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BOTMUFJ: comments on AUD/JPY
Technical analysts at Bank of Tokyo-Mitsubishi UFJ believe that there’s a chance of Australian dollar to start gaining versus Japanese yen.
Yesterday AUD/JPY hit 3 1/2-month minimum at 72.06, but today it returned above key support levels at 80.35 (50% Fibonacci retracement of the pair’s advance from October minimum to March maximum) and 80 yen (psychological level).
The specialists think that if the bulls manage to hold the rate above these levels, the pair will get chance to strengthen to 84 yen (90-day MA).
Will good jobs data keep RBA from cutting?
The Australian dollar strengthens on the back of the unexpectedly positive employment data released on Thursday.
The unemployment rate fell to 4.9% in April compared with 5.3% forecast and 5.2% in March. Australia’s economy surprisingly added 15K new jobs this month against a 4.8K decline forecasted and a 37.6K decline in March. Payrolls rose mostly due to the part time work, which added 26K jobs to payroll, while the full time employment declined by 10.5K.
However, many analysts still expect the Reserve bank of Australia (RBA) to cut rates by 25 b.p. on its next meeting in June in order to stimulate economic growth. ANZ Banking and Westpac think that risk aversion together with loose fiscal and monetary policy will put Aussie under pressure.
Societe Generale, on the other hand, claims that today’s positive employment figures change the game. According to the specialists, rate cut in June is not likely, so close to the recent 50 b.p. reduction; the next cut is expected in August. Employment figures show a large deviation from expectations, but the full-time employment still continues to decline. The April employment gain, therefore, will generate less additional household income than if it had come from full-time employment.
May 11: today's economic focus
Risk aversion continues to dominate markets on Friday, weighing on the high-yield currencies.
Data released in China confirms that the economy may extend losing streak. Industrial production in April rose by 9.3% compared with March's 11.9%, sharply underperforming expectations. Retail sales also underperformed forecasts for an annual growth of 15.2%, rising instead by 14.2% in April from a year earlier.
China’s CPI slowed down from 3.6% in March to 3.4% in April. Now the nation has more scope for monetary easing. According to Reuters poll, the market consensus is for 150 bps of more RRR cuts this year. Nomura analysts claim that the policy focus will remain on promoting growth to support the economy.
Risk sentiment was hurt during US session as JP Morgan announced $2-billion losses in credit derivatives trades. UK Nationwide consumer confidence fell from 52 in March to 44 in April.
Later today watch British PPI Input data (decline’s expected), Canada’s labor market figures (forecast: lower increase of payrolls, higher unemployment rate) and US PPI and consumer sentiment (consult FBS economic calendar). Also note that there will be an Italian BOT auction around 9 a.m. GMT.
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Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2900 (also barrier), $1.2950, $1.2975, $1.3000 and $1.3100.
GBP/USD: $1.6050, $1.6150 and $1.6200.
EUR/GBP: 0.7970.
AUD/USD: $0.9950, $1.0120, $1.0150, $1.0195 and $1.0200.
AUD/JPY: 83.00.
USD/JPY: 79.50, 80.00, 80.10 and 81.00.
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To risk or not to risk?
The markets remain in the cautious mode. The situation has become highly driven by the politics that immensely complicates any attempts to predict its further developments.
The highest risks are currently concentrated in Greece (elections in June?), France (Hollande vs. Merkel?) and Spain (can it survive on its own?). With all that in mind it’s difficult to expect much risk appetite in the foreseeable future. Surely on Monday (G7 meeting) the leaders of the advanced economies won’t be able to avoid the discussion of European problems, but we’ve already seen that the European leaders tend to maintain uncertainty and deliver some measures only when there’s already almost no air for breathing. All eyes will be focused on Hollande-Merkel meeting on Wednesday, May 16.
There is, however, some positive news. Though Greece will likely get stuck in political indecisiveness for weeks, the EFSF has agreed to pay out its next 5.2-billion-euro tranche, while Spain, nationalized troubled Bankia-BFA. The question is whether it enough to sustain positive risk sentiment. The answer is: hardly. The markets will likely continue pricing in grim prospects. Does that mean that we favor safe havens?
Goldman Sachs thinks that the “currency of last resort” is still gold, not the safe-haven greenback as US economic recovery remains unstable. Both Goldman and Bill Gross from Pimco believe that the Fed is moving closer to announce additional asset purchases.
Apart from gold and dollar vs. commodity currencies, we’re looking to yen, bearish on EUR/JPY and AUD/JPY. The Bank of Japan’s board member Sayuri Shirai claimed that sufficient firewalls have been set in Europe to prevent the crisis from going global, so the BOJ will have some time to take a thorough look at how its latest policy action will affect the economy. Note though that yen’s attractiveness is a very relative thing: the central bank’s still under heavy pressure from the real sector. We also recommend watching the RBA’s monetary policy meeting minutes on Tuesday, May 15. After the positive jobs report released this week, the central’s bank rate cut in June is no longer that evident, although with disappointing Chinese data (remember: main trading partner) Australian authorities may feel the need for stimulus all the same.
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Demand for EUR as reserve currency is illusive
Despite the serious debt problems in the region, the common currency still remains resilient. The key support for the euro is created by the demand on it as on a reserve currency.
However, according to analysts at Deutsche Bank, the euro’s status as a reserve currency may be more vulnarable than meets the eye.
Specialists point the regulators increase reserves mainly in order to weaken its national currency and to support exports. For example, 35% of the overall allocated euro reserve growth in 2011 was achieved due to the Swiss National Bank, buying euro to maintain the 1.20 peg for the Swiss franc.
The regulators do not have real confidence in the euro, and the shift in structure of central bank's reserves may badly influence the currency.
Source: Bloomberg
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Commerzbank: comments on EUR/JPY
Technical analysts at Commerzbank claim that the single currency’s consolidating versus Japanese yen after it has reached 102.54 (61.8% Fibonacci retracement of advance from January minimums to March maximums).
The specialists claim that all attempts of the bulls to push EUR/JPY higher will look unconvincing until the pair’s trading below 104.625 (April minimum). If euro breaches support at 102.50, it will become vulnerable for a decline to 100.12/00 where the bank expect market to try to base. According to Commerzbank, if EUR/JPY manages to rise above 105.56 (May 4 maximum), the picture will turn positive.
Chart. Daily EUR/JPY
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Greece's political impasse: a beam of light
EUR/USD consolidates for the second consecutive day after a decline on the back of optimism that Greece’s politicians will reach an agreement on forming a new government that will leave the indebted country in the euro zone.
According to Antonis Samaras, leader of Greece’s New Democracy Party, four parties have vowed to remain in the euro if they form part of the next administration.
Rabobank: The latest development may provide some support for the euro, but the impact is likely to be limited. There’s still a huge amount of uncertainty in the euro region, and Greece remains closer to an exit than it has ever been.”
Alexis Tsipras, the leader of the radical leftist party Syriza, is to meet on Friday (17:00 GMT) with the Socialist party chief, Evangelos Venizelos.
If Greece’s political leaders fail to create a new government, the new elections will follow.
Photo: REUTERS
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May 14: today's economic focus
News, influencing the markets on Monday, is contradictory. Euro still remains under pressure due to uncertainty, coming from Greece. On Monday Greece’s President Karolos Papoulias meets the political party leaders in a final attempt to form an emergency coalition. However, no one already believes in the success of the discussions. These days Greece’s prospects are negative: either the default or exit from the euro zone.
China has cut its reserve ratios (RRR) by 50 bps over the weekend, adding stimulus to support the economy. That was the third reduction in six months. According to Reuters poll, the market consensus is for 100 bps of more RRR cuts this year. High-yield currencies benefit from the RRR cut.
Asian shared opened this week in red after losing 4.4% last week (MSCI Asia Pacific Index). AUD/USD tested today the levels below parity on weak risk sentiment, though managed to hold above 1.0000 helped by the news about China’s RRR cut and the fact that the nation’s home approvals unexpectedly rebounded in March.
Data to watch today:
• Euro zone: industrial production: no surprise that a decline in growth is expected in March.
• Italy: 10-year bond auction (previous: 5.84|1.5).
• Europe’s finance ministers meet in Brussels in the evening: Greece may be on the agenda.
• Switzerland: SNB Chairman Jordan Speaks. Last month Jordan reaffirmed his commitment to the EUR/CHF threshold at 1.20, saying the franc is overvalued and that he expects it to weaken.
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BOTMUFJ: comments on EUR/USD
The single currency hit today more than 3-month minimum versus the greenback at $1.2878.
Analysts at Bank of Tokyo- Mitsubishi UFJ claim that as EUR/USD breached last week support at $1.2954 (61.8% Fibonacci retracement of the pair’s advance from January 13 minimum to February 24 maximum), it’s vulnerable for a decline to $1.2828 (76.4% Fibonacci retracement).
On the way down we would add support at $1.2858 (December 29 minimum) and $1.2839 (January 19 minimum). On the upside, resistance for euro is provided by recent session’s maximums and $1.2905/12 (May 9 and 11 minimums), $1.2955 (May 7 minimum) and $1.2980 (May 10 maximum).