Comments and forex-analytics from FBS Brokerage Company - page 179
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Monetary easing at all fronts
The central banks have come up to the market’s expectations… and even more.
The Bank of England decided to increase the size of its Asset Purchase Program by 50 billion pound to 375 billion. As for the benchmark interest rate, it was left unchanged at 0.50%.
The ECB cut its benchmark interest rate to a record low of 0.75%. In addition, the central bank reduced deposit rate from 0.25% to 0%.
The People’s Bank of China cut benchmark lending rate by 31 bps to 6% and deposit rate by 25 bps to 3%.
We’re waiting for more info and comments.
GBP/USD initially soared to the levels above $1.5600, but then slid to the $1.5560 area. Sterling’s supported by yesterday’s minimum at $1.5554.
Chart. Daily GBP/USD
EUR/USD fell by 70 pips below today’s opening level. Support for the pair is situated at $1.2406 (last week’s minimum). Although the economists were expecting monetary easing in China in the foreseeable future, today’s move was definitely a surprise – good timing on the part of Chinese central bankers.
Chart. Daily EUR/USD
Analysts: comments on EUR/USD
It seems that the yesterday’s ECB rate cut was just an excuse for a EUR/USD sell-off. Investors remain pessimistic even despite a short-term burst of optimism on the EU summit results: direct bank recapitalization is a positive measure, but it doesn’t resolve the initial problems. Recent data show the consequences of a debt crisis start trickling into the key euro zone’s countries and the overall economic situation remains gloomy.
Most analysts expect EUR/USD to continue a downward movement. For example, Societe Generale strategists expect EUR/USD to slide to $1.21 by the end of 2012 and to $1.19 by the end of Q1 2013. Analysts at Bank of America expect EUR/USD to slide to $1.2289 and lower in the nearest future. In their view, yesterday’s break below $1.2409 signaled a continuation of a long-term downtrend.
Specialists at Lloyds, however, recommend going long on EUR/USD at current levels, targeting at $1.3241 and with a stop at $1.2192. In their view, technical indicators show that the downtrend started in February weakens, paving the way for a strong reversal.
Resistance:
1.2409 (June 28 minimum);
1.2540 (July 4 maximum);
1.2527 (23.6% Fibonacci retracement from a Feb. - May decline);
1.2746 (38.2 % Fibonacci retracement and June 17 maximum)
Support:
1.2300 (psychological);
1.2289 (June minimum);
1.2150 (June 2010 low);
1.2054 (200-month MA)
Chart. Daily EUR/USD
UBS: outlook for EUR/GBP
On Thursday EUR/GBP has dropped by 50 p.p. to the 0.7980 area after the ECB cut rates to 0.75%. On Friday EUR/GBP keeps moving on a downside.
Analysts at UBS expect EUR/GBP to decline to its lowest level in more than three years ina short-term. Specialists forecast the single currency to decline to 0.7781 pounds (61.8% Fibonacci retracement from a 2007-2008 growth in a 0.6536/0.9788 range). In their view, a new bearish leg began after the pair fell below the trend line that connects May and June minimums.
Chart. Daily EUR/GBP
Waiting for the NFP
Several hours are left before the US NFP release due at 12:30 pm. GMT.
Previous: 69K;
Consensus: 97K.
Even though this is a big improvement, it still isn’t enough to sustain US economic recovery (Remember +200K jobs a month in winter? That was OK). The unemployment rate is expected to remain at 8.2%, staying above 8% for the longest period since 1948. So, if the forecasts are met, we’ll get evidence that US recovery is losing steam.
The ISM Manufacturing PMI, one of the leading indicators of overall economic momentum, fell below 50 in June for the first time in almost 3 years, signaling contraction in the industry. The ISM Services PMI slid from 53.7 to 52.1 last month vs. expected decline to 53.1. The number of jobless claims has been also quite high during the recent weeks (374-387K).
On the other hand, the ADP employment report provided a good surprise: non-farm private jobs rose by 176K vs. expected growth by 103K.
Impact on the greenback
If the actual figures are worse than forecasts, the odds of QE3 increase and USD will lose to its riskier counterparts. If actual figures surprise to the upside, the markets which are already prepared for the worst will cheer up, so we’ll be buying USD.
What do analysts expect?
RBS is among the optimists projecting a 110K gain in US jobs: “In June, the drag from construction (-28K in May) could have lessened noticeably, with the category perhaps showing no change in the period. Manufacturing, where payroll growth softened from about 40K per month in the first quarter to an average of 10K in April and May, could have risen by close to 10K again. We expect little change in retail as well, which could have inched up by 5K.” Rabobank is specking about +130K.
Nomura, on the contrary, is a bit pessimistic expecting only a 80K increase. “The unrelenting crisis in Europe and, more recently, uncertainty about US fiscal policy appear to be weighing on business plans for hiring. Though initial jobless claims remain in a pre-recession “normal” range there has been a gradual rise in the 4-week moving average that suggests a softer hiring trend has emerged. To be sure, job growth has slowed markedly since March to a 3-month average of 96K compared with an average 252K in the three months ended February.”
Chart from Forex Factory
USD/CHF: fundamental & technical comments
On Friday USD/CHF trades above 0.9700 on the back of the economic data released in Switzerland and the US labor market data.
According to today’s report, Swiss CPI declined in line with forecasts by 0.3% in June after remaining flat in May, showing deflation. Specialists at Sarasin Bank say that the negative inflation supports the SNB's policy of maintaining a currency floor for EUR/CHF. Foreign currency reserves increased to a record high of 364.9B, serving as proof of the SNB’s interventions aimed at the depreciation of the national currency. USD is supported by the yesterday’s ADP non-farm employment data, raising hopes that the US labor market is rebounding (number of employed people increased by 176K in June compared with a 136K growth in May and a 103K forecast). Watch out for NFP release today at 12:30 GMT.
On H1 chart USD/CHF consolidated in narrow range between 0.9685 and 0.9715 after climbing by more than 100 pips yesterday. The pair has broken strong resistance in the 0.9600 zone (January maximums). The next resistance levels are at 0.9771 (June 1 maximum) and 0.9800. Support is found at 0.9660/75 – the pair may retreat here before going higher. If the greenback deeps below 0.9600, we’ll get a selling signal.
Chart. H1 USD/CHF
Commerzbank: bearish on GBP/USD
Commerzbank analysts recommend selling GBP/USD on rallies to $1.5550 and adding at $1.5580.
The pair is expected to continue a bearish movement as long as it's trading below $1.5611 and slide to $1.5407 (June 8 minimum). If the pair breaks this level, a further decline to 1.5268 (June 1 minimum) and 1.5233 (2012 minimum) will become possible.
Chart. Daily GBP/USD
Monday, July 9: events to watch
Japan: Current account is to increase to 0.42T in May from 0.29T in April. Core machinery orders, a leading indicator of private capital spending, is forecasted to decline by 2.4% in May compared with a 5.7% growth in April. Economists, however, see a forecasted drop as an exception, and expect machinery orders to remain in a moderate increasing trend, supported by reconstruction-related demand.
China: China's annual consumer price inflation in June likely eased to a 29-month low with producer prices falling for the fourth month in a row, giving the monetary authorities more room to stimulate the economy. CPI may increase by 2.4% in June compared with a 3.0% growth in May, while PPI - to fall by 2.0% compared with a 1.4% decline.
Europe: there’s a scheduled Eurogroup meeting. Troika officials will conduct the first discussion on the mission’s ongoing inspection to Greece and try to develop an approach for the negotiation of the updated bailout agreement. Another item on the agenda will be Spanish and Cyprus requests for entry into the ESM.
Great Britain: The BoE’s Deputy Governor Paul Tucker will hold a speech where he will no doubt be defending himself from accusations by Bob Diamond that a call to the bank caused the "confusion" that led to the interbank lending rate to be fixed. Tucker hopes to become the next governor at the BoE when Mervyn King quits.
Canada: The BoC is to release its quarterly business outlook survey.
Aspen Trading: recommendations for USD/CAD
Analysts at Aspen Trading Group recommend buying USD/CAD at C$1.0200, targeting at C$1.0600 and with a stop at C$0.9900.
According to specialists, the pair is expected to rally on a falling stock market and falling crude oil. Lately Canada has demonstrated weak manufacturing and labor market data. Most analysts don’t expect the BoC to raise interest rates in the nearest future on the back of recent disappointing data.
Chart. Daily USD/CAD
Analysts: bullish on AUD/NZD
Strategists at RBC Capital Markets recommend going long on AUD/NZD at current levels, targeting at 1.33/1.35 in the next 1-3 month. On Monday AUD/NZD trades on the upside, remaining flat around 1.28. The pair trades above a 100-day MA and close to a 38.2% Fibonacci retracement from a May-June decline.
ANZ Research: The pair is to re-test the 1.30 level in coming months. A paring of Australian interest rate expectations against steady New Zealand rates should see support from the differential. Key NZ commodity prices such as those for dairy products appear set to weigh on the NZ dollar.
Resistance for AUD/NZD lies at 1.2815 (July 2 and June 20 maximums), 1.2832 (50-day MA) and 1.2855 (June 13 maximum and 50% Fibonacci retracement), while support - at 1.2760 (July 5 minimum) and at 1.2737 (July 2 minimum).
Chart. Daily AUD/NZD
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: $1.2250, $1.2300, $1.2350, $1.2400, $1.2450, $1.2500
• GBP/USD: $1.5400, $1.5450, $1.5500
• USD/JPY: 80.00
• EUR/GBP: 0.8045
• AUD/USD: $1.0150, $1.0200, $1.0250, $1.0265