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UBS: currency forecasts updated
EUR/USD 1-month $1.30, 3-month $1.25;
GBP/USD 1-month $1.62, 3-month $1.62;
EUR/GBP 1-month 0.80, 3-month 0.77;
NZD/USD 1-month $0.82, 3-month $0.78.
US jobless claims: what’s behind the figures?
US Labor Department announced today that initial jobless claims fell by 1K last week to a seasonally adjusted 388K in the week ended April 21. The reading was though higher than the forecast.
It’s necessary to note one thing: the previous print (for the week ended April 14) was revised from 386K to 389K (the highest level since the first week of January). So the comments are positive, the newsmakers got what they wanted – the improvement. At the same time, this is the 10th week in a row of misses to the weaker side and the 16th of the last 18. The average of new claims over the past month rose by 6,250 to 381K.
Some justified April increase in claims by the spring break when school workers can file for temporary benefits. However, fewer experts are so sure now. Recent data wasn’t encouraging enough and there are significant risks from Europe. There’s also talk that the government’s seasonally adjustments may have exaggerated the drop in claims at the beginning of the year.
The picture will become clearer next Friday with the release of April employment report.
An Army veteran chats with representatives from Southwest Airlines at the Hiring our Heroes job fair for U.S. military vets and their spouses last month. (E. Jason Wambsgans/Chicago Tribune) (E. Jason Wambsgans )
Yen up after BoJ added stimulus
The yen dropped against its major counterparts after the Bank of Japan increased the size of the asset buying program by 5 trillion yen additional in JGB whilst reducing the fixed-rate program by 5 trillion. As widely expected, the BOJ maintained the key interest rate at a 0-0.1% level.
After the BoJ announcement the USD/JPY cross sky-rocketed to 81.35 yen, but soon declined to 80.81. While some analysts seem to be unimpressed by the QE measures, the BoJ may be starting to lose its fight to devalue the yen through more easing given the post-reaction of the currency.
Analysts: comments on EUR/USD
The common currency managed to recoup losses due to the Italian bond auction after S&P downgraded Spain’s credit rating.
Standard & Poor's cut Spain's rating to BBB-plus from A on Thursday and gave it a negative outlook, warning it expects the government's budget deficit to deteriorate even more than previously thought due to economic contraction. S&P expects Spain's GDP to contract by 1.5% in 2012 and 0.5% in 2013.
Italian 10-year borrowing costs climbed to 5.84% on Friday (60 b.p above a comparable bond sale in March) against the backdrop of Spain’s downgrade. However, in general, the bond auction was rather successful: the country sold 5.95 billion euros of bonds, near the top of a planned issue range of between 3.75-6.25 billion euros.
HSBC: We are a bit surprised at the euro's resilience but part of the explanation is that the currency channel isn't the cleanest way to express discomfort with the periphery. If you don't like Spain you sell their bonds and buy German Bunds so the currency impact is muted.
BBH: $1.3250 area is providing near-term resistance for EUR/USD. We feel the euro should be sold into rallies ahead of next week’s key economic data and political events, including PMIs, ECB meeting, and the ongoing political cycle.
Analysts at Danske Bank recommend selling the EUR/USD cross at current levels targeting at $1.3145 and with a stop at $1.3245, while Commerzbank suggests going short at $1.3205 with a stop at 1.3315. UBS's analysts believe the pair will be at $1.30 for the next month and at $1.25 in the next 3 months.
U.S. GDP came below expectations
The greenback fell against the euro and the yen after the report showed the U.S. economy grew less than expected in the first quarter 2012.
The estimated U.S. GDP growth in Q1 2012 is 2.2% vs. 2.6% forecasted and 3.0% in the previous quarter. However, the fairly strong personal consumption offsets things a bit (2.9% increase vs. 2.1% in Q4).
BNP Paribas: Consumers are remarkably stable and steady. We’ll need to see final demand continue to improve. We’re still in muddling- along territory.
In January 2012 the Fed lowered its forecasts for the U.S. economic growth to 2.2-2.7% in 2012 and to 2.8-3.2% in 2013. The FOMC “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” it said in an April 25 statement.
New Zealand: mixed data released
Statistics New Zealand reported on Monday that the trade surplus declined in March to NZ$134 million against NZ$202 million in February and NZ$445 million surplus expected. The decline is caused by an 8.7% fall in the value of exports; meanwhile, imports rose 1.2%
Building consents improved 19.8% in March after a 6.2% fall in February. NBNZ Business Confidence index increased to 35.8 in April against 33.8 in March, indicating strengthening business optimism.
The Reserve Bank of New Zealand (RBNZ) has consistently warned that the high national currency hurts the tradable sector and puts a downward pressure on economic activity. Bank officials remarked last week that if the NZD remains high the economy may to look towards a monetary policy easing.
Nomura: The RBNZ has stepped up its rhetoric on the level of the NZD. We think this is just another attempt to talk the currency lower. We doubt any FX intervention will take place. We continue to look for opportunities to enter NZD long positions.
The NZD/USD continues a sideways movement in a $0.8060-0.8280 channel since March 2012.
USD/JPY down on recent data
The greenback touched a two-month low versus the yen today due to the disappointing U.S. GDP report, released on Friday. The estimated GDP growth in Q1 was 2.2% vs. 3.0% in the previous quarter.
Economists expect the interest rates to remain zero-bound at least through late 2014. The U.S. slowdown also revived speculation that the Fed may launch another QE or a bond-buying program.
Societe Generale: A flavor of QE is back in the air, driving the USD lower and risky assets higher.
On Tuesday watch out for the April ISM Manufacturing PMI index; in March the index was strong enough (53.4). The Non-Farm Payrolls (release on Friday) are forecasted to grow by 176K in April.
BNP Paribas: If we do get a weak ISM and a 125K increase in payrolls, the dollar weakness is going to continue.
Commerzbank: trading USD/JPY
Early Monday the USD/JPY dropped to 80.10 yen (50% retracement of the early 2012 growth and the bottom of the daily Ichimoku cloud).
According to analysts at Commerzbank, the breach of a 79.15 support (61.8% retracement) may let the dollar fall towards 78.34 yen (200-day MA). Resistance lies at 81.33, 82.28 (23.6% retracement), 82.51 (top of the cloud), 84.17 (high March 15).
Strategists recommend holding longs at 80.63., with a stop at 79.90 and covering 85.50. In a shorter term a correction to 79.15 is expected, but the long term targets lie at 83.80 and 85.50.
Analysts: trading GBP/USD
GBP/USD reached $1.6300 (the highest since Aug. 31) on Monday after strengthening for an 11 consequent days. However, the pair is overbought and has entered a declining phase, breaching below the opening price at $1.6274.
Most analysts are bullish on the cable’s prospects these days. For example, strategists at Danske Bank advice to buy the pair for a revised $1.6380 objective and with a stop at $1.6160. Commerzbank suggests to buy with a stop $1.6165 and a $1.6425 target. UBS strategists believe the cable will remain at $1.6200 for the next 1 to 3 months.
Recent report showed U.K. house prices increased in April for a second month. Today will be released the core personal consumption expenditure price index and personal income figures in the U.S. The U.K. Manufacturing PMI will be announced tomorrow morning and forecasts point out to a slight decrease from 52.1 to 51.4.
USD/CAD up after GDP
The Canadian dollar drops against the greenback after the unexpected contraction of nation’s GDP, weakening the expectations for the interest rate hike from current 1.0%.
Canada’s gross domestic product shrank by 0.2% in February vs. 0.2% growth expected and 0.1% growth in January. Moreover, Raw Materials Price Index (RMPI) declined 1.6% vs. 0.4% forecasted largely because of mineral fuels. Industrial Product Price Index (IPPI) edged up 0.2% in March, led by higher prices for petroleum and coal products.
Bank of Canada Deputy Governor Timothy Lane said on Monday it may become appropriate to withdraw some of the considerable monetary policy stimulus the bank is providing. Lane’s words are echoing the recent remarks of the BoC Governor Mark Carney.
The USD/CAD pair strengthened to C$0.9871. Resistance lies at $0.9880 (high Apr.25), $0.9928 (21-day MA) and $1.0012 (high Apr.17), while support - at 0.9800 (low Apr.27), 0.9766 (low Sep.19) and 0.9755 (low Sep.1).