic financial stability fund) for their recapitalization.

 

Commerzbank: “With market tensions mounting and contagion effects running their course, the ECB might however not be left with much of a choice in the end as capital flight from periphery countries could even accelerate if the probability of a “Grexit” rises. Against this background, the recent EUR/USD rebound is unlikely to be more than a short gasp for air”.

 

ecb.jpg

Image from brecorder.com

 

ECB also started seeing the risks // FBS Markets Inc.

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Analysts: outlook for GBP

Thursday, May 17, 2012 - 12:15

 

Analysts at Barclays Capital expect EUR/GBP to continue the downward movement. Even though the sterling was hurt by the dovish inflation report on Wednesday, the pressure on the common currency these days is incomparably higher. Analysts at Barclays Capital and ING forecast the EUR/GBP to decline to 0.76 and 0.75 respectively in a 12-month period.

 

However, analysts at HSBC don’t believe the sterling is so impregnable. Even in calm market conditions most analysts expected sterling to stay firm against the euro, but to weaken against the greenback. If the risk aversion grows further, investors will turn to the greenback – the real safe haven these days. Great Britain has already slipped into recession; in case if UK data worsens (either slowdown in growth or dip in inflation), the sterling will collapse on a possibility of a further QE. Strategists at RBS forecast GBP/USD to be at $1.57 by the middle of the year.

 

Watch out for important UK data: public sector net borrowings and inflation letter (May 22) and the MPC meeting minutes (May 23).

 

daily_eurgbp_17.05_16.27.gif

Chart. Daily EUR/GBP

 

daily_gbpusd_17.05_16.30.gif

Chart. Daily GBP/USD

 

Analysts: outlook for GBP // FBS Markets Inc.

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Analysts agree: AUD will suffer more

Thursday, May 17, 2012 - 12:45

 

On Monday Australian dollar dived below the parity versus its US counterpart. Analysts say it will stay down there for a time being.

 

NAB reduced forecast for AUD/USD in September from $1.0200 to $0.9800 due to negative domestic factors. The specialists think that the Reserve bank of Australia will cut borrowing costs 2 times more by 25 bps each time and possibly more if the economy keeps deteriorating. Australian federal budget, announced last week, will lower the nation’s GDP growth in the year to June 30 by a percentage point (the RBA cut benchmark rate by 50 bps to 3.75% on May 1: the nation’s economy added 2.3% last year).

 

CBA lowered AUD forecast from $1.0800 to $0.9800 by June and from $1.0900 to $1.0500 by December citing the same reason for the revision – fiscal contraction and interest-rate cuts.

 

ANZ underlines that without positive news from China or Europe, AUD/USD rebounds will allow for tactical shorts to be built for a series of technical targets at $0.9850, $0.9600 and $0.9400 before a long-term base develops.

 

UBS says that the bias for AUD/USD is clearly bearish. In their view, the pair will to trade at $0.9800 in the coming weeks.

 

Westpac cut AUD/USD forecast from $1.0200 to $0.9800 by September keeping the year-end at $1.0400.

 

daily_audusd_16-48.gif

Chart. Daily AUD/USD

 

Analysts agree: AUD will suffer more // FBS Markets Inc.

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May 18: economic background

Friday, May 18, 2012 - 06:15

 

rus.jpg

 

The common currency keeps weakening amid concerns Europe’s crisis extends. On Thursday Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B- on the back of concerns that the country may exit the euro zone. As we approach the Greek elections, the risk aversion on the currency markets is likely to grow.

 

Spanish borrowing costs edged up at a bond auction on Thursday, raising fears that other fiscally weak nations may follow the Greek scenario. Moreover, Moody’s Investors Service cut ratings of 16 Spanish banks yesterday.

 

Manufacturing activity in the U.S. unexpectedly contracted in May to its weakest in eight months. US Philly Fed Manufacturing Index sank to -5.8 in May from 8.5 in April, while economists were expecting the index to increase to 10.3. Jobless claims remain unchanged at 370,000 last week, signaling the labor market is making little progress.

 

Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution – nothing new, so the market didn’t react. The only thing to constrain yen’s appreciation is the Bank of Japan’s meeting next week as there may be some easing.

 

EUR/USD once again renewed 4-month minimum sliding to $1.2654. Australian and New Zealand dollars are losing for the 6th day in a row. Asian stocks dropped by 2.4% (MSCI Asia Pacific Index), while the S&P 500 hit 4-month minimum yesterday.

 

Later today:

 

• All: US President Barack Obama will host a 2-day G8 Meetings at Camp David. G8 is a forum, where the world's leading advanced economies – Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States – meet to discuss key topics and provide solutions for global issues.

 

• Canada: Core CPI growth in April is expected to remain unchanged at 0.3%. CPI may grow by 0.3% after a 0.4% growth in March.

 

 

May 18: economic background // FBS Markets Inc.

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Greece: at the political battlefront

Friday, May 18, 2012 - 06:45

 

Rating agencies are quite active these days: we have Italian and Spanish banks downgraded and Greece. Fitch Ratings cut Greece’s rating from B- to CCC due to “the heightened risk that Greece may not be able to sustain its membership of EMU”.

 

Fitch warned that the other euro zone nations also risk getting worse estimates: the agency pledged to put the entire zone on downgrade watch if after June 17 elections in Greece “Fitch assesses that the risk of a Greek exit from European Monetary Union is probable in the near term.”

 

A non-political caretaker Greek government took over on Thursday to oversee fresh national elections on June 17. The IMF said it would not resume contacts over the 130 billion euro bail-out until the new government is in power. The June vote is regarded as a referendum on the country’s membership in the euro area.

 

Alexis Tsipras, the leader of the Radical Left coalition (SYRIZA), claimed that he would never yield to European demands to impose “barbaric” austerity. At the same time, the latest poll showed that Greek voters are returning to the parties which stick to euro: the conservative New Democracy party may expect to have 26.1% of votes versus 23.7% for SYRIZA (first place means 50 extra seats in the 300-seat parliament). Together with the Socialist PASOK party New Democracy would have enough seats to form a pro-bailout government. However, it’s too early to breathe with relief: political experts say that voters are still far from enthusiastic with New Democracy and many things may happen in a month before elections.

 

alexis_syriza.jpg

Alexis Tsipras, the main inspirer of Greek radical forces, 37 years old. Photo from anphoblacht.com

 

Greece: at the political battlefront // FBS Markets Inc.

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RBC Capital: comments on USD/CAD

Friday, May 18, 2012 - 07:30

 

According to analysts at RBC Capital Markets, U.S. dollar is expected to strengthen further against the Canadian currency. The pair USD/CAD broke C$1.0097 and C$1.0159 resistance levels and now may rise to C$1.0319, reaching a 2012 maximum.

 

Analysts believe the pair must fix below C$0.9899 to reverse current bullish trend. However, it’s unlikely to happen: the risk aversion has increased this month amid concerns the sovereign-debt crisis will worsen.

 

daily_usdcad_18.05_11.30_(1).gif

Chart. Daily USD/CAD

 

RBC Capital: comments on USD/CAD // FBS Markets Inc.

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Key options expiring today

Friday, May 18, 2012 - 07:45

 

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: $1.2670, $1.2700 (large), $1.2900, $1.2950.

USD/JPY: 79.00, 79.75, 80.00;

EUR/GBP: 0.8000;

AUD/USD: $0.9900, $0.9950, $1.0000;

USD/CAD: 1.0100.

 

2012-04-06t134030z_3_cbre83418ap00_rtroptp_3_business-us-markets-stocks.photoblog500.jpg

Photo from Reuters

 

Key options expiring today // FBS Markets Inc.

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Scotia Capital: CAD may slide to 2010 low

Friday, May 18, 2012 - 08:30

 

According to strategists at Scotia Capital, USD/CAD may surge if the volatility grows.

 

Analysts advise to look out for the Volatility Index (VIX), which is the key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. According to specialists, USD/CAD has chances to rise to C$1.0800 in a long tearm, because yesterday the VIX index closed at 24.49 (above the critical 23.5 level).

 

Economists have trimmed expectation of the Bank of Canada’s rate hikes this year as the nation’s economy is affected by weaker US data. The loonie fell on Thursday even despite the positive manufacturing and wholesales data releases. Watch Canadian CPI release later today: the pace of consumer prices’ growth is expected to decline.

 

Market Analysis // FBS Markets Inc.

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Commerzbank: comments on EUR/USD

Friday, May 18, 2012 - 08:45

 

The single currency keeps sliding versus US dollar. Technical analysts at Commerzbank note, however, that there are bids in the $1.2660/70 zone, so the bears have so far been unable to pull the pair much lower. The specialists think, however, that soon they’ll ultimately succeed and EUR/USD will drop to $1.2624/1.2530 (January minimum, 78.6% retracement), then rebound to $1.2911/82 before another decline.

 

There was no significant bullish correction in the last 3 weeks, so selling on rallies remains the preferred strategy. The situation will become more neutral if euro manages to crawl above $1.2758 (May 16 maximum).

 

weekly_eurusd_12-46.gif

Chart. Weekly EUR/USD

 

Commerzbank: comments on EUR/USD // FBS Markets Inc.

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Commerzbank: EUR/GBP may get higher

Friday, May 18, 2012 - 09:15

 

The latest euro’s swing down versus British pound was lasting since the end of February. This week EUR/USD tried start rebounding after the Bank of England expressed concerns connected with the situation in the euro area.

 

Technical analysts at Commerzbank point out that euro managed to overcome an important psychological resistance at 0.8000 – a positive signal. Moreover, there’s a divergence of the daily RSI (12) confirming the idea of corrective rebound, while MACD has crossed the signal line bottom-up on the daily chart.

 

The specialists note that resistance lies at 0.8090 (downtrend resistance line) and 0.8221 (April 25 maximum), while support is found at 0.7950 (May 16 minimum) and 0.7795.

 

daily_eurgbp_13-22.gif

Chart. Daily EUR/GBP

 

Commerzbank: EUR/GBP may get higher // FBS Markets Inc.

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Nomura: fx majors amid risk aversion

Friday, May 18, 2012 - 10:00

 

According to analysts at Nomura Capital, the greenback and the Japanese yen are likely to strengthen as “safe havens” if Greek elections in June take no effect and the country exits the euro zone. In the second half of the year specialists expect EUR/USD to decline to $1.15, while EUR/JPY may fall to 80.00 yen. Nomura specialists expect GBP to remain the strongest among the European currencies.

 

In the risk-off market mode commodity currencies will remain under unrelenting pressure. AUD/USD is expected to trade below parity in 2012. USD/CAD may climb to C$1.05 in Q3, while NZD/USD in Q2 is likely to depreciate to $0.72, according to Nomura forecasts.

 

ECB is likely to launch new round of QE if debt crisis extends; the key interest rate is expected to remain at 1.00%. Specialists point that the ECB policy, based on fiscal tightening, financial deleveraging and overly tight monetary policy, is gradually pushing the euro zone into recession.

 

euro-2_2083996b1.jpg

Photo: The Telegraph

 

Nomura: fx majors amid risk aversion // FBS Markets Inc.

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BarCap: USD/CAD made bullish reversal

Friday, May 18, 2012 - 12:30

 

Can’t stop wring about USD/CAD today. Technical analysts at Barclays Capital note that what we are seeing on the pair’s chart is bullish reversal. Look yourself: this week the greenback managed to overcome resistance of 1.0051 (the upper border of the trading range since the end of January), $1.0062 (200-day MA) and 1.0097 (7-month downtrend resistance line).

 

According to the specialists, resistance levels have shifted upwards to 1.0159 and 1.0319 (2012 maximum). Support is now provided by the former resistance levels in the 1.0090 and 1.0050 areas and at 0.9978 (April 23 maximum). Barclays Capital says that the bearish trend reversal will occur only if USD/CAD closed below 0.9899 (uptrend line support, see the chart).

 

daily_usdcad_16-38.gif

Chart. Daily USD/CAD

 

BarCap: USD/CAD made bullish reversal // FBS Markets Inc.

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May 21-25: Events to watch

Monday, May 21, 2012 - 06:45

 

 

week_ahead.jpg

 

 

Monday, May 21:

 

Canada: bank holiday (Victoria Day). The day is practically empty of important economic events. As a result, traders get ready for tomorrow with the Bank of Japan in focus.

 

Tuesday, May 22:

 

New Zealand: the release of inflation expectations data (Q1), a leading indicator of economic sentiment.

 

Great Britain: Consumer Price Index (CPI) in April is forecasted to grow by 3.1% (a decline in comparison with a 3.5% growth in March, but still much higher, than a 2% BoE target). It’s possible, however, that the rate falls to 3% (the lowest since February 2010) saving the BoE Governor Sir Mervyn King from issuing the inflation letter (the letter is only required if the inflation is below 1% or above 3% and is written to explain why inflation has overshot the target). Public sector net borrowing in April may decline to minus 5.4B vs. 15.9B in March.

 

U.S.: Annualized number of existing home sales – the main gauge of housing market conditions – may increase from 4.48M in March to 4.65M in April supporting the idea of the nation’s economic rebound. The labor market is America’s weakest spot and many investors go the US nowadays only because it’s better than Europe.

 

Europe: consumer confidence in the euro area will likely remain low. Don’t wait for any surprises here. Spain will sell 3- and 6-month bills.

 

The OECD (Organization of Economic Cooperation and Development) will release its global growth forecast.

 

Wednesday, May 23:

 

Japan: Trade deficit is expected to decline slightly to from 0.62T in March to 0.60T in April. Positive trade balance report may support yen ahead of the BOJ announcement. The markets will be eyeing the Bank of Japan’s meeting. The benchmark rate is seen unchanged at 0.10% level, though the central bank may be forced to do more easing. If it doesn’t – well, yen will surely strengthen. For more details see our special article.

 

Europe: Leaders of the EU 27 member states will assemble in Brussels for a crisis meeting. New French President François Hollande will try to push the currency union from austerity to growth promotion and make Germany agree to the euro bonds – debt issued for the euro zone as a whole.

 

Great Britain: MPC meeting minutes. According to the forecasts, the MPC officials have voted unanimously to keep the monetary policy unchanged. Retail sales in April are forecasted to decline by 0.5% vs. a 1.8% growth in March – that would be a very bad sign indicating that the condition of the recessed UK economy aren’t improving at all.

 

Canada: Core retail sales in March may grow by 0.6% compared with a 0.5% increase in February. The nation’s economy for now seems stable enough.

 

U.S.: New home sales are also expected to increase to 336K in April vs. 328K in March.

 

Thursday, May 24:

 

New Zealand: April trade balance is to be released (134M trade surplus in March), while the government will make its annual budget statement.

 

China: May HSBC flash manufacturing PMI will be released (in April the index reached 49.3, indicating the industry contraction).

 

Euro zone: According to forecasts, French flash manufacturing and services PMIs in May are likely to increase to 47.1 and 45.9 respectively (however, the reading below 50.0 still indicates industry contraction). German flash manufacturing PMI is forecasted to reach 47.2, while the services one – to decline to 51.9 from 52.2. Euro zone’s flash purchasing managers’ surveys are expected to show a 10th successive monthly decline in manufacturing output (46.1) and a fourth successive fall in services (47.2). German Ifo business climate in May is expected to go down to 109.5 from 109.9 in April, indicating that concerns of entrepreneurs have risen on the back of the extending crisis. Later in the day, ECB president Mario Draghi is to speak; his comments will be closely watched for any indication of the future possible direction of monetary policy.

 

Great Britain: Britain’s revised GDP in is expected to confirm that the economy shrank 0.2% in Q4 after having declined by 0.3% in Q4 2011. The release of a preliminary GDP showed that UK is in a technical recession – a second consecutive quarterly decline. If the final GDP remains unchanged, the downward pressure on the sterling will grow. New QE is becoming more and more likely; last week a dovish inflation report was issued. The BoE Governor Mervin King sounds rather pessimistic: according to him, the euro zone is tearing itself apart.

 

U.S.: Core durable goods orders in April may increase by 1.3% vs. a 0.8% fall in March. Number of weekly unemployment claims is forecasted to reach 374K after the previous reading 370K

 

Friday, May 25:

 

Japan: Tokyo Core CPI is forecasted to decline by 0.5% in May, while national – to grow by 0.1%.

 

Euro zone: GfK German consumer climate, which is an important indicator of consumer spending, may increase to 5.8 in May from 5.6 in April.

 

 

May 21-25: Events to watch // FBS Markets Inc.

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CFTC trader positioning data

Monday, May 21, 2012 - 08:00

 

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

 

• The net short euro position increased to 174k contracts on May 15th from the previous week’s total of 107k contracts. This is the highest level on record beating the Jan.23 level (171.3k contracts).

 

eur.png

 

• The net short yen position decreased to 34.3k contracts after the previous number 41k contracts. Yen positions keep improving for a fifth consecutive week.

 

jpy.png

 

• The net long pound position declined slightly to 25.0k contracts following the previous total of 25.3k contracts. Pound positions reached its highest level on May 3 (30.8k contracts)

 

gbp.png

 

• The net short Swiss franc position fell sharply to 26.6k contracts following a total of 16.4k contracts.

 

chf.png

 

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.

 

CFTC trader positioning data // FBS Markets Inc.

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Key options expiring today

Monday, May 21, 2012 - 08:00

 

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: $1.2700, $1.2780, $1.2800, $1.2900 and $1.3000;

 

USD/JPY: 79.50, 79.75 and 80.00;

 

GBP/USD: $1.5785, $1.5880 and $1.5900;

 

EUR/GBP: 0.8000.

 

foreks-foreks-300x200.jpg

Image from Seoklass -

 

Key options expiring today // FBS Markets Inc.

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Greece: update from the battle-front

Monday, May 21, 2012 - 08:45

 

Greece’s future remains extremely cloudy. Opinion polls differ. According to one, the distribution of votes will be the following:

 

28% - for Coalition of the Radical Left (SYRIZA);

 

24% - for conservative New Democracy;

 

15% - for socialist PASOK;

 

8% - for the Independent Greeks, a right-wing anti-bailout party;

 

7% - for pro-European but anti-austerity party.

 

According to another survey, ND is ahead of SYRIZA. New Democracy and PASOK signed Greece’s debt deal with socialist PASOK but has long pushed for a renegotiation of the terms of the agreement. Alexis Tsipras, the leader of SYRIZA, started 2-day visit to Paris and Berlin today. Yesterday Tsipras claimed that his party’s opposition to Greece’s debt deal would not mean a euro zone exit, while ND leader Antonis Samaras accused him of making empty promises.

 

2012-05-14t062553z_2_cbre84c1noc00_rtroptp_3_news-us-greece-monday.jpg

REUTERS/Yannis Behrakis

 

Greece: update from the battle-front // FBS Markets Inc.

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Nomura: short-term economic outlook

Monday, May 21, 2012 - 08:45

 

Global:

 

• China‘s growth re-accelerates in the second half after a first half slowdown to just above 8%.

• Downside risks: an oil price spike; a euro-area flare up; the US end-2012 fiscal cliff effect; a China investment slump.

• Upside risks: US consumers shrug off post-crisis blues, releasing pent-up demand; oil prices drop; euro tensions ease further.

 

U.S.

 

• Healthier labor market will continue supporting a revival of pent-up consumer demand in 2012.

• Look for the FOMC to maintain its current policy for now, but to respond quickly if downside risks intensify.

• Policymakers won’t act until after the election to avert the effects of severe fiscal tightening scheduled to begin in 2013.

 

Europe

 

• Look for the European Central Bank to cut the refinance rate to 0.50% in July with risks skewed towards less and later.

• Assume the euro zone crisis will escalate and expect a new round of QE.

 

Asia

 

• Reconstruction is set to spur Japanese growth in the first half of 2012 even with slowing overseas economies.

 

nomura_logo_320_1954.gif

Source: Forbes

 

Nomura: short-term economic outlook // FBS Markets Inc.

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Ichimoku. Weekly forecast. GBP/USD

Monday, May 21, 2012 - 10:00

 

Weekly GBP/USD

 

Last week sterling experienced a big slump versus its US counterpart. The pair GBP/USD tested the levels below weekly Ichimoku Cloud, but then ultimately closed the week right at Senkou Span A. The new trading week was opened with a gap lower – the bulls are trying to close it, but the bearish Cloud is acting as resistance.

 

The prices breached support of the Turning line (2), so they are currently helped by the Standard line (1). Kijun-sen is moving horizontally and pointing at sideways trend – note that it may be in a rather broad range with the recent developments hinting at the fact that it may take place below the Cloud. Kumo is thin (3), so neither bulls, nor bears are really sure in themselves. All in all, the technical picture looks more negative than positive (GBP/USD returned below 200-week MA) and British currency is vulnerable for another leg lower in case Kijun-sen is breached.

 

1._weekly_gbpusd.gif

Chart. Weekly GBP/USD

 

Daily GBP/USD

 

On the daily chart pound also breached important support levels – Kijun-sen (1), the support line connecting the minimums of January 13, March 12 and April 16 and the Ichimoku Cloud to consolidate below the latter. Kumo significantly narrowed in comparison to what we saw a week ago (3). The Turning line (2) dived below the Standard one (1) forming weak, but “dead cross”.

 

We don’t think that pound will be able to return above psychological level of $1.6000 in the coming weeks as it seems that the pair has topped on April 30. We expect sterling to trade this week between $1.5780 and $1.5950/6000 showing a kind of consolidative recovery ahead of further declines.

 

2._daily_gbpusd.gif

Chart. Daily GBP/USD

 

Ichimoku. Weekly forecast. GBP/USD // FBS Markets Inc.

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Fidelity: likely scenario for euro

Monday, May 21, 2012 - 10:45

 

According to analysts at Fidelity Worldwide Investment, Greece is certain to leave the euro zone, but its exit is unlikely to collapse the whole system.

 

Specialists forecast Spain to ask for assistance in the recapitalisation of its banks from both the ECB and the IMF in the coming months, but then the situation is expected to improve. In their view, Spain and Italy have all the chances to avoid expulsion, despite the fact that the austerity programs in these countries have been losing support over the last few months.

 

The Greece’s cautionary example may illustrate the importance of the austerity measures and the probable consequences of non-cooperation with the EU. Analysts are convinced that Europe will never find a way out from crisis without a tight collaboration and political stability.

 

Analysts recommend investors to focus on capital preservation. The best strategy is not to put priority on income, but to invest in low volatility instruments.

 

spain_cnn.jpg

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Spain: struggle with deficit and recession

Monday, May 21, 2012 - 11:15

 

The Finance Ministry reported on Friday the Spain’s 2011 budget deficit could be revised to 8.9% of GDP from initial 8.5% after four of its 17 regions overshot their expected budgets. However, the Ministry still expects to meet the target of 5.3% for 2012 budget deficit. Spain’s authorities forecast the Spanish GDP to shrink by 0.3% in Q2 2012. Recession in Spain, therefore, continues for the third consecutive quarter (in Q4 and Q1 economy also contracted by 0.3%).

 

These days the country is on a thin ice: the indebtedness is growing aggressively and the GDP is slowing down, leaving the euro zone’s economy under the threat. All eyes on the EU leaders: will they manage to balance austerity with growth?

 

French President Francois Hollande said on Saturday he would make proposals for Eurobonds at an upcoming European summit in Brussels on May 23. German Chancellor Angela Merkel is opposed to euro zone bonds in a short-term prospect. Hollande, however, is determined to persuade Berlin to lift its veto on issuing common bonds in order to get instruments to stimulate growth in the region.

 

spain_ap.jpg

Photo: AP

 

Spain: struggle with deficit and recession // FBS Markets Inc.

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Danske Bank: bearish view on EUR/GBP

Monday, May 21, 2012 - 12:15

 

Analysts at Danske Bank note that after setting minimum at 0.7950 on May 16 European currency has shown 3 days of gains versus British pound.

 

However, the specialists claim that though both the UK and the euro area face hard times, the Britain’s economic prospects are better. Danske underlines that the Bank of England has stopped its bond purchases at the moment, while worsening conditions in the euro zone would prompt the ECB to ease further.

 

According to the bank, EUR/GBP will return below psychologically important level of 0.80. The pair will trade at 0.79 in a month and 0.78 in 3 months.

 

daily_eurgbp_16-19.gif

Chart. Daily GBP/USD

 

Danske Bank: bearish view on EUR/GBP // FBS Markets Inc.

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EUR/USD: bulls vs. bears

Monday, May 21, 2012 - 15:45

 

The common currency resumed a bullish correction vs. the greenback on Monday. The G8 meeting, held on May 18-19, didn’t give any clear answers, but the leaders expressed hope that Greece manages to stay in the euro zone. The G8 countries also stressed that their "imperative is to promote growth and jobs", giving a hint they are turning away from austerity.

 

Growth is expected to be the main topic of the EU meeting on Wednesday (May 23), where French President Francois Hollande is expected to call for Eurobonds. According to analysts, focus on growth means the higher ECB involvement, “dovish” monetary policy and a weaker euro.

 

The uncertainty in Europe persists: investors remain concerned about the possible consequences of the so-called “Grexit” (Greece may be forced to leave the euro zone if the anti-austerity party wins the elections in June) and about the situation in Spain’s banking sector (the country is expected to ask for bailout soon, 10-year bond yields increased to 6.29%).

 

Bulls dominate the market on Monday; however, most analysts believe it's a short-time correction. EUR/USD still trades far below the 55-, 100- and 200-days MAs. MACD stays on the negative territory and below its signal line, giving sell-signals. The pair trades far below the daily Ichimoku Cloud.

 

The bullish trend may strengthen if the pair manages to fix above the strong $1.2812 resistance (today’s maximum). Further resistance lies at $1.2845, $1.2880, $1.2910, $1.2930, $1.2950, $1.2970 and $1.3010, while support – at $1.2750, $1.2710, $1.2680, $1.2665 (May 17 minimum), $1.2640 (May 18 minimum).

 

daily_eurusd_21.05.gif

Chart. Daily EUR/USD

 

EUR/USD: bulls vs. bears // FBS Markets Inc.

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May 22: economic background

Tuesday, May 22, 2012 - 06:30

 

dd.jpg

 

EUR/USD shows a two-day advance ahead of the EU summit on Wednesday, which is expected to show who stands where among the European leaders. German Chancellor Angela Merkel said yesterday that good cooperation “doesn’t exclude differing positions” referring to Francois Hollande’s intention to push through the idea of Eurobonds.

 

US session was positive with S&P 500 rising by 1.6%. Asian stocks added 1.2% today (MSCI Asia Pacific Index). Risk sentiment managed to improve, though the markets lack momentum. Commodity currencies got slightly higher versus the greenback. Demand for the New Zealand dollar and for the Aussie was supported as Asian stocks extended a global rally.

 

US dollar itself gained a bit against Japanese yen and Swiss franc. On Wednesday the markets will be eyeing the Bank of Japan’s meeting. The benchmark rate is seen unchanged at 0.10% level, though the central bank may be forced to do more easing.

 

Events to watch:

 

• Great Britain: Consumer Price Index (CPI) in April is forecasted to grow by 3.1% (a decline in comparison with a 3.5% growth in March, but still much higher, than a 2% BoE target). It’s possible, however, that the rate falls to 3% (the lowest since February 2010) saving the BoE Governor Sir Mervyn King from issuing the inflation letter (the letter is only required if the inflation is below 1% or above 3% and is written to explain why inflation has overshot the target). Public sector net borrowing in April may decline to minus 5.4B vs. 15.9B in March.

 

• U.S.: Annualized number of existing home sales – the main gauge of housing market conditions – may increase from 4.48M in March to 4.65M in April supporting the idea of the nation’s economic rebound. The labor market is America’s weakest spot and many investors go the US nowadays only because it’s better than Europe.

 

• Europe: Consumer confidence in the euro area will likely remain low. Don’t wait for any surprises here. Spain will sell 3- and 6-month bills.

 

• The OECD (Organization of Economic Cooperation and Development) will release its global growth forecast.

 

May 22: economic background // FBS Markets Inc.

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EUR/USD: technical comments

Tuesday, May 22, 2012 - 07:30

 

Analysts at RBS claim EUR/USD may rebound towards $1.2963 (50% Fibonacci retracement of the decline from May 1 maximum to May 18 minimum. The pair’s currently consolidating in the $1.2790 area (23.6% Fibonacci retracement).

 

Though these levels may be considered as a good entry for shorts, note that euro’s got some support on H4 chart (trend line started to form, MACD and RSI are positive). In addition, one may see a “bullish engulfing” candle on the daily chart. On the upside, resistance levels for the single currency lie $1.2805 (H4 55 MA), $1.2825 (yesterday’s maximum) and $1.2869 (May 15 maximum).

 

The general sentiment, however, remains bearish as long as EUR/USD trades below the psychological level of $1.3000, so euro’s still extremely vulnerable on the downside. Support is seen at $1.2780 and $1.2720 (H4 chart). The pair’s decline will accelerate if $1.2624 (2012 minimum) is breached with $1.1875 (June 2010 minimum) getting in focus.

 

h4_eurusd_12-39.gif

Chart. H4 EUR/USD

 

eurusd_daily_12-44.gif

Chart. Daily EUR/USD

 

EUR/USD: technical comments // FBS Markets Inc.

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USD/CAD: technical comments

Tuesday, May 22, 2012 - 12:00

 

This week the Canadian dollar strengthens against its U.S. counterpart due to the slightly improved risk sentiment. On the H4 chart, however, we see USD/CAD went up today after Fitch downgraded Japan’s long term rating and yields on Spanish bills increased.

 

The cross has been trading in a bullish channel since early May, so the loonie’s growth is likely to be a correction. On the H4 chart USD/CAD is trading above the 55, 100 and 200 upward MAs. Strong support for the pair lies at C$1.0145 (23.6% Fibonacci retracement of the growth from April 27 minimum to May 21 maximum and the support of the upward trend line).

 

On the H4 chart, however, MACD indicator stays in the positive territory, but below the signal line, giving a sell-signal.

 

Resistance for the pair lies at C$1.0200, C$1.0225, C$1.0245 (local maximum), C$1.0275 and C$1.0300, while support – at C$1.0165, C$1.0130, C$1.0090, C$1.0050, C$1.0025 and C$1.0000.

 

daily_usdcad_22.05_15.39.gif

 

Chart. Daily USD/CAD

 

USD/CAD: technical comments // FBS Markets Inc.

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