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UniCredit: 2012 currency outlook
UniCredit doesn't expect the single currency to show significant rebound versus the greenback anytime soon. In their view, EUR/USD has settled in the $1.2500/$1.2000 trading area and the potential recovery will remain limited and offer new selling opportunities.
The specialists think that the concerns about the Bank of Japan’s intervention will prevent more USD/JPY sales. The greenback’s strength will drive GBP/USD down to $1.5200/5000. As for the Swiss franc and commodity currencies (AUD, NZD, CAD), trading’s expected to remain quite volatile.
Here are the bank’s forecasts (submitted on June 1):
Data from UniCredit
SocGen: sell AUD/USD on China
Analysts at Societe Generale recommend selling Australian dollar versus its US counterpart at $0.9975 stopping at $1.0175 and targeting $0.9500.
The specialist claim that the fact that China has cut interest rates means that the nation’s authorities are concerned about growth: “a simple interest rate cut would have been good news, but China also adjusted deposit rates and lending rates implying that we won't see a big investment stimulus like we did in 2008.”
The People's Bank of China (PBoC) cut official 1-year borrowing rate by 25 bps to 6.31% and 1-year deposit rate by a similar amount to 3.25%. The cut marked Beijing's biggest move to date to support growth.
The PBOC announced it was giving banks the freedom from June 8 to set deposit rates as high as 110% of the benchmark rate and offer rates on new loans for as little as 80% of official policy rates, an additional 10% points of leeway from the current 90% limit. Until now commercial banks have been barred from charging rates on deposits higher than the benchmark set by the central bank.
Chart. Daily AUD/USD
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: $1.2400, $1.2430, $1.2500, $1.2550, $1.2600, $1.2650;
GBP/USD: $1.5500;
EUR/GBP: 0.8055;
USD/JPY: 79.00;
AUD/CAD: 1.0250;
AUD/USD: $0.9975.
EUR/USD: bears never left
The EUR/USD cross resumed the bearish movement: euro failed to overcome the $1.2626 resistance (January minimum).
Many analysts believe that yesterday the cross reached its peak before the Greek elections (June 17, Sunday). This week Greek question was a wallflower and the focus moved to Spain, but, obviously, the closer the vote is, the higher is the pressure. However, there are several timid beams of light in Europe: German Chancellor Angela Merkel seems to be ready to act to ensure stability in the euro region, while Spain managed to raise 2 billion euro on a bond auction.
Analysts at Commerzbank believe the EUR/USD cross could continue the upward movement after the current pullback. In their view, the next targets for the pair are $1.2786 and $1.2825. However, the downside is still more likely: support lies at $1.2058 (200-month MA) and $1.2000 (psychological support).
Also note that market players will trade on a strong correlation of EUR/JPY and AUD/JPY with stock markets (uncertainty weighs on stock markets – yen strengthens).
Chart. Daily EUR/USD
EUR/GBP: technical comments
The EUR/GBP cross is trading sideways since early May. Most analysts expect the pair to continue a downward movement: the ECB is going to lower rates in the forthcoming months, while the sterling will benefit as a safe haven within Europe. For instance, strategists at BNP Paribas expect the pair to reach 0.7899 pounds.
According to analysts at RBS, however, in a short term the EUR/GBP cross is not likely to leave the 0.7951/0.8220 range, because there is a number of important levels inside.
Resistance:
0.8140 (Aug.2010 minimum);
0.8220 (former support).
Support:
0.8066 (June 2010 minimum);
0.7951(2012 minimum);
0.7695 (2010 minimum).
Chart. Daily EUR/GBP
EUR: Spain’s bailout and French elections
There’s much to discuss after an eventful weekend – and it’s all about Europe.
Firstly, after all the talk Spain’s bailout deal has finally been decided: European governments agreed to provide the nation 100 billion euro ($126 billion) in order to save its banking system. Spanish Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize banks without external help. Spain is the fourth euro zone member after Greece, Ireland and Portugal to get financial help. EUR/USD opened the week with a gap up at 2-week maximum in $1.2640 area. The single currency gained as the markets saw uncertainty diminish and the European policymakers willing to act.
Mariano Rajoy. Photo ITAR-TASS
Secondly, he first round of French parliamentary elections took place on Sunday. President François Hollande’s Socialist Party and its allies are leading in the race for the 577-seat lower house. The final results will be clear only after another round of voting next Sunday as few candidates got more than the 50% of the vote required to win their seats outright. Hollande needs a majority in the legislature to ensure a Socialist prime minister and to more easily pass legislation to keep his campaign promises (such as tax increases on the wealthy and corporations). The upper house, the Senate, already passed to the Socialist control.
François Hollande. Photo Laurent Cipriani / AP
Euro’s current recovery is viewed as correction. EUR/USD has already retraced about 38.3% of its May decline. The scope for the rebound is to $1.2785 (50% retracement). CFTC reports that euro shorts reached last week another record maximum, so these positions may be unwound – positive factor for euro. As for the factors acting against EUR, one should name this week’s economic data (may confirm that the regions is craving for ECB’s monetary stimulus) and Greek elections on June 17.
Chart. Daily EUR/USD
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, $1.2510, $1.2650;
USD/JPY: 78.00, 78.10, 78.15, 78.25, 78.60, 79.00, 79.15, 80.00;
EUR/JPY: 100.00;
AUD/JPY: 78.60.
Euro area in June: meetings & bond auctions
Just to be ready – here’s the info on the euro area’s coming debt auctions and the meetings’ agenda:
- Tuesday, June 12: Greek T-bill auction. Dutch 20-year government bond auction.
- Wednesday, June 13: Italian T-bill auction. German bond auction. German parliament will decide whether it will vote on ESM/fiscal pact before end June.
- Thursday, June 14: Italian bond auction.
- Sunday, June 17: Second round of French parliamentary elections. Greek national elections.
- Monday, June 18: G20 Leaders summit in Los Cabos, Mexico.
- Tuesday, June 19: Spanish T-bill auction, Greek T-bill auction [tentative]. G20 leaders summit.
- Wednesday, June 20: German bond auction.
- Thursday, June 21: Spanish and French bond auction. Euro-zone finance ministers meeting.
- Friday, June 22: European Union finance ministers meeting. German Chancellor Angela Merkel, French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy meet in Rome.
- Monday, June 25: Belgian bond auction.
- Tuesday, June 26: Spanish T-bill auction, Italian bond auction. Dutch 10-year government bond auction.
- Wednesday, June 27: Italian T-bill auction. Allotment of ECB three-month long-term refinancing operation.
- Thursday, June 28: Italian bond auction. EU heads of state summit
- Friday, June 29: EU heads of state summit.
Photo: Reuters
CFTC traders positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that during the week to June 5 speculators’ positioning changed the following way:
EUR: the net short position rose by 11K contracts to the new record of 214.4K.
GBP: the net speculative position switched from long to short of 3K contracts for the first time since the end of April.
JPY: the net speculative position switched from short to long of 12.1K contracts for the first time since the end of February.
CHF: the net short position rose from 30.6K to 33.6K contracts – not much of a change.
CAD: the net long position decreased by almost 20K to just less than 15K, the smallest since the end of February.
AUD: the net short position increased from 35.5K to 51.2K contracts. Until recently, the largest net short position since at least 1993 was recorded in 2006 just below 32K contracts – the bears are multiplying.
USD: traders betting on the greenback’s advance held a net $40.06 billion in wagers, up 5% from the previous week. That is similarly a record since at least 2007.
It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.
Data from CFTC
Spanish bailout: mixed feelings
Euro’s reaction at the announcement that Spain will get 100 billion euro to refinance its banks was impressive: the pair EUR/USD opened 130 pips above Friday’s close. However, there are many things which still remain unclear.
Analysts at Danske Bank note that, firstly, it’s not clear who will be providing the funds – the EFSF or ESM? Secondly, the big question is how the rating agencies will react on the news taking into account the fact that the bailout means another 10% of GDP in debt – European nations will lend money not to Spain's banking system directly, but to Spain. Spain’s Prime Minister Mariano Rajoy called the money “a credit line” and not a “bailout”, but that doesn’t seem to reflect the reality. Although this debt will be cheaper than borrowing at the market, it will still increase the nation’s debt burden.
What’s even more important to ask: will 100 billion euro be enough? Although the IMF claimed $50 billion could be an appropriate amount, JPMorgan Chase analysts recently estimated that Spain could need as much as 350 billion euro. Another unknown is how much time Spain will be given to pay back the cash and what kind of conditions could be applied. If Spain gets better terms than other bailed out euro zone countries, this may lead to tensions, particularly with Ireland. Anyway, looks like we’ll get a lot of details in the next few weeks. In addition, don’t forget that there’s the risk that investors’ attention will turn elsewhere, for example, to Italy, whose banks are also in trouble and whose own borrowing costs are rising.
Cartton by Paresh Nath, The Khaleej Times, UAE