Comments and forex-analytics from FBS Brokerage Company - page 177

 

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, $1.2415, $1.2575, $1.2585, $1.2600, $1.2645, 1.2650;

USD/JPY: 79.75, 80.00, 81.20;

GBP/USD: $1.5600, $1.5700;

EUR/GBP: 0.8025, 0.8040;

AUD/USD: $1.0000, $1.0120, $1.0150, $1.0200 (large), $1.0250.

 

GBP/USD: fundamental and technical comments

GBP/USD keeps consolidating on the hourly chart between $1.5650 and $1.5720.

On the positive side we have positive risk sentiment after Asian session. In addition, the Bank of England is expected to increase its asset purchase program on Thursday to restart the engines of the lackluster UK economy.

On the downside there’s weak British construction PMI data (the index fell to 48.2 in June from 54.4 in May and below consensus of 53.0 indicating contraction of the industry). Net lending to individuals came at 1.3B in May (above 1.1B expected, but below 1.4B in April).

Analysts at Commerzbank think that the pair will retest resistance in the $1.5752/1.5786 area (200-day MA and 50% Fibonacci retracement). In this region one may also find $1.5806 (55-day MA) and $1.5771 (200-week MA). The resistance seems strong and it will likely stop the first bullish attack. If the bulls manage to overcome resistance , GBP/USD will be able to rise above $1.6000 where the specialists also see high odds of failure.

Support is at $1.5600 and $1.5485. Below these levels there’s a risk of a slide to $1.5407 and $1.5269/35 (recent minimum and 2012 minimum).

Chart. Daily GBP/USD

 

Where will the AUD move?

On Tuesday Australian dollar has been strengthening against its major counterparts on the back of the positive data. There is no surprise that the RBA left the interest rate unchanged on today’s meeting: Australia is evidently stronger these days than many euro zone’s economies.

The news provided a temporary bounce for the AUD/USD, raising the pair to $1.0283, before it stabilized near $1.0260 (near to the strong resistance level – 78.6% Fibonacci retracement from a May drop and an intersection of the100- and 200-day MAs).

Where will the pair move next? Most analysts expect the Aussie to keep gaining, especially if the other regulators take new easing measures. In our view, it makes sense to buy AUD/USD at current levels targeting $1.0300 and stopping at $1.0085. If the AUD/USD manages to overcome the current level, an intraday rise to $1.0285 and $1.0310 will become possible. Support for the pair lies at $1.0225 (June 20 maximum), $1.0211 (July 2 minimum), $1.0128 (61.8% Fibonacci retracement), $1.0085(June 15 maximum), and $0.9965 (June 25 minimum).

Chart. Daily AUD/USD

AUD/JPY also demonstrates growth and has already overcome the yesterday’s maximum. The cross trades in an upward channel since early June. According to analysts, AUD/JPY has good prospects for growth: AUD is second strongest currency of last 5 days behind the NZD and ahead of the JPY.

Chart. Daily AUD/JPY

EUR/AUD keeps moving on a downside for a fifth consecutive week. The pair managed to touch a 5-month low today. However, the RBA announcement didn’t influence the pair significantly. The support for EUR/AUD lies at $1.2225 (January 17 minimum) and $1.2145/30 (twice acted as a support in February), while resistance – at $1.2359 (July 2 maximum), $1.2436 (June 29 maximum), $1.2525 (June 22).

Chart. Daily EUR/AUD

 

Outlook for USD/JPY

USD/JPY is consolidating between 79.20 and 80 yen staying within larger downtrend. The pair is trading on the upside helped by yen’s broad weakness during the Asian session.

Analysts at Bank of Tokyo-Mitsubishi UFJ note that although everyone is used to yen’s strengthening on weak US economic data, this pattern doesn’t work anymore. In their view, yen depreciated since the beginning of the year due to trade and merger and acquisitions by Japanese firms. The specialists think that yen’s purchases haven’t revived and the greenback may recover to 80 yen in the near term.

Experts warn that thin trading volumes may exaggerate price movements ahead of the US Independence Day holiday on Wednesday, the ECB meeting on Thursday and Friday’s US NFP report.

The technical picture

On the daily USD/JPY chart US dollar enjoys support of Kijun-sen, but remains under pressure of large looming bearish Ichimoku Cloud. However, the Kumo has so far significantly narrowed that means that the bulls are really fighting to regain the market.

If USD/JPY overcomes psychological resistance at 80 yen, enters the daily Cloud and gets above 38.2% Fibonacci retracement of the decline from March maximums to May minimums around 80.13, it will be able to rise to 80.92 (50% Fibonacci retracement) and probably to 81.59/78 (current Ichimoku cloud top, 61.8% Fibonacci retracement), though unlikely higher.

If USD/JPY falls below 79.13 (Kijun-sen), support will be at 78.90 and 78.61 (June 15 minimum).

Chart. Daily USD/JPY

 

EUR/NZD: will the trend persist?

EUR/NZD is declining for the eighth week in a row: the pair is close to setting a new historical low (the current minimum was reached on February 15). Since its peak on May 18 the pair has already declined more than by 7%.

However, some analysts believe the recent events such as a temporary Greek relief and a positive outcome of the EU summit could reverse the sustainable trend. Is it possible? Not really. New Zealand dollar is actually the best-performing currency in recent months, while the euro zone’s euphoria comes to an end – root of the problem grows ineludibly despite all the summits and negotiations.

Specialists at RBS also don’t forecast the trend reversal: in their view, it doesn’t matter whether the overall risk sentiment is positive or negative; the EUR/NZD is expected to go down. If the pair breaks support 1.5590/50, a decline to the 1.5250 area becomes possible.

Support:

1.5632 (July 2 minimum);

1.5618 (today’s minimum);

1.5590 (Feb. 15 minimum).

Resistance:

1.5820 (April13 minimum);

1.5888 (June 29 maximum);

1.5999 (June 20 maximum);

1.6181 (23.6% Fibonacci retracement from Nov. 2011 – Feb. 2012 fall).

Chart. Daily EUR/NZD

 

July 4: economy and currencies

US markets are closed for the Independence Day holiday, so trading volumes will be rather thin.

Asian session was rather quite with shares rising to 7-week maximum on the hopes for more monetary policy stimulus to support the faltering global economy beginning with the ECB on Thursday. The expectations of more easing predominate over the market warming investor’s sentiment.

Australian retail sales rose by 0.5% in May (vs. +0.3% expected). Aussie and kiwi gained against their American counterpart.

EUR/USD edged down ahead of tomorrow’s Spanish bond auction and the ECB meeting. According to the forecasts, ECB will lower its key interest rate by 25bps to 0.75%. Today’s release of final June services PMI is to confirm that the region’s service sector keeps contracting. Spain is scheduled to sell 3-, 4- and 10-year debt; a 10-year bond yield was at 6.25% yesterday compared with a record maximum of 7.29% reached on June 18.

Elsewhere, don’t miss UK services PMI release: the index is still seen above the critical 50 mark, though economists expect a decline from 53.3 in May to 59.2 in June.

Financial markets keep watching the development of the scandal about Libor manipulation (British bank Barclays has been accused of manipulating worldwide interest rates and other European and US banks will likely follow the suit). Bob Diamond, Barclays’ former CEO faces grilling in Parliament after resigning yesterday. The whole situation raises the risks of confidence to the whole banking system and its ethics.

 

Morgan Stanley: bearish on risky currencies

Morgan Stanley lowered their forecasts for the Australian, Canadian and New Zealand dollars, explaining that the current economic conditions are unfavorable for the commodity-exporting countries.

Specialists believe the global economic slowdown is to weigh on the risky currencies: weak manufacturing PMI indices in G10 countries warn that the demand for raw materials will remain low.

According to analysts, AUD/NZD will fall to $0.95 by the end of 2012, compared with a previous forecast of $0.99. NZD/USD is expected to close the year at $0.75, compared with the earlier forecast of $0.80. USD/CAD is to strengthen to C$1.06, compared with the previous forecast of C$1.03.

 

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: $1.2450, $1.2500, $1.2800;

USD/JPY: 79.50, 80.00;

EUR/GBP: 0.8060;

AUD/USD: $1.0000, $1.0100.

 

BOTMUFJ: AUD/JPY may go up

Analysts at Bank of Tokyo Mitsubishi UFJ think that Australian dollar may rise above 83 yen level for the first time since May.

The specialists point out that AUD/JPY’s 5-day MA crossed 200-day MA bottom-up forming a “golden cross,” a bullish signal. In their view, if the pair closes above its 90-day MA at 82.38 yen (blue line on the chart), it will be able to rise to 83.23 yen (61.8% Fibo retracement of the decline from March 19 maximum to June 1 minimum).

Chart. Daily AUD/JPY

 

Citi: data releases disappoint analysts

The Citigroup economic surprise indexes (CESI) entered a negative territory early May and are already approaching to the one-year lows. That means that analysts get systematically disappointed by the data releases in largest economies in the world.

CESI measures the variations in the gap between the expectations and the real economic data. When the CESI is positive it means that the released data have been better than the expectations. When CESI is negative, it means that actual results have been worse than expectations.

On the chart below you may see the dynamics of indices for G10, US, Europe, and China.

Chart. Citigroup economic surprise index (CESI)