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BBH: Aussie’s prospects may improve
Today Australian dollar bounced versus its US counterpart on improved risk sentiment.
Analysts at Brown Brothers Harriman claim that Australian dollar has poor prospects on the fundamental part as the markets remain all in all in the risk-aversion mode and expect more easing by the Reserve Bank of Australia.
At the same time, the specialists underline that AUD/USD didn’t breached support provided by November minimums in the 0.9660 area, although euro hit 2-year low an equities declined. If Aussie manages to hold for a while, the outlook for the pair will become better as some technical indicators may turn in its favor.
Resistance for AUD lies in the 0.9930 zone (May 22 maximum). There’s also resistance at 0.9875 (Ichimoku Cloud at H4 chart).
Chart. Daily AUD/USD
May 29: currencies in focus
Today’s trading day began with risk aversion. EUR/USD is testing $1.2500 on the downside staying close to 2-year minimum which was hit on Friday.
GBP/USD is consolidating in the $1.5630/5730 area after last week’s sharp decline.
AUD/USD dipped to 0.9800 as Australian markets fell, but then managed to return to 0.9860 during the Asian session.
USD/JPY edged a bit higher once again approaching downtrend resistance line. A bunch of important data was released early Tuesday in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).
CHF retains its strength despite the SNB’s President Thomas Jordan yesterday hinted at the possibility of introducing capital controls on foreign deposits, a measure which hasn't been used since the 1970s. This means that despite the threats of the nation’s monetary authorities traders still want to hold Swiss currency.
Events to watch:
Euro zone: Germany will announce key inflation results for May: experts anticipate 0.1% decline. Italy holds a T-bill auction (the market will be also awaiting Italian 10-year bond auction tomorrow).
Britain: CBI index of retail sales may fall from -6 in April to -7 in May.
US: Case-Shiller HPI is seen losing 2.7% in March (y/y). CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.
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Citigroup: trading GBP/AUD
Analysts at Citigroup recommend going long on the sterling against the Australian dollar. In their view, GBP/AUD may fall to A$1.53 (50% Fibonacci retracement from Feb. 15 - May 23 rally).
According to specialists, the Aussie is currently oversold due to risk aversion (last week number of short positions on AUD/USD reached its maximum since September 2008). Analysts underline that before the selloff, started on May 23, market participants went long, but now the situation seems to change.
Chart. Daily GBP/AUD
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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: $1.2500 (large), $1.2550, $1.2625, $1.2630, $1.2650, $1.2700;
USD/JPY: 79.00, 79.25, 79.30, 80.00, 81.00;
EUR/GBP: 0.8000;
AUD/USD: 0.9860, 0.9865, 0.9875, 0.9900, 0.9950;
USD/CAD: 1.0230.
Photo from Reuters
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Standard Chartered lowered forecast for EUR
Economists at Standard Chartered claim that Greece is now more likely to leave the euro area than to stay in it. In their view, that means that the current recession in Europe may deepen.
Such assumptions made the specialists revise down their forecasts for EUR/USD by the year-end from $1.32 to $1.18. According to the bank, euro will hit this mark if Greece is the only nation to leave the currency bloc. If other problem nations depart, the single currency may slump to $1.08 by the end of 2012.
At the same time, Standard Chartered still believes that the latter won’t happen as the European Central Bank and other member countries will come up with an effective firewall to stop the contagion after Greece quits euro. The analysts think that the ECB would respond to a Greek exit through significant monetary easing, so euro will surely keep depreciating.
Chart. Weekly EUR/USD
GBP/JPY may keep declining
Technical analysts at Gaitame.com Research Institute expect British pound to lose more versus Japanese yen.
The specialists point out that GBP/JPY is now hovering right above 200-day MA in the 124.20 area.
If sterling breaches this support, the pair will drift down to 123.48 (61.8% Fibonacci retracement of the advance from January 13 minimum to March 21 maximum) and 122.77 (December 22 maximum).
Chart. Daily GBP/JPY
Markets keep choosing US dollar
The greenback has risen against its 16 major counterparts from last year low in July. These days CDS on the U.S. debt are trading less than 100 b.p., indicating the risk is close to zero. The greenback remains resilient even despite the two rounds of quantitative easing, launched by the Fed between December 2008 and June 2011.
However, the main driver for the U.S. dollar’s strength is the sharp decline of the single currency. The resumed uncertainty in the euro zone saps the demand for euro-denominated debt on account of the low quality of the assets. Moreover, the need of the financial institutions to comply with Basel III standards also supports the greenback.
In the last quarter of 2011 the dollars share in the global foreign-exchange reserves surged to 62% (maximum since June 2010). According to analysts, euro may rebound before June 17 (Greek elections), because these days it is strongly oversold. However, in a longer period EUR/USD is expected to resume the downtrend.
Chart. Allocated foreign exchange reserves in US dollars
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RBS: trading GBP/USD
Analysts at RBS recommend going long on GBP/USD targeting at $1.5820/1.5929 and with a stop at $1.5606.
In their view, the downtrend of the cable has definitely slowed down. According to specialists, it’s too early to tell the trend has become bullish, because the signs of improvement are too modest. However, a close above $1.5674 (current level and a 5-day МА) would indicate a trend reversal.
Support:
1.5666 (38.2% Fibonacci retracement from a Jan.-Feb. rally);
1.5606 (March minimum);
1.5580 (50% Fibonacci retracement);
1.5504 (61.8% Fibonacci retracement).
Resistance:
1.5767 (23.6% Fibonacci retracement);
1.5820 (strong March support);
1.6000 (psychological).
Chart. Daily GBP/USD
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USD/JPY: technical comments
The USD/JPY cross keeps trading on a downside despite the fact that today it edged a bit higher once again. Analysts at Standard Chartered expect USD/JPY to stay between 79.00 and 81.00 yen until the risk sentiment improves. In their view, the pair may rise to 83.00 yen on positive Greek vote results, improved U.S. economic data and a monetary policy easing from Bank of Japan. Strategists at UBS opine the Bank may intervene if USD/JPY falls below 78.00.
Support:
79.35 (May 24 minimum);
79.21 (May 23 minimum);
79.16 (61.8% Fibonacci retracement from Jan. – Feb. rally);
79.06 (May 21 minimum).
Resistance:
79.83 (May 25 maximum);
80.08 (May 23 maximum);
80.15 (May 22 maximum).
Early Tuesday a bunch of important data was released in Japan. Unemployment rate slightly increased in April to 4.6%. Japan’s retail sales keep rising for 5th consecutive month (a 5.8% growth), while household spending – for 3rd consecutive month (a 2.6% growth).
Later this week watch for Japan’s data releases:
• Wednesday: manufacturing PMI; BoJ Governor M.Shirakawa speaks
• Thursday: preliminary industrial production; housing starts
• Friday: capital spending
Chart. Daily USD/JPY
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May 30: economic background
The pair EUR/USD has once again renewed 2-year minimum versus the greenback and tested today the levels below $1.2500. The market’s focus has slightly shifted from Greece to Spain.
The Financial Times reported citing unidentified officials that the ECB rejected the plan of Spanish government to recapitalize BFA-Bankia, the nation’s third- biggest lender, which has been nationalized earlier this month through an injection of treasury debt instead of cash. Spanish 10-year bond yields rose yesterday to the maximal level since November getting close to the critical level of 7%.
Risk sentiment was also affected by the fact that Chinese authorities have no plan to introduce large-scale stimulus measures to support growth. AUD/USD dipped below $0.9800. Aussie was also hurt by discouraging retail sales data (-0.2% m/m in April). USD/JPY is little changed for the second day trading just under downtrend resistance line.
Events to watch today:
Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.
Euro zone: Italy holds a 10-year bond auction. The previous one, which took place a couple of weeks ago, went well, but the interest rate reached 5.66%. Later in the day ECB President Mario Draghi will be speaking in Brussels and may unveil the central bank's position ahead of the rate decision next week.
US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March.
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