Comments and forex-analytics from FBS Brokerage Company - page 119
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BMO: trading EUR/USD today
Strategists at BMO Capital Markets expect the single currency to rise today versus the greenback on the positive results of Greek debt deal.
Then, however, the specialists expect the market’s risk sentiment to deteriorate as the central banks (the European Central Bank and the Bank of England) will likely adopt the ‘wait & see’ approach. The ECB President Mario Draghi may reduce expectations for any future long-term refinancing operations.
As a result, the bank recommends investors to sell EUR/USD on the rallies opening shorts at $1.3275, stopping at $1.3380 and targeting $1.2975. The analysts underline that the Greek announcement on private-sector participation may come before the ECB meeting if the percentage will allow the debt swap. In this case the rally would occur earlier and the levels will likely be different.
Japan: yen’s safe haven status is in danger
The greenback went up versus Japanese yen as Japan posted in January a record current-account deficit of 437.3 billion yen ($5.4 billion) versus 320 billion-yen gap expected. Japanese exports decreased by 8.5% in the first month of the year, while imports added 11.2% rising for 25th consecutive month.
A year earlier, in January 2011, there was a current account surplus of 547.2 billion yen. The previous biggest deficit of 132 billion yen was seen in January 2009 and was caused by the sharp drop of the global demand due to the collapse of Lehman Brothers.
Such a large shortfall raised serious concerns about the nation’s economic and fiscal condition. As a result, yen risks losing its save haven status.
The pair USD/JPY rose from the levels around 81 yen to the 81.50 yen area approaching the recent maximums in the 81.87 yen zone. If the pair manages to overcome this resistance, it will get strength to continue the advance which it began last month. Watch US labor market data later today and tomorrow: US jobless claimed are expected to be almost unchanged at 352,000, while U.S. nonfarm payrolls may have increased in February by 210,000. The greenback is supported by the decreased possibility of more QE in the U.S.
Aussie may weaken versus loonie
In March Australian dollar is losing ground which it gained versus its Canadian counterpart during the previous couple of months.
The pair AUD/CAD is trading just above $1.0520 (50% Fibonacci retracement of Aussie’s advance from December to February). If the pair breaks below this support, the downside momentum will increase.
Analysts at Westpac analyzed the monetary flows and came to conclusion that the inflow of the long-term investors’ funds in loonie and kiwi has increased, while exposure to Australian currency remains about 25% below its peak registered in the third quarter of 2010. According to the specialists, AUD/CAD may slide to $1.0100/1.0200 in 2-3 months.
Greece: debt swap details finally unveiled
Greek authorities announced that 85.8% of bondholders have accepted bond swap offer. According to the latest reports:
• Greece received tenders and consents for 152 billion euro under Greek law.
• Holders of 172 billion euro worth of bonds in total have consented to bond offer.
• 95.7% of total face amount of bonds in swap if consent to amendments to Greek law bonds is accepted. Bonds issued by Greek state companies will be amended in a manner similar to the amendment proposed for Greek-law bonds.
• Greece extended invitation period to bonds under non-Greek law and issued by state companies to March 23. After that there will be no further opportunity for applicable creditors to accept swap offer.
As a result, participation rate will reach 95.7% with use of collective action clauses (CAC) to enforce the deal. CAC allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring.
The pair EUR/USD didn’t react much to the news. Euro is trading on the downside in the $1.3240 area after yesterday’s advance from $1.3150 to $1.3280.
BOC left rates unchanged. Analysts’ comments
The Bank of Canada joined its European and British colleagues in extending loose monetary policy and said the risks are shifting to quicker inflation and away from another recession. The main interest rate remained unchanged at 1%. The BOC pointed that easing global tensions and faster domestic spending may lift prices. Economists said the outlook for the Canadian economy improved significantly.
The Bank of Canada said today inflation will be greater than it was forecasted in January because of “reduced economic slack and higher oil prices,” and that growth will be faster than projected in the January-March period.
Bank AG of Vienna: oil prices may surpass current records of $147 a barrel in the first half of this year because of the “smoldering crisis” in the Persian Gulf. It is important to note that Canada relies on exports for about 33% of its output, and higher interest rates could boost a currency that has traded around parity with the U.S. dollar, harming the country’s competitiveness.
National Bank Financial: A rate hike is expected by mid-2013 as Canada’s output gap looks set to close earlier than expected.
Nomura Global Economics: the BOC is expected to raise rates before the end of the year unless there’s a severe negative shock (household debt burdens have become the most important domestic risk).
Capital Economics: probably there will be an interest rate cut to 0.50% in the second half of the year due to an inevitable housing collapse. Even if the external backdrop continues to improve, the domestic situation will not.
In any case analysts do not expect Canada to raise rates too far ahead of the U.S. Federal Reserve, given that higher Canadian interest rates could drive up the Canadian dollar.
Comments on USD/JPY
The greenback reached 9-1/2-month maximum versus Japanese yen on the news of Greece's bond swap offer.
On the upside, the pair USD/JPY will now likely test resistance at 81.87 (last Friday’s maximum) and 82.07 yen (100-week MA). On the downside, support is situated at 81.30/22 yen (50% retracement of dollar’s advance from 80.60 and 81.87 yen).
If US Non-Farm Payrolls posts positive result today, American currency will get chance to strengthen, especially versus its Japanese counterpart.
Euro’s trading on the downside
Yesterday euro had been growing against the backdrop of the successful Greek deal from $1.3150 to $1.3280. In a statement following closure of the offer late on Thursday, the Greek finance ministry said that the amount of PSI participation in the bailout was high enough.
Today the single currency went down to an intraday low near $1.3210 and last stood at $1.3225. Analysts of Sumitomo Mitsui Banking point that it is a sell-the-fact type of reaction and there's some profit-taking.
It seems that the pair EUR/USD has formed ‘head & shoulders’ top in March at $1.3190. The reversal pattern will be complete if $1.3320 (February 2 maximum) managed to hold the pair’s advance. Support for euro is lying at $1.3082 (55-day MA).
Euro will certainly rise if Greece avoids default. Nevertheless, concerns about the implementation of the second bailout will keep affecting the single currency's rate.
Societe Generale: “Our long-term view is still that the EUR/USD will be higher and the relative hawkishness of comments from ECB President Mario Draghi is a reminder that at its heart, the ECB 'wants' to normalize policy while Ben Bernanke 'wants' to buy more protection against disaster”.
Analysts at Citigroup believe that the markets will likely get disappointed by the February NFP figures released today at 1:30 p.m. GMT in USA. In their view, economists are expecting too big increase in payrolls (+209K). According to the bank, the effect from positive data will be limited, while weak readings may provoke stronger reaction.
Trade recommendations after Greek deal
Greece’s agreement with private creditors and the following ISDA’s decision to admit the Greek debt restructuring entitling to CDS-contracts payments, became the key news events of the previous week. On the back of this deal Fitch Rating agency slashed the Greek sovereign scores from "C" to "RD" ("restricted default").
J.P. Morgan Asset Management strategists confirm that Greece raises serious concerns today. Moreover, there are also risks connected with Portugal or Spain getting infected and the results of the spring elections in France.
However, analysts believe that in the short term Greece is largely resolved due to the ECB support and positive global data including the U.S. nonfarm payroll report. In particular, they recommend buying the euro against the Japanese yen. The euro is going to be helped by better risk appetite, and the yen, meanwhile, is weakening.
J.P. Morgan: The best is to enter the trade at 108.20 with a target of 114.00 and a stop at 105.50.
BMO Capital: If you are bullish on the euro, don't buy it against the U.S. dollar. The yen is the best way to do it because of the massive quantitative easing.
Commerzbank: In the medium term the ECB’s expansionary monetary policy will put pressure on the euro, in particular if the outstanding US data continues to point towards a robust economy thus reducing the likelihood of further US quantitative easing.
Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
British pound kept declining versus its US counterpart from late February minimum at $1.6000. On the weekly chart GBP/USD closed last week below the Standard line (1), which is currently acting as resistance. The prices will get support from the Turning line (2) which is moving slowly upwards.
The descending Ichimoku Cloud was widening for some time, though Senkou Span A (4) has turned horizontal. As a result, if Tenkan-sen (2) and Kijun-sen form “golden cross” and Kumo starts narrowing, the bulls will get chance to reverse the trend lifting sterling to the lower border of the Cloud (4). Otherwise, the pair will keep moving lower within the current downtrend.
Chart. Weekly GBP/USD
Daily GBP/USD
On the daily chart one may see that the pair’s advance stalled last month and the rate went sideways. Pound failed to overcome important resistance and prices went below both the 9-day MA or so-called Tenkan-sen (1) and the 26-day Kijun-sen (2).
As a result, despite the bullish Ichimoku Cloud (3, 4), there’s no uptrend on the chart. GBP/USD is supported only by Kumo: if sterling enters the Cloud, it will likely dip to its lower border – Senkou Span B (4).
At the same time, the bulls are struggling to retrace at least a part of Friday’s decline and hold the priced above the Cloud.
Chart. Daily GBP/USD
CFTC data: US dollar longs increased
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that speculative investors increased their net long US dollar position by $6.1 billion (80%) to $15.4 billion.
As you may see in the table below, the greenback was bought versus all IMM (International Monetary Market) currencies except Canadian dollar and Mexican peso. The latter are supported by carry trades and high oil prices. Euro, British pound and Japanese yen are sold due to the loose monetary policy of these nations’ central banks, while Australian and New Zealand’s dollars were hurt by the worsening of China’s economic prospects.
The net positions for American currency are long for 25th consecutive week, the longest period of positive dollar sentiment since 1999.
Chart. Net aggregate speculate IMM position in USD (Source: CFTC, Saxo bank, Bloomberg).
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.