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Lloyds: EUR/CHF will breach SNB’s floor
Analysts at Lloyds Bank believe that the single currency may break the floor versus Swiss franc set by the Swiss National Bank in September at 1.2000.
The specialists claim that the long-term chart still shows that EUR/CHF may drop to 1.1311 before the 4-year downtrend is over. In their view, the pair has so far tested trend resistance on the monthly chart, but didn’t manage to break above.
According to the bank, resistance for the pair for the month end is at 1.2490, while support lies at 1.1274 (monthly Ichimoku conversion line).
Morgan Stanley cut EUR/USD forecast
Analysts at Morgan Stanley lowered their forecast for EUR/USD’s minimum this year from $1.20 to $1.15.
The specialists note that ECB’s expanded its balance sheet and expect more easing from the central bank.
“We believe that the relative performance of money multipliers will be a significant driving force for currency markets in the coming year. We see the ECB liquidity as a negative for the EUR,” said the economists.
Euro’s affected by the Greek uncertainty
The lack of agreement between Greece and its creditors is weighting on the rate of the single currency. The weekend approaches, but the uncertainty remains strong.
Analysts at Mizuho claim that Greek creditors have no incentive to voluntarily agree on a debt write-down, so it would be very difficult for the nation to reach the deal with the bondholders. The specialists say that EUR/USD should fall below $1.20.
The single currency may show the weekly decline as it’s trading in the $1.3150 area, below Monday’s opening at $1.3222.
Analysts at RBC Capital Markets think that the downtrend will become evident if euro closes the day below $1.3028 (February 1 minimum). That would mean that the pair has topped and will be targeting $1.2875. On the upside, the upward move will be confirmed by the pair’s close above $1.3220. In this case, EUR/USD will head to $1.3291 and then to $1.3469.
Analysts’ comments on SNB’s floor
The European currency has so far approached the critical level versus Swiss franc at 1.20. Swiss National Bank interim President Thomas Jordan expressed resolve to defend EUR/CHF floor set in September with all efforts. Here are the analysts’ comments on this issue.
Swissquote Bank: “We’re seeing a test of the floor. If European policymakers make a deal, get Greece the money, and if markets cheer on Monday, the SNB is going to wipe the sweat off its brow. That’s the primary determinant.” Never the less, “already there’s a feeling that the longevity of the floor is highly questionable given what we’re hearing out of Europe. There’s also a question about Jordan’s commitment to the floor. Hildebrand had become a figurehead, the guy up front and there’s a feeling of less control.”
Citigroup: “SNB will defend the floor at any cost”.
RBS: “The closer we get, the more excited markets become, and if we touch 1.20, the SNB should be ready to act. It’s obviously watching very closely.”
Standard Bank: “If the euro-franc is sitting just above 1.20 and there’s a shock within the euro zone such as a Greek pullout, the euro could easily plunge through this barrier almost before the SNB has had time to react.”
Commerzbank: “Consumer prices are 0.7% below last year's levels. Excluding energy prices the figure even reaches 1.1%. If the SNB is breaking out in a cold sweat this is more likely to be caused by concerns about deflation. The SNB would be pleased about any franc it can create by intervention.”
Forecasts for January NFP figure
US Non-Farm payrolls data for January is released today at 1:30 p.m. GMT.
Bloomberg median forecast: +140K
Reuters’ median estimate: +150K
Prior three months:
December: 200K
November: 100K
October: 110K
ADP Non-Farm Employment Change: +170K vs. +292K in December.
Initial jobless claims 4-week MA: 375.8K vs. 374K at the end of December.
Challenger January job cuts: -53.5K vs. 18-year average of -101K.
Citigroup expects NFP to add only 100K. The bank underlines that the good outcome would only reinforce the recent trend of good US data, while a weak payrolls number could signal that expectations have begun to adjust.
Analysts at Ueda Harlow think that if US labor market figures turn out to be good and stocks rise, investors will get out of the dollar because of the low rates.
Bullish euro forecast? Really?
Analysts at Bank of New York Mellon think that the dynamics of the pair EUR/USD will depend more on dollar’s prospects than on those of euro.
The specialists think that as US economic data tends to improve that will encourage global risk appetite. As a result, the greenback will be widely used as a funding currency for the carry trade: investors will borrow in US dollars in order to invest in higher-yielding overseas assets. BNY Mellon thinks that American currency will get under pressure, especially in the second half of the year.
According to the bank, EUR/USD may rise to $1.40 by the end of 2012 and maybe even to $1.45.
It seems quite unusual to read such bullish euro forecast, don’t you think?
February 6: market situation, coming events
The Asian session was marked by the weak Australian data: retail sales declined by 0.1% in December (m/m). This increases the possibility of the Reserve bank of Australia’s rate cut tomorrow (consensus opinion). The RBA reduced borrowing costs by 25 bps both in November and December. In January the central bank didn’t meet. It’s necessary to note, though, that some economists think that the RBA may stay on hold expecting the retail banks to follow up their warnings on funding costs and not pass on the easing. Another point in favor of keeping the rates unchanged – good US labor market data released on Friday (unemployment fell to 8.3%).
The weekend came and went, but Greek negotiations aren’t over yet. Greece’s Prime Minister Lucas Papademos will once again meet private creditors today as yesterday the talks finished with several points still under discussion. Papademos said the leaders of Greek political parties had agreed on a series of primary issues, such as additional new spending cuts equal to 1.5% of GDP in 2012. Never the less, the Prime Minister’s statement does not mention anything on the proposals causing the most friction, which include a further reduction of minimum wage, elimination of the 13th and 14th months of salary, and massive lay-offs in the public sector.
The Troika – the European Commission, the IMF and the ECB – is currently in Athens to examine the country’s finance, it progress on promised reforms, and to estimate its funding needs. Jean-Claude Juncker, the Eurogroup president and Prime Minister of Luxembourg, claimed that Greek default remains a possibility. There will be labor union strikes in Greece on Tuesday.
The market’s risk sentiment is affected by the tensions in the Middle East, particularly in Syria and Iran.
EUR/USD went down below $1.3100. USD/JPY kept its advance rising above 76.50 yen.
To watch today:
• France's debt auction (plans to sell 8.5 billion euro ($11 billion) of bills.
• St. Louis Federal Reserve President James Bullard and President of the FRB of Dallas Richard Fisher speak amid the speculation that the Fed may avoid further monetary easing.
CFTC trader positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• Euro shorts declined, but remained excessive. Net shorts account for around 158K contracts, down from the previous week’s total of 171K.
• British pound shorts fell from 31K contracts on January 24 to 26K on January 31. Sterling positions are improving for the second week in a row.
• Japanese yen net longs increased from 44K contracts reported on January 24 to 57K on January 31. Yen speculative positions are just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K.
• Swiss franc net shorts declined from 13K contracts on January 24 to 11K net short contracts on January 31. The shorts decrease for the second consecutive week.
• US dollar longs were reduced by 1/3rd but overall positioning is not yet very significant, at around 100K contracts. Non-commercial futures traders, usually hedge funds and large speculators, decreased their total US dollar long positions from a total long position of $20.09 billion on January 24 to $14.22 billion on January 31.
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.
GBP/USD: technical levels
British pound may decline versus the greenback to $1.5620/43 as the bears are currently trying to push the pair below Friday’s minimum of $1.5749. Support for GBP/USD lies at $1.5705 (February 1 minimum) and $1.5600.
The short-term outlook, however, still remains bullish. If sterling manages to get above $1.5883 (last week’s maximum), it will be able to climb to $1.6000 and $1.6165 (October 2011 high).
USD/JPY: technical levels, intervention risk
Analysts at UBS think that Japan’s monetary authorities will intervene if USD/JPY dives below 75 yen. At the same time, it seems that until the critical level is tested, Japan will use only verbal interventions, claims Credit Agricole.
Support for the pair is situated at 76.42/03 (January 31 maximum/February 1 minimum), while resistance lies at 76.87 (38.2% Fibonacci retracement of the decline from January 25 to February 1) and 77.15 (Ichimoku base line and 100-day MA).