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Commerzbank: USD/JPY technical analysis
Technical analysts at Commerzbank note that the greenback keeps consolidating/correcting within uptrend versus Japanese yen.
The specialists think that USD/JPY may decline to 82.23 (May 2011 maximum) from the current levels slightly above 83 yen.
According to the bank, support for the pair lies at the base of Ichimoku Cloud on the h4 chart, which lies in the 81.98/61 area. If the support holds, US currency may rebound to 85.53 and 86.80 yen.
BCA: positive outlook for euro and riskier assets
BCA Research, leading provider of global investment research, recommends maintaining a “pro-cyclical currency” (currency that has a strong positive correlation with economic growth: AUD, CAD, NZD) strategy despite the recent unpopularity of such currencies.
The specialists underline that risky currencies made a significant advance at the beginning of the year, but then retreated since the end of February. One of the causes for such a pullback was the outcome of the Greek debt swap. However, these currencies were overbought and due for correction.
BCA has modeled EUR/USD against the behavior of other key currencies from 1999 to 2009 (before the beginning of the euro zone debt crisis). The analysis showed that the currency pair stands more than 20% below the model’s estimated value. Stated differently, the market has priced in a lot of bad news and the dip in risky currencies is just a healthy technical correction.
As can be seen from the above, BCA is convinced that in the future the commodity and riskier currencies will become much stronger and less vulnerable to the euro zone’s debt crisis.
Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
British pound tested levels below the Standard line (1) on the weekly chart, but managed to return last week above it paring the decline it made the week earlier.
The lines Tenkan-sen and Kijun-sen, as expected, formed the “golden cross” (3), though the signal isn’t very strong as it happened below the Cloud. Kumo itself began narrowing (4) as Senkou Span A turned upwards.
With both the Standard (1) and the Turning (2) lines as support the only resistance ahead for the pair GBP/USD is the Cloud which is thin in the place where the prices are projected to approach it (5). All in all, the chances of the bulls have improved. We may see the beginning of a move up or a broad sideways trading.
Daily GBP/USD
On the daily chart pound keeps moving sideways – the bullish Kumo continues narrowing.
The pair didn’t fall to the lower border of the Cloud, as we feared, managing so hold around Senkou Span A and finally make a significant breakthrough on Friday overcoming both Tenkan-sen (2) and Kijun-sen (1), which formed the weak “dead cross”.
If sterling manages to stay today above the Standard line, it will be able to get higher, though any advance will be constrained by late February/early March maximums. However, resistance in the $1.5860/5900 band seems high, so the slide back to Senkou Span A also seems quite possible.
UBS: Treasury yields may increase
Analysts at UBS believe that that government bond yields will start trading within the long-term uptrend.
The specialists give the following reasons for such shift:
- the Fed won’t undertake another round of QE;
- US economy shifts to a sustainable recovery;
- private sector credit in the US expands;
- China and other major emerging economies rebound after dipping in the first half of the year;
- euro zone’s recession doesn't shock the global economy.
The bank revised up 10-year Treasury yields forecasts from 2.4% to 2.7% by the end of 2012 and from 3.0% to 3.3% by the end of 2013.
According to UBS, higher US yields will push up USD/JPY and USD/CHF. As the ECB and the BoE conduct more loose monetary policy than the Fed, the greenback will be also supported versus euro and pound.
The analysts claim that commodity currencies “will be less affected”. Canadian dollar will benefit from US economic growth. Australian dollar, on the other hand, may be vulnerable because of China’s economic slowdown.
Euro zone’s leaders may combine EFSF and ESM
European officials consider combining two bailout funds to increase the region’s financial firewall from 500 to nearly 700 bln euros, said German Chancellor Angela Merkel on March 16.
Finance ministers and CB governors will discuss the capacity augmentation of the permanent (European Financial Stability Facility, EFSF) and temporary (European Stability Mechanism, ESM) funds on a March 30-31 meeting in Copenhagen.
By the existing rules the joint lending volumes of the 500 bln-euro EFSF and the 400 bln-euro ESM cannot exceed 500 bln euros. However, investors insist on the expansion of the fund in order to make sure that the region has enough facilities to cope with the debt crisis, but Germany opposes such outcome.
According to one of the euro zone’s officials, the policymakers discuss several variants, one of which is to consider that Greek bailout (192 bln euros) was financed by EFSF, while the ESM will start with new 500 bln. In this case the overall crisis fund will rise to 692 bln euros. The final decision on the issue, however, isn’t made yet.
Investors may sell yen on its advance
Japanese yen rose versus euro, the greenback and growth-linked currencies. Never the less, the majority of experts see yen’s recovery as a chance to open new shorts on yen.
Analysts at CIBC World Markets claim that the market has gone too short on yen, so now we are seeing a correction in USD/JPY and EUR/JPY. The specialists expect the greenback to rise to 85-85.50 yen and think that euro will consolidate after reaching 5-month maximum above 110 yen. Strategists at Credit Suisse think that US dollar’s ability to resume rebound against Japanese currency will depend on further actions of the Bank of Japan.
The BOJ may continue monetary stimulus after it surprised the markets with unexpected easing last month, but didn’t expand its asset purchase program in March. Investors will likely keep using yen as a funding currency in carry trades (borrowing in low-yielding yen in order to buy higher-yielding assets). US dollar has become less attractive for this purpose because of rising Treasury yields.
However, Japanese companies tend to buy yen in March ahead of the end of the nation’s fiscal year on March 31 – this may encourage demand for yen.
One should also watch New York Fed President William Dudley’s comments later today as he’s known as a dove and may emphasize that the chance of further stimulus could not be ruled out unless the U.S. unemployment rate declines more.
CFTC: yen net shorts at maximum since 2007
According to Commodity Futures Trading Commission, net shorts positions on Japanese yen reached the maximal level since May 2007 of 42,380 contracts. Sterling short positions also rose to the highest level since the beginning of December of 41,848 contracts. The value of net long position on US dollar declined from $19.27 billion (March 6) to $19.0 billion (March 13).
JAPANESE YEN (Contracts of 12,500,000 yen)
6,393,314,023.65
3/13/12 week 3/06/12 week
Long 22,249 33,281
Short 64,629 52,639
Net -42,380 -19,358
EURO (Contracts of 125,000 euros) 16,243,919,400.00
3/13/12 week 3/06/12 week
Long 40,325 39,943
Short 139,661 156,416
Net -99,336 -116,473
POUND STERLING (Contracts of 62,500 pounds sterling)
4,108,165,850.00
3/13/12 week 3/06/12 week
Long 21,924 22,308
Short 63,772 59,407
Net -41,848 -37,099
SWISS FRANC (Contracts of 125,000 Swiss francs)
2,003,845,737.19
3/13/12 week 3/06/12 week
Long 9,351 8,114
Short 24,149 27,592
Net -14,798 -19,478
Data from CFTC, Reuters
BMO Capital: trading GBP/USD
Currency strategists at BMO Capital are bearish on British pound versus the greenback.
The specialists think that MPC March meeting minutes which are released tomorrow will show weak economic growth. In addition, BMO cites the recent Financial Times article proposing to conduct long-term refinancing operation in the UK. At the same time, US Federal Reserve may allow itself to refrain from easing taking into account its improved economic prospects.
BMO wants to “take advantage of the selloff in the dollar to sell the British pound on a rally”. The analysts think one should wait for a lift in the pound noting that “the market got itself way too long U.S. dollar and everybody pulled back at the end of the week.”
According to the bank, it’s necessary to sell GBP/USD at $1.5925 targeting $1.5650 and stopping at $1.6025.
NZD/JPY: Elliott Wave forecast
According to Forecast Pte, NZD/JPY may reach 69.63, its highest level in almost 2 1/2 years. Specialists believe the kiwi is rising in line with the Elliott Wave Theory and now is on its 5th wave.
The Elliott Wave Principle, proposed by accountant Ralph Elliott in the 1930’s, is a form of technical analysis based on the theory that investor psychology moves between optimism and pessimism in natural sequences. It seeks to predict prices by dividing trends into 8 waves.
First wave: Nov. 24 - Dec. 2 (rally from 57.03 to 61.12);
Second wave: Dec. 3-15 (decline from 61.12 to 58.26);
Third wave: Dec. 15 - Feb. 27 (rebound from 58.26 to 68.35);
Fourth wave: Feb. 28 - March 6 (drop from 68.35 to 65.31);
Fifth wave: began on March 7 (increase from 65.31).
Analysts at Forecast Pte are convinced there is a strong resistance line at 69.63. NZD has already approached this level in Oct. 2009 and in May 2010.
Today New Zealand’s dollar is trading in the 68.67 area. Yesterday it rose to 69.14, the highest since May 2010.
BBH: bullish on AUD/USD
In the middle of the last week the Australian dollar held support near $1.0420, but then closed the week rebounding to the $1.0600 level.
BBH analysts remain bullish on the Aussie because the possible rate lowering from the RBA in May is already priced in.
Specialists believe the Aussie to pass the $1.0640 resistance line, which corresponds to the 20-day moving average, and to test the $1.07 area before the end of the week. In a longer outlook AUD/USD may reach the $1.08-$1.0850 level.