Comments and Forex-analytics from FBS Brokerage Company

[FBS_Official 10]

ZKB, BNP Paribas about the possibility of SNB intervention

 

Economists at ZKB believe that strong franc won’t make the Swiss National Bank intervene at the currency market as Switzerland’s economy still isn’t strong enough, while the SNB’s currency reserves are already too high. The specialists note that the nation’s getting used to the strong national currency, though Swiss exports will stay under negative pressure in the second half of the year.

 

Strategists at BNP Paribas also don’t regard the possibility of SNB intervention as strong. According to them, as the tensions between EU governments and the ECB remain, EUR/CHF may go down below 1.20.

[FBS_Official 10]

Citigroup: code language from the central bankers

 

Last week the market’s attention was focused on the central bankers with both Ben Bernanke and Jean-Claude Trichet speaking.

 

Investors were waiting for some key words from the ECB: as the central bank’s President said “strong vigilance” about inflation euro immediately spiked. When Trichet uses the expression “very close monitoring” euro moves quite a bit.

 

Analysts at Westpac note that as investors got used to coded messages from central banks, so it the tension escalates, the market would react violently in both cases: if the ECB’s head mentioned “strong vigilance” and if he didn’t.

 

Strategists J.P. Morgan say that central bankers may just want to animate the dry data. Analysts at Citigroup, however, don’t agree with such opinion thinking that their actions are quite deliberate. In their view, 30 years ago the goal of monetary authorities was to surprise the markets while now the central banks, on the contrary, try to prepare investors for future developments in order to eliminate potential shocks.

 

Sophisticated investors know exactly what “strong vigilance” meant, but individual traders may have plenty of difficulties trying to interpret the “code language” correctly. As a result, Citigroup notes that it’s much easier for retail investors to trade on such factors as high probability of ECB July rate hike based on the market’s expectations. However, on Thursday after forming a spike euro has sharply fallen. An individual trader who needs some time to understand what’s happening may be crushed in such situation.

[FBS_Official 10]

Sakakibara expects USD/JPY to fall to 75 yen

 

Eisuke Sakakibara former Japan’s top currency official known as “Mr. Yen” believes that Japanese yen may strengthen to 75 versus the greenback.

 

As the reasons for such forecast the specialist cites US economic slowdown and the risk of its credit rating downgrade. Ratings agencies Moody’s Investors Service and Standard & Poor’s have so far put US credit rating under review and the United States may lose its top rating unless it makes progress in solving its debt issues. Sakakibara says American lawmakers are likely to agree eventually on raising the debt ceiling in time (that’s before the deadline on August 2), so the credit ratings cut won’t be big and won’t hurt much the demand for Treasuries.

 

The economist underlines that dollar will manage to remain the world’s primary reserve currency though it stay under pressure as the Fed will keen conducting extremely loose monetary policy.

 

According to Sakakibara, USD/JPY trading range will shift to 75-80 yen. The expert thinks that dollar-negative factors will outweigh the risk of the “unprecedented recession” in Japan after the strongest in the nation’s history earthquake and tsunami on March 11.

 

Sakakibara notes that Japan’s currency intervention is unlikely as the country won’t probably be able to get support from G7 as it was in March when the developed countries agreed to help weaken Japanese currency as its moves were too volatile and it had reached postwar maximum at 76.25 yen per dollar. The former official thinks that Japan’s economy won’t be affected much by the appreciation of the national currency as it will help the nation cope with rising commodity prices.

[FBS_Official 10]

Commerzbank expects EUR/USD to decline

 

The single currency went up from Monday’s minimum in the 1.4300 area but failed at 1.4500 returning back below 1.4400.

 

Technical analysts at Commerzbank believe that euro is on its way down to support in the 1.4010/1.3968 zone. In their view, EUR/USD trend is neutral/negative after euro last week didn’t manage to overcome 78.6% retracement resistance at 1.4732.

 

According to the bank, resistance is found at 1.4540/65, 1.4732 and at May maximum of 1.4940.

[FBS_Official 10]

HSBC, Standard Chartered: outlook for Chinese yuan

 

Analysts at HSBC claim that it’s very difficult to determine whether Chinese currency is under- or overvalued. The specialists note that yuan rose versus the greenback by 6.4% in real terms since June 2010, but declined slightly on a REER basis. In their view, yuan can still strengthen a bit more. The uncertainty about its fair value will keep the pair USD/CNY from any sharp moves.

 

Strategists at Standard Chartered believe that China’s tightening cycle may be close to an end as the inflation seems to have peaked. According to the bank, the People’s Bank of China will keep the rates unchanged in the second half of this year and in the first half of 2012. Later, however, the analysts expect inflation to increase once again, so there will be more rate hikes in the second half of the next year.

 

The economists believe that USD/CNY daily trading band will soon widen as Chinese monetary authorities will show their intent to make the exchange rate more stable. Standard Chartered notes that yuan is likely to keep appreciating. In their view, it will gain 4.0% since end-2Q 2011 to end-2012.

[FBS_Official 10]

JPMorgan Chase, Nomura expect euro to rebound

 

Analysts at JPMorgan Chase and Nomura expect the single currency to rebound even despite the escalation of concerns about Greece’s future.

 

According to JPMorgan, euro will show better results this year than dollar and yen even if the European policy makers put off agreeing on a resolution to the debt crisis as long as the situation seems to be more or less stable. The specialists believe that the market will calm down next week as the currency bloc’s leaders most probably won’t decide to do something drastic such as forcing private investors to share Greece’s debt burden by prolonging maturities. In their view, the pair EUR/JPY may climb to 120 yen this year. The bank also forecasts the pair EUR/USD to reach $1.48 by the end of December.

 

Economists at Nomura think that the expectation of the ECB rate hikes will ease negative pressure on euro and euro’s not likely to fall into downtrend. The bank claims that the recent decline of the European currency reflects the increase in fiscal premium in the euro zone’s countries. Nomura’s forecast for euro is $1.45 and 127 yen at the end of this year.

[FBS_Official 10]

UBS: comments on USD/CHF

 

The greenback went up versus Swiss franc from Tuesday’s minimum at 0.8350, but was stopped by resistance at 0.8575. As the risk aversion strengthened, the pair USD/CHF went down to support at 0.8465.

 

Resistance for US dollar is found at 0.8545 (June 16 maximum), 0.8595 (intra-day resistance) and 0.8665 (May 27 maximum). Support levels lie at 0.8465 (June 16 minimum), 0.8350 (June 14 minimum) and 0.8325 (June 7 minimum).

 

Technical analysts at UBS, claim that the trend for USD/CHF will remain neutral as long as the pair is trading between 0.8443 and 0.8457. If dollar falls below 0.8443, the bearish trend will resume and dollar will be poises down to 0.8348. If US currency rises above 0.8547, it’ll be able to strengthen to 0.8639.

[FBS_Official 10]

Citigroup: euro will remain under pressure

 

Analysts at Citigroup think that if the European Union and the International Monetary Fund agree to provide Greece with another tranche of financial aid that includes 8.7 billion euro ($12.4 billion) from EU and 3.3 billion euro from the IMF in July, euro’s rebound will be modest and short-lived.

 

The specialists think that the single currency will remain under pressure of uncertainty generated by the process. In their view, euro still faces challenges in the near term.

 

European finance ministers will meet on June 19 after they failed to reach an accord on the next loan disbursement an emergency session two days ago.

 

The pair EUR/USD recovered rising above $1.24 after touching yesterday the minimal levels since May 26 at $1.4073.

[FBS_Official 10]

Alan Greenspan: Greece will likely default

 

The former Federal Reserve chairman Alan Greenspan is almost sure that Greece will default. In his view, the chances of such outcome are “so high that you almost have to say there’s no way out”, reports Bloomberg.

 

Greenspan says that the possibility that European politicians will manage to cope with the crisis is very low. Greek government bonds fell, while the yield on the 2-year notes reached the record maximum of more than 30%. The nation’s authorities didn’t manage to convince the population in the necessity of more austerity measures.

 

If Greece becomes unable to repay its debts, US economy will face the high risk of recession. If Greece doesn’t default, the possibility of the US economic contraction will be low. According to Greenspan, American recovery is stemmed as businesses are concerned about the long-term outlook. The economist warns that US debt issue is becoming “horrendously dangerous” and US lawmakers probably don’t have another year or two to solve it.

[FBS_Official 10]

Sarkozy and Merkel announced “breakthrough” in Greek issue

 

French President Nicolas Sarkozy and German Chancellor Angela Merkel announced after today’s meeting that there’s a “breakthrough” in solving Greece’s debt crisis: the leaders of 2 largest euro zone’s economies agreed on a new rescue package for Greece.

 

Germany that was earlier demanding private bondholders pay a substantial share of any new bailout is going to work on the compromise deal with ECB. Analysts at RBS note that such comments helped to improve the investor’s risk sentiment.

 

The market’s reaction was optimistic: single currency went up versus all of its main competitors on the news.

 

The pair EUR/USD added 120 pips reaching 1.4290. Resistance for euro is found at 1.4300 (June 13 minimum), 1.4370/75 (20-day MA) and 1.4430/50 (June 13 maximums). Support levels lie at 1.4200/20 (previous maximums), 1.4125 (day minimum) and 1.4070 (June 16 minimum).

[FBS_Official 10]

Greece: shift in the government

 

Greek Prime Minister George Papandreou replaced his finance minister with his main socialist party rival hoping to push through the unpopular austerity plan.

 

Analysts at UBS characterize the new comer Evangelos Venizelos who previously occupied the position of defense minister as politically powerful. In their view, Venizelos will be able to conduct fiscal consolidation even though he wasn’t engaged in financial matters before.

 

Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and markets, was moved to the environment ministry in a crisis-driven reshuffle.

 

At first Greek market was positive on the news: Athens stock market index gained 2%. Bond markets, however, remain unnerved the by concerns that the nation never managed to repay its debt that has reached 340 billion euro or 150% of the nation’s GDP. Just before today’s announcement the yield on 10-year Greek government bonds reached the record maximum of 18.9%.

[FBS_Official 10]

Nordea and Westpac recommend selling euro

 

The turmoil in Greece keeps escalating. The nation’s Prime Minister George Papandreou initiated yesterday a 3-day debate a confidence motion in his government.

 

In order to get the fifth loan under last year’s 110 billion-euro bailout Greek Parliament has to approve 78 billion-euro ($111 billion) package of budget cuts. However, the opposition parties aren’t inclined to let this happen. Euro-area finance ministers urge Greece to pass laws to cut the deficit and sell state assets left open whether the country will get the full 12 billion euro promised for next month

 

Currency strategists at Nordea Bank claim that the single currency is under pressure due to the uncertainty about Greece’s future and the concerns about global economic growth. In their view, the pair EUR/USD may drop to $1.40 by the end of the week.

 

Analysts at Westpac advise to sell euro on its advances above $1.43. The specialists doubt that Greek policymakers will manage to push through all austerity measures EU and IMF demand from them.

 

The median forecast of analysts surveyed by Bloomberg News is that euro will fall to $1.40 by December.

[FBS_Official 10]

Deutsche Bank: negative outlook for EUR/USD

 

Analysts at Deutsche Bank think that the European currency has already reached this year’s maximum versus the greenback at 1.4940.

 

The specialists believe that the pair EUR/USD be steady declining during a year from now. In their view, euro will slide to 1.3500 by the end of the third quarter, to 1.3000 by the end of 2011 and to 1.27 in 12 months.

[FBS_Official 10]

Citigroup expects EUR/CHF to decline

 

Analysts at Citigroup expect the single currency to fall to 1.17 versus Swiss franc even though they believe that CHF is overvalued against euro in the longer term.

 

The specialists are surprised by good performance of Switzerland’s economy taking into account the strength of its national currency. In their view, franc may be driven by the capital flight both from Middle East and North Africa and euro area’s periphery. In addition, it’s also necessary to remember about the continuing problem with CHF-denominated mortgages in Hungary.

 

As a result, Citi sees the high risk of EUR/CHF decline in the short term, especially in case of high risk aversion.

[FBS_Official 10]

MIG Bank: comments on USD/JPY

 

Analysts at MIG Bank still expect that the greenback will be able strengthen versus Japanese yen starting new bullish cycle.

 

For the pair USD/JPY to do this, it has to close above 82.00 and then rise above the post earthquake maximum of 83.30.

 

According to the bank, support for US currency is situated at 80.00 and 79.80 (Fibonacci level).

[FBS_Official 10]

Westpac Bank: comments about NZD/USD

 

New Zealand’s dollar declined today versus its US counterpart on the rising risk aversion caused by the concerns about Greece.

 

Analysts at Westpac Bank expect the pair NZD/USD to trade between $0.8000 and $0.8200 this week. In their view, the pair will eventually break range the bottom of this range, not the top.

 

Apart from the European issues, the markets also watch the FOMC’s meeting that will finish on Wednesday and Ben Bernanke’s press conference the same day. The bank thinks that the Fed may simply underline that the monetary policy will remain loose without specifying the details.

 

NZD/USD went down from today’s maximum at $0.8120 to the levels in the $0.8050 area. Support for the currency is now seen around $0.8040, while resistance starts at $0.8200.

 

Kiwi is much more influenced by global financial problems than by the domestic ones. When they are resolved, albeit temporarily, New Zealand’s dollar will once again resume the uptrend.

[FBS_Official 10]

Commerzbank: GBP/USD within downtrend

 

British pound went down from Friday’s maximums in the 1.6200 area found support in the 1.6110 zone managing to recover to 1.6185.

 

Technical analysts at Commerzbank regard this move of the pair GBP/USD as correction. In their view, sterling will find resistance at 1.6225. The specialists think that pound won’t be able to rise above 1.6370. There’s also a barrier at 6-week resistance line of 1.6420.

 

According to the bank, the trend for the pair is negative and it’s poised down towards the 55-week MA at 1.5831.

[FBS_Official 10]

BBH: Greece’s default is inevitable

 

Analysts at Brown Brothers Harriman, the oldest and largest private bank in the United States, claim that if the single currency drops below 1.42 versus the greenback, it will be poised down to 1.40 completing the retracement of the advance made in the second half of May.

 

According to the specialists, the second bailout for Greece may come in time to prevent the global crisis, but probably too late for Greece.

 

The bank thinks that there’s no chance the nation will be able to avoid default. The strategists say that the question is when it will happen and how well euro zone and G7 finance ministers will manage to constrain the negative consequences of this event.

[FBS_Official 10]

Morgan Stanley: dollar will rebound in the second half of 2011

 

Analysts at Morgan Stanley expect US dollar to rebound during the second half of the year as Asian central banks from China to India raise interest rates to curb inflation, damping economic growth and demand for the region’s assets.

 

The specialists underline that liquidity conditions start to change at a macro level and the global investment environment is becoming less favorable. As a result, investors’ demand for US dollar will strengthen.

 

According to Morgan Stanley, Swiss franc will also benefit from this process, while Japanese yen will get support in the short term, though in the longer perspective it will suffer from the consequences of March earthquake.

 

Another positive factor for US currency is the end of the Federal Reserve’s QE2 program. In addition, less demand for assets in the Asian nations will reduce selling pressure on dollar linked to the carry trade that involved selling dollars to buy the currencies of Norway, Australia, Canada and New Zealand.

 

The Federal Reserve’s U.S. Trade-Weighted Major Currency Dollar Index lost 12% this year hitting the all-time minimum of 68.2405 on May 2. The People’s Bank of China lifted up reserve requirement ratio last week to a record 21.5% for the biggest lenders. The Reserve Bank of India raised interest rates 10 times since the start of 2010.

[FBS_Official 10]

DBS: risk-off sentiment of the global markets

 

Analysts at DBS Group note that investors are looking forward to Ben Bernanke’s press conference on Wednesday hoping that the Fed’s Chairman will reassure the market that American economic activity will pick up in the second half of the year.

 

The specialists claim that Asian currencies excluding Japanese yen got under negative pressure since May as the pace world’s economic recovery eased down in the second quarter. The slowdown is due to mainly the deterioration at the US housing and labor markets and Japanese weakness after the March quakes. The overall investors’ sentiment worsened even though there appeared some hope about a resolution to the Greek debt crisis.

 

According to DBS, when Greece meets its obligations by the July, the market’s attention may rapidly turn to US debt ceiling debate ahead of August 2 deadline. As American debt is increasing faster than the nation’s economy the US may lose its AAA rating and go through a frustratingly slow recovery.

[FBS_Official 10]

Commerzbank, Societe Generale: risks for EUR/USD

 

The single currency went down from Friday’s maximums in the 1.4340 area to find support yesterday at the levels in the 1.4200 region before returning back up close to 1.4400.

 

Technical analysts at Commerzbank regard the recent advance of EUR/USD as a correction. In their view, the general outlook for euro remains negative in the short and medium terms and the pair won’t be able to rise above 6-week resistance line at 1.4600.

 

Strategists at Societe Generale also claim that euro’s move up is fragile. According to the bank, the pair risks revisiting may minimum of 1.3970. The specialists think that EUR/USD is consolidating so far after the decline from 1.4700. Societe Generale expects that after a short pause euro will resume going down.

[FBS_Official 10]

Deutsche Bank: USD/CHF will reverse upwards

 

Analysts at Deutsche Bank think that US dollar might have reached a bottom trading versus Swiss franc when it hit the record minimum of 0.8326 on June 7.

 

The specialists expect the downtrend for the pair USD/CHF to reverse upwards. In their view, the greenback will be experiencing the steady recovery during the next year.

 

According to the bank, US currency will rise to 0.9300 by the end of the third quarter and to 0.9800 by the end of 2011. The next year the pair may get above the parity climbing to 1.0500 in 12 months.

[FBS_Official 10]

BMO: trade recommendations ahead of FOMC

 

The 2-day FOMC meeting begins today. It’s drawing special investors’ attention as this is the last one before the end of QE2.

 

Analysts at Bank of America Merrill Lynch claim that though the Fed’s Chairman Ben Bernanke will sound a little more cautious about the economic outlook, he will remain stick to the forecast that the nation’s economy will rebound in the second half of the year. In their view, the $600-billion bond purchasing program will finish as planned and US monetary authorities will switch to the neutral monetary policy.

 

Strategists at BMO Capital Markets note that after the last three Fed’s meetings spreads between US and Australian 2-year bonds widened. As a result, the specialists recommend buying Australian dollar and selling the greenback at $1.06 stopping at $1.05 and taking profit at $1.09.

[FBS_Official 10]

Mitsubishi UFJ: risks associated with US debt

 

Analysts at Mitsubishi UFJ Morgan Stanley Securities claim that investors are still rather calm about US debt problems expecting the nation to raise the debt ceiling in the coming weeks.

 

In their view, if the market was already that nervous about American debt, dollar’s rate was lower. However, the specialists note that any signs the ceiling may not be raised and the more dovish comments from the FOMC this week will put the greenback under negative pressure.

 

Earlier, Fitch Ratings claimed that it would lower its ratings on the US to restrictive default if the country fails to raise its debt ceiling and misses a coupon payment on August 15.

[FBS_Official 10]

Analysts comment on RBA minutes

 

According to the minutes of the Reserve bank of Australia’s June meeting released today, the central bank officials think that it’s “prudent” to keep the borrowing costs at the current 4.75% level as the euro area’s debt crisis may escalate affecting the markets.

 

Analysts at Credit Agricole think that though the RBA is concerned about global financial problems, it’s aware of the steady growth of domestic wages. As a result, the specialists believe that the central bank will have to tighten monetary policy at some point. The bank notes that investors were quite long on risk currencies, so some profit-taking is likely now.

 

Strategists at UBS pushed back its expectations for the next RBA rate hike from August to October. In their view, the central bank may increase rates in August if CPI at the end of July will turn out to be higher than expected. In such case this would be the only RBA move this year.

 

Australia’s GDP dropped by 1.2% in the first quarter, the most since 1991, while consumer prices added 1.6% showing the biggest advance since 2006. Australian economy was affected by the torrential rains in Queensland that damaged crops and made coal mines shut.