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Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
British pound tested the levels above the Ichimoku Cloud last week, but then drifted lower and closed below Kumo.
At the same time, the pair managed to find support at Tenkan-sen (1), so the bulls haven’t lost all chances to turn the situation in the short term to their benefit. The pair also has some support of the uptrend line connecting January and March minimums.
However, the Turning line stopped moving up and switched to the horizontal mode following Kijun-sen (2) and pointing at sideways trend. Kumo isn’t wide, but still bearish (3).
We are looking forward to consolidation in the coming weeks. The ability of the bulls to bring the prices above the Cloud will be decisive for the future dynamics of GBP/USD.
Daily GBP/USD
On the daily chart the prices breached the Turning line (1), but were supported by the Standard line (2) and the upper border of the rising Ichimoku Cloud.
On the one hand, the situation looks stable: Tenkan and Kijun have so far formed “golden cross” which should be strong enough as the lines intersected above Kumo.
On the other hand, Tenkan-sen and Kijun-sen became horizontal and the Cloud has dangerously narrowed.
On the downside, if GBP/USD breaches support of the Kijun and enters the Cloud, it will likely slide to the bottom of Kumo. On the upside, if after a few days of consolidation sterling manages to rise above Tenkan, it will get chance to strengthen to the maximums of the early April.
US yields’ advance is likely to slow down
So far there was a lot of talk about rising US Treasury yields which helped to push USD/JPY up and breach its long-term downtrend. Is this really a reversal of the 30-year bullish market characterized by increasing bond prices and declining yields and the demand for treasuries will start declining? Not likely.
Reasons of high demand for Treasuries:
1) Reduction of supply: data from CRT Capital Group LLC shows that the net amount of Treasuries available will decline by 30% once proceeds from maturing securities are reinvested and fall by an average of $99.4 billion of investable cash a month. Average maturity of government debt has risen from 49.4 months in last quarter of 2008 to 62.8 months with the help of Operation Twist (shorter maturities in the Fed’s holdings are replaced with longer-term debt to cap longer-term rates), while the amount of American debt increased by $4 trillion.
2) Treasuries remain the safe haven #1 with few alternatives as the global economic prospects remain uncertain and there are severe problems looming over particular regions, such as the euro area. Investors see the improvement of US economy, but the majority agrees that it’s too early to be entirely optimistic.
3) The banks need to add safe assets to meet new reserve rules under the Dodd-Frank financial-overhaul law and Basel III regulations. US commercial lenders have already bought the same amount of Treasuries as in the while 2011.
4) Corporations have record cash on hand which they put in Treasuries seeking fixed income as they fear that the market may get shaken once more.
High demand means lower yields. Although 10-year US yields rose from 1.88% at the end of 2011 to about 2.4% in March, consensus forecast didn’t chance since January – it still shows the yields will finish 2012 at 2.49%. This means that investors aren’t ready to trim their Treasury holdings. Buyers bid $3.19 for each dollar of the $538 billion in notes and bonds sold this year – the highest demand since 1992 when such data became available. The only obstacle which may slow the rate of Treasuries purchases is rising inflation.
EUR/USD: prospects remain unclear
On Monday, April 9, activity on the European markets remains weak due to Easter holidays in Germany, France, Switzerland, Italy and Great Britain. Given the rising Spanish bonds yield and increasing uncertainty about the country’s prospects, the future of the euro doesn't look bright. Data on U.S. labor market, released on Friday, also seems to be negative (non-farm payrolls rose by 120K versus the expected 207K). Most analysts believe the U.S. labor market data won’t have a significant effect on the market.
BNP Paribas: The NFP data are quite comforting, since the cuts that occurred in March are very likely to be reversed afterwards.
SunbirdFX: The euro may strengthen from the $1.300 strong support level to $1.315 or break the Head & Shoulders pattern lying above the support and slide to $1.280.
US and Asian sessions briefly
US:
The Fed’s Chairman Ben Bernanke didn’t mention monetary policy in his speech, though noted that American economy is far from a complete recovery which was taken by the market as an argument for further easing. As a result, the greenback weakened versus the majority of its counterparts.
Speeches are also scheduled for Dallas Fed President Richard Fisher, Atlanta Fed President Dennis Lockhart and Minneapolis Fed President Narayana Kocherlakota.
Asia:
Bank of Japan’s meeting: rates unchanged at 0.1%, no new easing measures announced.
Although such decision was in line with the forecasts, USD/JPY fell by about 25 pips after the announcement from Asian session high at 81.86 yen.
Morgan Stanley MUFG Securities, Mizuho Securities and SMBC Nikko: the BOJ will expand asset purchases when it next meets on April 27.
China: trade balance +$5.3 billion; imports +5.3% (y/y), exports +8.9% (y/y).
Australia: NAB business confidence rose, job advertisements +1% (m/m).
Stock markets show mixed performance.
EUR/USD: bears vs. bulls
Bearish outlook
The common currency grew 2.95% in the first quarter on the back of the approval of a second bailout package for Greece after a debt-swap with the country’s private-sector investors. The worries of the market participants about the new wave of the crisis declined due to the operation.
In the second quarter, according to Westpac analysts, the austerity measures, deleveraging and poor growth are steadily driving the economy into a recession. “The ECB may need more QE and the Fed is basically on hold, and that should mean interest-rate differentials move in the dollar’s favor”, analysts say.
BBH: Political risk ahead of the French and Greek upcoming elections and eventual weakening economic reports in the Euro zone should push the EUR/USD below the $1.297/1.300 range. Eyes will be on the Italian bond auction on April 12.
Bullish outlook
However, some analysts are positive on the prospects of the common currency. In their view, the EU policymakers possess enough financial mechanisms to help indebted countries to surpass the crisis. Spain and Italy are unlikely to require financial aid and the U.S. isn’t growing fast enough for the Fed to start raising interest rates.
HSBC: EUR/USD is expected to trade in the range $1.30/35. There are no signs at the market that Spain alone can push the pair below $1.3000. However, if something extraordinary happens and the euro breaks this level, the next support line lies at $1.2600.
Rabobank: euro may climb to $1.35 in 9 months and to $1.40 a year from now as the Fed keeps interest rates at a record low and the U.S. moves to cut its budget deficit after presidential elections in November.
EUR/USD: economic news and technical levels
The single currency rose to $1.3145 earlier today, but then slid to $1.3095 area.
German trade balance in February was right as analysts expected with surplus of 13.6 billion euro. At least there’s no disappointment here. The nation’s exports added 1.6% surpassing the forecast of +0.4%. French industrial production rose in February slightly higher than expected (+0.3% vs. +0.2% forecast). Sentix investor confidence is another important release for today.
Euro was helped by the speculation about more QE in the US after yesterday’s Bernanke speech (though the Fed’s Chairman only said that there’s no recovery yet without going into details and specking about monetary policy). More members of FOMC will speak this week and Bernanke will appear in public one more time on Friday. So, don’t miss the comments and consult our economic calendar for the exact schedule (Fisher, Lockhart and Kocherlakota are to speak today).
EUR/USD’s upward correction looks shallow. There will be many shorts at $1.3165 (April 5 maximum). If the pair manages to overcome this resistance, it will be able to get to the top of the daily Ichimoku Cloud at $1.3263. Support lies at $1.3060, $1.3030, $1.3000 (March 15 minimum) and $1.2974 (February 16 minimum)
The outlook for AUD/USD
Today’s dynamics
On the upside Australian dollar was helped by Bernanke’s comments that American economy is far from a complete recovery which was taken by the market as the sign of more easing coming, especially after payrolls increased less than expected in March. In addition, Chinese data released today has positively surprised the market: the nation posted $5.35-billion trade surplus last month vs. the forecast of $3.15-billion deficit (Bloomberg). There was also a private report which showed that business confidence in Australia rebounded.
On the downside Aussie was discouraged (especially against yen) after the Bank of Japan kept the monetary policy unchanged, while the market has been pricing in more easing. Asian stocks fell and Australia’s bonds surged driving the yields to the lowest since February 7.
Technical levels
The pair AUD/USD keeps trading within downtrend channel aiming to $1.0145 (January 9 minimum).
Resistance: $1.0355 (today’s maximum) and $1.0462 (April 3 maximum).
Support: $1.0043 (December 29 minimum) and 0.9865 (December 15 minimum).
Data to watch
Barclays Capital:
- Australian employment data (April 12): Barclays’ forecast is employment change of 0K and unemployment rate of 5.3%. Any sign of weakness in labor market would likely add to the concerns about domestic economy and additional AUD negative.
- Australian CPI figures (April 23).
The RBA opened the door for further easing at next meeting in May and the data releases mentioned above will determine the central bank’s decision.
U.S. companies earnings expected to drop in IQ
On Tuesday, April 10, U.S. companies start to announce their first-quarter earnings.
According to FactSet analysts, earnings for S&P 500 companies are expected to decrease by 0.1% in the first quarter compared to a year ago. It may serve as a negative signal for the U.S. economy as a whole, because earnings had been rising for the previous nine quarters. Year-over-year earnings growth has been at least 10% for all but the last period, when it was 6%. Three months ago the forecast for the first quarter was 3% earnings growth.
The slowdown may be caused by European debt crisis or by mathematical growth constraints. In any case, the unsteady growth shows the economy is still weak and vulnerable.
Analysts at Barclays Capital believe the negative earnings results in the short term may weigh on risky currencies, for example, on the Aussie. Funding currencies like the Swiss franc and the yen will temporarily strengthen against the greenback.
The first data release to watch is scheduled on Tuesday: the U.S. aluminum giant Alcoa will post its quarterly report.
Bank's forecasts for FX majors
Data were submitted on April 5
Source: FX Week
Commerzbank: comments on EUR/JPY
Technical analysts at Commerzbank claim that the single currency may rebound versus Japanese yen from support in the 105.93/65 area (200-day MA, 38.2% Fibonacci retracement of EUR/JPY’s advance in 2012). There’s also an upper border of the Ichimoku Cloud at 106.15 yen.
The specialists think that the pair may rise to resistance at 108.07/65 from where it will start suffering from negative pressure. In their view, euro’s sell off may begin at 111.13 (April 2 maximum) and the pair may decline to the lower border of the Cloud at 103.50.