Comments and Forex-analytics from FBS Brokerage Company

[FBS_Official 10]

Mizuho: EUR/USD is overvalued by 20%

 

Analysts at Mizuho Corporate Bank claim that the single currency is overvalued versus the greenback by almost 20%. Such conclusion is based on the comparison of currencies’ purchasing power.

 

On April 12 euro reached the maximal level since January 2010 at $1.4520, deviating from the purchasing power parity by about 18%.

 

On April 7 the European Central Bank raised interest rates for the first time in almost 3 years. The bank underlines that another rate increase by the middle of this year is inevitable, while the demands for lower borrowing costs by indebted European nations can prevent the ECB from hiking in the second half. Mizuho also reminds that the Fed’s quantitative easing will soon be over that will provide US currency with some support.

 

The specialists forecast that the pair EUR/USD will drop below $1.40.

[FBS_Official 10]

UBS: currency reserves will keep increasing

 

Analysts at UBS and Bank of New York Mellon believe that during the coming years G7 countries will have to intervene at the currency market more to calm down exchange rates.

 

Strategists at UBS expect to see more volatility at the currency markets. As a result the governments may have to conduct more interventions, so to secure themselves they are likely to increase their foreign-exchange reserves.

 

Strategists at BNY Mellon say that until the 2000’s, interventions were more regular. Only in 1995 US Treasury intervened 8 times, while during the last decade the policymakers criticized such aggressive approach speaking more about the necessity for exchange rates to reflect economic fundamentals. Now the situation’s changing. It’s also necessary to take into account that the size of the market has more than doubled since the late 1990s, so the interventions’ volumes should be greater for them to achieve their goals.

 

Today is the first meeting of G-7 finance ministers and central bankers since the joint intervention to curb rising yen that took place on March 18.

 

According to UBS, the total global reserves rose since 2000 from $2 to $9 trillion. China’s reserves account for $3 trillion, Japan’s – for $1 trillion, euro zone’s – for 200 billion, while the US, UK and Canada have $50 billion each.

[FBS_Official 10]

Goldman Sachs: about DXY and prospects for US currency

 

Currency strategists at Goldman Sachs note that the widely used DXY dollar index that reflects the performance of US dollar against a basket of currencies consisting of euro, British pound, Japanese Yen, Canadian Dollar, Swedish Krona and Swiss Franc is build on the old trade balances of the 1980s. That time the most trade flows were across the North Atlantic, the emerging markets were weak due to the series of crises, while the world was in the state of the cold war.

 

The specialists point out that it would be much more reasonable to use the broader trade-weighted index that is adjusted for inflation to measure the value of US currency. Goldman Sachs and the Federal Reserve have such.

 

Both indices give greater weight to developing countries that have become more important US trading partners and whose currencies have been performing pretty well. According to Goldman, these indexes show that the broad traded weighted dollar is at historical record minimums, clearly weaker than at the previous record lows at the beginning of 2008.

 

The analysts say, however, that the time to buy USD hasn’t come yet. In their view, the greenback will keep weakening as the rising budget deficit and the Fed’s loose monetary policy will keep weighting on its rate. However, if only the Fed changes its approach or the overseas investors increase demand for US equities or there will be a sustainable growth of US jobs, the situation may change very quickly. As a result, Goldman Sachs says that it’s necessary to pay much attention to how the events enroll in the United States.

[FBS_Official 10]

Yen rose on the Chinese data

 

Japanese yen strengthened today versus all of its main counterparts. The pair USD/JPY continued its way down from the maximum at 85.50 reached on April 6 returning to the upper border of the large “triangle” formation.

 

Currency strategists at Mizuho note that yen rose as, according to Chinese data released today, the country’s CPI added 5.4% in March on the annual basis. The specialists note that the odds that China’s will take more steps to cool growth have increased encouraging demand for Japan’s currency as a refuge.

 

It’s also necessary to note that Chinese GDP increased by 9.7% in comparison with the previous year level, while the economists surveyed by Bloomberg were looking forward only to 9.4% growth.

 

Analysts at TD Securities claim that the biggest Asian economy will keep conducting “prudent” monetary policy to stabilize the consumer prices. The People’s Bank of China has raised interest rates four times since the global financial crisis, so even if the approach of China’s central bank becomes less aggressive, it will all the same lift up interest rate and reserve requirement during the next few months.

[FBS_Official 10]

Commerzbank: comments on EUR/USD

 

Technical analysts at Commerzbank note that that the pair EUR/USD has been staying below resistance at 1.4535 during 3 days. In their view, this means that euro’s target may now be lower at the 4-month uptrend support line found at 1.4258.

 

The specialists note that if the single currency drops below these levels, the bullish powers will weaken and the pair may ease to the minimum of the end-March at 1.4021.

 

Never the less, the bank still thinks that EUR/USD will finally manage to break above 1.4535.

[FBS_Official 10]

Roubini: Greece will be forced to restructure debt

 

Nouriel Roubini, professor of economics at New York University famous for predicting 2008 global crisis, says that Greece’s debt to GDP ratio is at “level of insolvency”, so the restructuring of the country’s debt seems inevitable. The same outcome is possible for Portugal’s and Irish banks’ debt.

 

Roubini thinks that Ireland’s government rescue package designed to finance national saving banks may deepen the country’s debt crisis.

 

The economist also claims that ECB may raise benchmark rate 50-75 basis points this year. In his view, in 2012 the borrowing costs in the euro area may reach 3%.

 

According to Roubini, the deviation in the monetary policy between the Federal Reserve and the European Central Bank may be quite destabilizing for financial markets.

[FBS_Official 10]

Mizuho: comments on EUR/USD

 

Technical analysts at Mizuho Corporate Bank claim that bullish pressure on euro will strengthen if the pair EUR/USD manages to close the week above the important 1.4500 level. The specialists claim that the greenback’s suffering from the broad weakness, especially versus Swiss franc and Singapore’s and New Zealand’s dollars.

 

According to the bank, it’s necessary to buy the single currency at 1.4465/1.4400 stopping below 1.4350 and taking profit at 1.4520 and then at 1.4800/1.5000.

[FBS_Official 10]

Technical levels for GBP/USD

 

British currency eased down from 1.6375 at the beginning of the Asian session trading versus the greenback. However, sterling’s decline was limited by the 1.6315 level and the pair GBP/USD managed to rise returning to 1.6370 where it all began.

 

Resistance levels for pound are found at 1.6375/85 (April 14 maximum/session maximum), 1.6425/30 (April 8/11 maximum) and 1.6500. Support levels are situated at 1.6315 (day minimum), 1.6285 (intra-day support) and 1.6220/25 (20-day MA/April 12 minimum).

 

It seems that GBP/USD isn’t ready for the break higher and the trend seems to be neutral, though volatile.

[FBS_Official 10]

George Papandreou: Greece won't restructure its debt

 

Prime Minister George Papandreou claimed today that Greece will be reducing its budget deficit, but not restructuring its debt. “Greece’s problems won’t be solved by restructuring its debt but by restructuring the country,” said Papandreou. The policymaker underlined that the country needs serious reforms concerning not only economic, but also social and politic problems.

 

According to the official, the deficit-trimming measures, most of them in spending cuts, will account for than 22 billion euro ($32 billion) through 2015. Papandreou announced that Greece is going to cut spending from 53% in 2009 to 44% of GDP in 2015. The government is also expected to unveil plans to raise 15 billion euro by 2013 through state-asset sales.

 

Last year Greece got bailout from the European Union and International Monetary Fund on the conditions of cutting the deficit to less than 3% of GDP by 2014. The nation itself has set a goal of diminishing the deficit to below 1% by 2015. The government expects to get the deficit down from 15.4% of GDP in 2009 to 7.4% this year. It’s necessary to note, however, that the first-quarter revenue missed the target by 1.4 billion euro.

[FBS_Official 10]

Ichimoku. Weekly forecast. GBP/USD

 

Weekly GBP/USD

 

Even though the week before last the prices closed significantly above the Turning line, the bulls didn’t manage to resume growth. All lines of the Indicator have gone in the horizontal way.

 

On the weekly chart the bulls keep being strong enough: the “golden cross” formed by Tenkan-sen and Kijun-sen above Kumo is still in place, while the Ichimoku Cloud is rather thick.

 

Daily GBP/USD

 

On the daily chart the prices got support from the Turning line (9-day MA) that as all the other lines of the Indicator went sideways.

 

Tenkan-sen and Kijun-sen, as it was expected, formed the golden cross. However, the range of the Ichimoku Cloud is narrowing. As a result, the prices are likely to keep consolidating above Kumo.

[FBS_Official 10]

Ichimoku. Weekly forecast. USD/JPY

 

Weekly USD/JPY

 

During the past week the bears managed to compensate much of the previous advance of the pair. Facing the resistance provided by the descending Ichimoku Cloud, the prices haven’t got even to Senkou Span A.

 

Kijun-sen and Senkou Span B are directed horizontally, while the Turning line has reversed upwards and approached the Standard line.

 

The long-term trend is bearish, the power of which is confirmed by Cloud that’s widening down.

 

Daily USD/JPY

 

On the daily chart the prices kept moving down to the very thin Ichimoku Cloud that would be quite easy to breach. It’s necessary to note that the pair USD/JPY has broken down the Turning line. In addition, “golden cross” formed by Tenkan and Kijun can’t be regarded as strong bullish signal as it’s happening below the Kumo.

 

Kijun-sen and Senkou Span keep moving horizontally that points at the long-term flat. Now these lines are joined by the short-term Tenkan-sen and Senkou Span A.

 

On Friday the prices closed inside the large “triangle” formation, so the prices may consolidate inside the pattern.

[FBS_Official 10]

Ichimoku. Weekly forecast. USD/CHF

 

Weekly USD/CHF

 

All lines of the Indicator are directed horizontally, while Tenkan-sen and Senkou Span A begin deviating down that means that the pair is likely to keep consolidating at the weekly timeframe. The bears are still rather strong that's confirmed by the wide bearish Cloud.

 

Daily USD/CHF

 

On the daily chart the long0term trend remains sideways: Senkou Span B is moving horizontally, while the Standard line is slightly deviating downwards.

 

Tenkan-sen and Kijun-sen have intersected forming the “dead cross” – strong signal as it was made below the Cloud.

 

However, it’s necessary to note that by the end of the week Tenkan-sen went sideways, while Senkou Span A actually began rising. In addition, there was the bullish “harami cross”. As a result, the pair USD/CHF is not very likely to renew the record lows, but may consolidate.

Edited April 18, 2011 by FBS_Official

[FBS_Official 10]

Analysts forecasts for AUD/USD

 

Analysts at Royal Bank of Scotland expect Australian dollar to gain about 4% by the end of September versus the greenback climbing to $1.10 helped by the surging commodity prices – the Standard & Poor’s GSCI Index of 24 commodities was rising during 3 quarters in a row. Strategists at Credit Suisse think Aussie will show such advance during a year. Deutsche Bank believes Aussie may appreciate to $1.08.

 

Australia is reach with resources and its currency will benefit from China’s and Japan’s high demand on its raw materials that account for about 60% of the country’s exports.

 

The pair AUD/USD is also getting much support from the interest rates differentials. Australian 4.75% benchmark rate is the highest among the developed nations while the Federal Reserve is likely to keep the borrowing costs at the record minimum in order to stimulate US economy.

 

So, according to Credit Suisse, the fundamental picture for Aussie over the next year seems to be quite encouraging.

 

In the first quarter Aussie lost 1.8% against its US counterpart. The OECD, however, notes that AUD is overvalued by 38% versus US currency as it added 50% since 2008 reaching $1.0584 on April 8.

 

Specialists at Credit Agricole warn investors that although the momentum is in favor of Aussie, it’s very vulnerable to the declines in raw-material prices. In their view, the market is now much positioned one way, so people are getting increasingly nervous about the risks of a substantial retracement.

[FBS_Official 10]

J.P.Morgan: US dollar will remain weak

 

Analysts at J.P. Morgan claim that the world has got used to the weaker dollar. In their view, the current market’s sentiment is much different from what was just 6 months ago when Brazil’s Finance Minister Guido Mantega complained that weak dollar was creating a global currency war. The emerging markets seem to be more concerned about rising inflation when about exports, so they're letting their currencies strengthen.

 

As a result, for those investors who are holding longs for the currency of a country with relatively high inflation, such as Brazil, Mexico or Singapore, the specialists advise keep buying this currency keeping short positions in US dollar.

[FBS_Official 10]

Commerzbank: negative outlook for EUR/USD

 

 

The single currency advanced versus the greenback from the minimums in the 1.4020 area hit at the end of March limited by the 1995 maximum at 1.4535.

 

Technical analysts at Commerzbank claim that the outlook for the pair EUR/USD has now turned negative. In their view, as long as euro is trading below 1.4535 the bears dominate the market and the pair risks falling to the key support at 1.4279 that is the 4-month uptrend channel support line.

 

The break above 1.4535 will be confirmed if the European currency closes the week above this level. According to the bank, the bulls will eventually win and EUR/USD will manage to overcome the mentioned resistance. In such case the outlook will change to neutral/bullish.

[FBS_Official 10]

Deutsche Bank: EUR/USD won’t rise above $1.50

 

Last week the single currency was performing well enough trading in the $1.45 area against its American counterpart.

 

Analysts at Deutsche Bank think that euro's strength is caused by the greenback’s weakness. The specialists say that investors are using US dollar as a funding currency in carry trades borrowing in dollars and investing in the higher yielding currencies. Euro, on the other hand, isn’t used for that purpose since the European Central bank hinted on the rate hike.

 

According to the bank, the pair EUR/USD has potential to climb to $1.50. Then the situation may rapidly change, note the specialists, as the rate expectations are probably not going to shift much more in favor of the euro. As the sentiment about US currency has become too negative any signals from Federal Reserve may reverse the pair.

 

Economists at Brown Brothers Harriman also think that EUR/USD advance will be limited by $1.50 as the market will inevitably get aware about the debt problems of Spain and Portugal.

 

Currency strategists at Nomura Securities are the most bearish on euro as they advance to sell the currency against Swedish krona and Norwegian krone. As the reasons for being short on euro the specialists cite the excessive pricing in of the ECB hike and the possibility of oil prices decline.

[FBS_Official 10]

Goldman Sachs keeps longs on EUR/USD

 

The advance of the single currency versus the greenback has stalled so far. Analysts at Goldman Sachs claim that as the risk sentiment has deteriorated, the bears may take profits on US currency.

 

The bank, however, is rather optimistic about the longer-term prospects of the pair EUR/USD. The strategists remind that euro was supported by the expectations of the ECB rate hikes. The bank still expects that the European Central bank will lift the rates by 50 basis points this year, but think that in 2012 the key benchmark rate will reach only 2.5% as the inflation rate may ease and there will be a lot of spare production capacities.

 

According to Goldman, euro was driven mainly by the broad dollar weakness and the factors negative for US currency are still in place. In addition, the bank expects that in the near future EUR/USD will get support from the further reduction of the fiscal risk premium. The strategists underline that when the debt problems escalated in the early January investors priced in sufficient risk premium for euro. While the Greek issues have once again got in the center of market’s attention, the narrowing yield spreads on Spanish and Italian bonds that are much more important from the systemic risk point of view allow looking for some contraction of this premium.

 

As a result, Goldman Sachs remains bullish on euro and keep the existing long positions at $1.4085 from the March 18 targeting $1.50.

[FBS_Official 10]

ECB officials hint at further tightening

 

European Central Bank officials signal that the central bank will keep tightening monetary policy this year in order to fight rising inflation as the euro area’s economy’s improving, even though the ECB President Jean-Claude Trichet said that the rate hike to 1.25% conducted on April 7 wasn’t necessarily the start of a series.

 

Ewald Nowotny (Austria): investors' expectations that the benchmark interest rate will be increased by another 50 basis points in 2011 are well-founded. The central bank will revise its inflation forecast after estimating in March that it would average about 2.3% this year. It’s quite obvious that both ECB interest-rate regime and liquidity regime have been in crisis mode for quite a long period of time. The euro area as a whole is no longer in the crisis situation and this development will be reflected in the ECB’s policy.

 

Luc Coene (Belgium): monetary conditions are too accommodative.

 

Axel Weber (Germany): there is a significant increase in inflationary pressure and current policy is supportive of the economy and expansive.

 

Yves Mersch (Luxembourg): the growth dynamic is carrying on and is firming and that policy remains very accommodative.

 

Vitor Constancio (ECB Vice President): Portugal is likely to be the last country to require help.

 

Trichet underlined that economic growth is now self-sustained and risks are balanced.

 

The IMF raised last week its growth prediction for the euro region to 1.6% in 2011 and 1.8% in 2012.

[stopnlimit 10]

I don't mean to break up the flow, and if I'm really not supposed then I hope a moderator will remove my post, but I wanted to say thanks for posting this consistently. Valuable insight is made 10x more valuable when you can count on it being there.

[FBS_Official 10]

Forecast Pte: EUR/USD may fall to $1.40

 

The pair EUR/USD lost 2% declining from the 15-month high at $1.4520 reached on April 12 and 13 to hit yesterday the $1.4158 level, the lowest level since April 5.

 

Technical analysts at Forecast Pte claim that the single currency may decline to 1-month minimum versus US dollar in the $1.40 area – to the March 28 minimum at $1.4021 and the 50-day moving average at $1.4003.

 

The specialists note that yesterday the pair EUR/USD dropped below 2 levels of major support – one at $1.4275 (situated on the uptrend line connecting the minimums of January 10, March 11 and April 1) and another at $1.4267 (20-day MA).

 

The negative outlook for euro is confirmed by the daily momentum indicators such as the moving average convergence/divergence, or MACD that was today at 0.0104, below the signal line at 0.0125.

[FBS_Official 10]

Mizuho: comments on USD/JPY

 

Technical analysts at Mizuho Corporate Bank note that US dollar retraced 38% of its March advance versus Japanese yen and returned to the large “triangle” formation within which the pair was trading since November.

 

The specialists point out that the greenback’s now trading close to the mean rate for this period found at 82.70. According to the bank, the pair USD/JPY is likely to fluctuate to either side of this level for the rest of this week.

 

Mizuho advises to buy US currency stopping below 81.90 and taking profit at 83.80.

[FBS_Official 10]

Commerzbank: negative prospects for EUR/USD

 

Technical analysts at Commerzbank note that the European currency has breached its 4-month uptrend versus the greenback. As a result, the near-term outlook for the pair EUR/USD has switched to negative.

 

The specialists believe that the bulls will face today the resistance at 1.4293 and 1.4377. As long as euro trades below 1.4377, it will be poised down to 1.4130 and the March minimum at 1.4021.

[FBS_Official 10]

S&P reduced the outlook for US credit rating

 

Standard & Poor’s changed the outlook for US AAA credit rating to negative that means that the debt of the world’s largest economy may be downgraded. To avoid this undesirable fate American officials have develop a plan to reduce by 2013 budget deficits and the huge national debt that’s complicated by the tensions between the Democrats and the Republicans.

 

The agency estimates the possibility of the US rating reduction during the next 2 years as one-in-three. According to S&P, eventually Congress and the Obama administration are likely to reach agreement. S&P forecasts US debt to reach 84% of GDP by 2013.

 

Obama has proposed to cut cumulative deficits by $4 trillion within 12 years through the combination of spending cuts and tax increases. US Republicans insist on the 10-year term.

 

Analysts at Bank of Tokyo-Mitsubishi UFJ note that the United States still has the strongest, deepest, most-liquid markets in the world, so investors actually have no alternatives.

 

Economists at Goldman Sachs say that it’s common knowledge that US fiscal situation is unsustainable unless a large, multiyear fiscal tightening is implemented. In their view, the S&P report contained nothing new on the matter.

 

All in all, US policymakers got an important warning that they should hurry with developing the shortfall reduction process. As a result, the shift in the credit outlook should be regarded more as an attempt to urge the resolution of internal American problems than the revision the global debt market foundation.

[FBS_Official 10]

Rabobank: yen seems to have enough support

 

Currency strategists at Rabobank note that since the beginning of 2011 there’s strong correlation between the USD/JPY dynamics and the performance of the DJIA.

 

The specialists point out that although the fundamentals hint at weaker yen that will be the case only as long as the market’s risk sentiment is positive. As a result, Japanese yen is going to be supported for now.

 

The pair USD/JPY is staying today within the narrow range. According to the bank, investors have calmed down ahead of the appearance of some new drivers. In addition, the trade volumes will likely ease ahead of the Easter holidays (watch the Holiday schedules).

[FBS_Official 10]

J.P.Morgan recommends buying AUD/USD

 

Analysts at J.P.Morgan advise investors to buy AUD/USD this week in order to benefit from the inflationary trends. In their view, it’s necessary to go long at 1.02 stopping below 0.99 and targeting 1.07. It’s also recommended to purchase Aussie versus Japanese yen.

 

According to the TD Securities-Melbourne Institute inflation Gauge, Australia’s headline inflation added 3.8% in March on the annual basis after 3.6% growth in the year to February. These figures exceed the Reserve Bank of Australia's (RBA) target band of 2-3%. The official measure of CPI inflation for the first quarter is released on April 27.