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USD/CAD: technical updates
US dollar keeps losing versus its Canadian counterpart. USD/CAD approached the lower border of the range between 0.9840 and 1.0050 within which it has been trading since the end of January.
The pair has tested today the levels below 0.9864 (April 17 minimum). If this support fails to contain the bearish pressure, US dollar will be heading down to 0.9800. Analysts at RBS think that USD/CAD’s fair value is situated at 0.93. However, for now American currency returned closely to the opening level, so we see something close to doji on the daily chart.
Analysts at Commerzbank say that if USD/CAD closes today below 0.9842, it will become vulnerable for a slide to 0.9786 (minimum of the middle of September) and then to 0.9726 (end of August low). For the outlook to improve US currency should go above 1.0052. It’s better to wait for the pair’s advance above this week's high of 0.9980 to start thinking about longs.
The Bank of Canada’s Governor Mark Carney said yesterday that “some modest removal of monetary stimulus may become appropriate; interest rates are exceptionally low, won't always be the case”. Such comments make investors expect the central bank to take a more hawkish approach and start removing stimulus which is positive for CAD.
USD/CHF: technical comments
The greenback keeps trading within short-term downtrend versus its Swiss counterpart.
Ichimoku H4 chart hints at bearish outlook (Kijun-sen and Tenkan-sen are declining with the former lying above the latter). As a result, USD/CHF may decline to 0.9050, the lower line of the triangle formation. There may be some support for the pair in the 0.9080/70 zone (trend line supports, maximums of late March, early April).
What to expect from FOMC?
Money market investors will look at the Federal Reserve's statement, forecasts and Fed Chairman Ben Bernanke's press conference on Wednesday to assess the prospects for the U.S. economy.
Most analysts don’t forecast any significant changes in monetary policy; however, Ben Bernanke is a well-known wild card. The Fed's fund rate is expected to be kept at 0.00%-0.25% at least until late-2014 and asset purchases program to remain steady at $600 billion. The “Operation Twist”, aimed to lower borrowing costs and to stimulate economic growth, is expiring in June. While the most economists expect the Fed to quit the program in June, there are some who say the program will be extended in June.
Goldman Sachs analysts believe the Fed will announce its decision on further QE today.
According to Nomura and Barclays Capital analysts, despite Bernanke’s insistence that QE3 remains on the table, the Fed will become more hawkish on the back of U.S. economic improvement.
However, the U.S. posted rather negative reports lately (manufacturing indices, housing market data), so the Fed Chairman Ben Bernanke may give a few more dovish comments on the U.S. and global economy. Most analysts expect the 2012 forecast for the unemployment rate to be revised down from the Fed's January estimate of 8.2% to 8.5%. According to Wells Fargo analysts, in 2012 GDP is expected to come in at 2.2% to 2.5%.
Today Core Durable Goods Orders (the de-facto gauge of business investment) fell by 1.1% in March vs. 1.8% rise in February.
April 26: main economic events
• New Zealand: As expected, the Reserve Bank today left the Official Cash Rate (OCR) unchanged at 2.5% calling this level of the borrowing costs appropriate for the moment. The RBNZ Governor Alan Bollard claimed that “domestic economy is showing signs of recovery” noting though that “the global outlook remains of concern.” Bollard said that if kiwi remains strong with all things equal, “the Bank would need to reassess the outlook for monetary policy settings”.
Coming soon
• Euro zone: Italian T-bill auction. Demand for euro was limited on the back of political concerns which may derail the efforts to stem the region’s debt woes.
• U.S.:
- The Fed’s Chairman Ben Bernanke said yesterday that the central bank is prepared to “do more” if necessary to spur the economy, boosting demand for higher-yielding assets. The FOMC upgraded its forecasts for growth and unemployment this year while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.
- Unemployment Claims are forecasted to increase by 378K this week vs. 386K the previous week. U.S. Pending Home Sales in March may increase by 1.4% vs. a 0.5% decline in February. U.S. 7-year note auction is scheduled.
S&P500 was 1.4% up yesterday, the MSCI Asia Pacific Index of shares +0.3% today.
USD/JPY: any trade ahead of the BOJ?
The greenback’s trading on the downside versus Japanese yen today as lower USD/CNY made traders selling US dollar versus all of its Asian peers.
In addition, USD/JPY also got under pressure due to the corporate flows ahead of the period of Japanese national holidays known as the Golden Week (Japanese Golden Week in 2012 is based on two separate holidays of 3 and 4 days. The first is from Saturday, April 28 through to Monday, April 30 and then Thursday, May 3 through to Sunday, May 6).
At the same time, the moves of the pair seem to be limited as the market awaits tomorrow’s decision of the Bank of Japan. Investors expect more easing from the BOJ. If the central bank does more QE, that should be negative for the yen. If it doesn’t – well, it better be ready to the renewed strength of its national currency, it’s as simple as that.
From the technical point of view, note yesterday’s doji candle on the daily chart. If US currency breaks above the short-term trend resistance line, one may go long. If it doesn’t, then USD/JPY may slide to the lower border of the channel in 80 yen area, though the potential decline will be limited by the hopes about the BOJ.
NZD up on RNBZ’s comments
The New Zealand dollar strengthened today against its major peers after a not as dovish as expected RBNZ's policy statement.
The Reserve Bank of New Zealand today left the Official Cash Rate (OCR) unchanged at 2.5% calling this level of the borrowing costs appropriate for the moment. The RBNZ Governor Alan Bollard claimed that “domestic economy is showing signs of recovery” noting though that “the global outlook remains of concern.” Bollard said that if kiwi remains strong with all things equal, “the Bank would need to reassess the outlook for monetary policy settings”.
RBC: Markets were clearly unimpressed by the threat.
ANZ: We expect the RBNZ to take every opportunity to "talk down" the NZD. However, we think the main drivers of recent NZD price action are global rather than local.
Analysts expect the kiwi to climb to $0.8200 after today’s growth to $0.8172. The cross has been trading sideways in a range $0.8060-$0.8280 since early March. The resistance for NZD/USD lies at $0.8188 (high Apr.25), $0.8198 (high Apr.23) and $0.8230 (55-day MA), while the support – at $0.8099 (100-day MA), $0.8078 (200-day MA), $0.8058 (low Mar.22) and $0.8040 (low Jan.23).
Citigroup: euro's correlated with...
According to analysts at Citigroup, there is a rough correlation between the euro and the foreign buying of euro zone’s debt. In the periods of euro’s strength, foreign investors are buying euro zone bonds, and when the euro weakens as it did late in 2011, foreign investors sell.
Analysts believe the support of investors due to euro’s advance in early 2012 has probably softened the common currency’s drop these days, but the effect won’t last long.
Analysts still believe in euro
A bunch of negative signals came from the euro zone recently: lackluster economic reports, Dutch political crisis, and uncertainty, caused by French elections. However, the common currency keeps trading in a $1.30-$1.34 range, puzzling the investors.
Commerzbank: We are observing a new wave of a debt crisis, coming from Spain. However, the EUR/USD cross remains stable, and the situation is not expected to change in the nearest future.
Bank of New York Mellon: Spain now requires not the financial aid itself, but the investors’ confidence that the firewall is big enough just in case the situation worsens.
Barclays Capital: The EUR/USD is not expected to plummet, because the greenback’s growth is limited by the Fed’s current policy. The U.S. interest rate remains at a zero-bound level at least until mid-2014.
Citigroup: Later this year the ECB may extend the LTRO program and cut interest rates. The common currency weakens to $1.30 in 6 months and to $1.25 in a year.
TD Securities: bearish on AUD/CAD
Analysts at TD Securities claim that the downtrend within which Australian dollar is currently trading versus its US counterpart remains strong. In their view, AUD/CAD will drift down to the parity and then to 0.9900.
Support for the pair lies at 1.0155 (2012 minimum) and 1.0100 (long-term trend support). The specialists see the possibility of small corrections within the bearish trend, but the pair will be declining: “We rather think strongly trending oscillator signals will keep counter-trend rallies to a minimum and retain focus on the downside. Stay bearish while the 1.03 resistance remains intact.”
Analysts: outlook for GBP/USD
The preliminary GDP in Q1 unexpectedly shrank 0.2% vs. a 0.1% gain expected and a 0.3% contraction in Q4, meaning the Great-Britain has slid into a double-dip recession, according to yesterday’s release. Analysts split over the prospects of the sterling, despite the negative data.
UBS's analysts see the pair at $1.6200 in the following three months. They expect the yesterday’s GDP report to be revised soon, while the Britain’s PMI data look rather optimistic. In their view, the MPC is ready to tighten its monetary policy, so the pound has reasons for growth.
Technical analysts at Danske Bank recommend going long onthe sterling at the current levels, for a $1.6335 objective and with a stop at $1.6075. However, Commerzbank strategists advise to go short on the pound at $1.6130, with a stop over $1.6185 and targeting at $1.5900