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EUR’s down on ECB Monthly Bulletin
The ECB released it monthly Bulletin – report which explains the central bank’s monetary policy decision. Euro zone’s growth estimate was revised down to -0.3% (from -0.2% in Q2) in 2012, to +0.6% (from +1.0%) in 2013. 2012 HICP and long term inflation forecasts at 2.3% and 2.0%. The 2013 HICP was lowered from 1.8% to 1.7%, and inflation in 2014 is expected to end at 1.9%.
EUR/USD is once again testing support at $1.2340.
Support: $1.2290, $1.2240, $1.2130, $1.2040.
Resistance: $1.2400, $1.2440, $1.2500.
Chart. H1 EUR/USD
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EUR: analysts are bearish
Commerzbank: We suspect that the move higher has terminated ahead of the -month channel resistance at $1.2500.
St. George Bank: It’s hard to see any upside for the euro at the moment. Economic data has been quite soft. There’s still a bit of uncertainty about what the ECB can do and will do in addressing the crisis.
UBS: As euro short-covering had been completed, the currency is expected to stick to narrow ranges until fresh factors emerged.
Mizuho: We’re looking for the euro to go to parity. It will take about a year, but we are heading in that direction.
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RBC: reasons against carry trade
Analysts at RBC recommend investors to stay away from the carry trade. Carry trade is buying high yielding currencies and selling low yielding ones.
The specialists note that euro may seem a good funding currency now. However, they remind that interest rates are low in many countries, not just in the euro zone, and that limits the potential for a carry trade to be profitable. In addition, although volatility has declined recently, it doesn’t compensate the compression of yield spreads. RBC underlines that “the carry-to-risk ratio – a good barometer of the efficacy of carry as an investment strategy – is still far below its historical average.”
If you want to try carry trades even after all these warnings, RBC advices to use for funding not euro, but… Canadian dollar! The proposed trade is longs on AUD/CAD.
Chart. Daily AUD/CAD
AUD/USD: slowed growth
AUD/USD remains close to the top of the upward channel. Today the pair opened a new high at $1.0612, but then once more slid below the strong $1.0600 level. The pair has been consolidating at current levels for four days.
On the H4 chart we can see a bullish MACD divergence. However, we expect the bullish trend to continue until there is a clearer sign of a trend reversal. Next resistance lies at $1.0636 (March 19 maximum) and at $1.0670 (March 8 maximum). Support is seen at $1.0529 (August 8 minimum) and at $1.0475 (beginning of a downtrend).
Chart. H4 AUD/USD
Chart. Daily AUD/USD
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USD/CHF: bulls vs. bears
US dollar bulls don’t let USD/CHF reverse down despite the ‘head and shoulders’ pattern formed on the daily chart. The pair tested the levels below the 1-year support line, but recoiled up from the 50-day MA. At the same time, there’s resistance around 0.9800 (downtrend resistance from July maximums, 100-period MA on H4 chart).
Don’t forget that 200-week MA at 1.0030 is looming above the pair – the last time pair traded above this line on a sustainable basis was in 2002.
The main technical levels are marked on the chart.
Chart. Daily USD/CHF
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August 10: economic & forex news
Friday began with discouraging Chinese trade balance data (trade surplus came at 25.1B in July vs. 35.1B expected) which dragged Asian markets lower.
Aussie took a blow: AUD/USD slid from the 4-month maximum above $1.0600 to the levels around $1.0520. The RBA monetary policy statement was relatively hawkish: the central bank upgraded the nation’s growth forecast, but warned of stronger AUD hurting the economy. NZD/USD keeps descending from Monday’s maximum at $0.8220.
EUR/USD is set for the weekly drop. During the Asian session it edged a bit lower and is now trading under $1.2300. Today in the euro area watch for German CPI (5:00 GMT), French industrial production (only a small gain is expected in June after a 1.9% slump in May) and French budget balance (6:45 GMT). No critical debt auctions are scheduled.
Britain will release PPI figures at 08:30 GMT – the data may affect EUR/GBP. GBP/USD recoiled down from 100-day MA at $1.5685.
Treasury 2-year note yields touched 0.28% yesterday, the highest since July 6. Spanish 10-year yield is little changed to the downside at 6.85%.
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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: $1.2200, $1.2400, $1.2425, $1.2450;
GBP/USD: $1.5825;
USD/JPY: 77.50, 78.50, 79.00, 79.50, 80.00;
AUD/USD: $1.0350, $1.0550;
EUR/GBP: 0.7875.
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AUD/USD fell on China's data
AUD/USD slid from a four-month high at $1.0612 to $1.0520 levels on the back of the RBA statement and negative China’s trade balance data. Narrowed trade surplus of the second largest world economy revived talks of China’s "hard landing" and sapped demand for high-yielding assets.
As can be seen from the daily chart, AUD/USD shifted to the upper half of the upward channel, existing since June. In a medium term we expect the bullish trend to continue. However, in a near term the pair has potential to drop to $1.0475 (April 27 maximum) and to $1.0445 (July 19 maximum) support levels. On the upside resistance lies at $1.0556 (March 27 maximum), $1.0612 and at $1.0636 (March 19 maximum). The pair repulsed from a resistance line, connecting July 2011 and February 2012 maximums.
Chart. Daily AUD/USD
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EUR/USD: technical update
EUR/USD is now trading within a kind of uptrend which started to manifest itself from late July. The pair moved up with 1 or 2 strong pushes which came by the end of the week and then drifted lower. Among the fundamental drivers were Draghi’s promises (July 26) and good NFP (August 3).
The pair has good support around $1.2260 (former downtrend resistance, close to the recent uptrend support line and 100-period MA on H4 chart). 50-period MA is getting ready to intersect the 200-period one bottom-up (H4) – bullish signal. The level itself ($1.2325) acts as resistance. There’s more of resistance at the daily chart (50-day MA at $1.2400). Also note that there may be quite many sell stops set below $1.2240.
Analysts at Commerzbank think that the recent move higher was an ‘a-b-c’ correction (Elliott Wave Theory). In their view, if EUR/USD goes under $1.2214, it will slide to $1.2042 (July minimum) and then to $1.1876 (2010 minimum).
Chart. H4 EUR/USD
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JPMorgan: bears on NZD/CAD
On Friday NZD/CAD dropped to 0.8030 levels, demonstrating a four-day decline. The cross broke below the 200-day MA and the uptrend line that connects the lows on May 23 and July 25.
According to specialists at JPMorgan, after breaking these important support levels NZD/CAD may fall to 0.7981.
Chart. Daily NZD/CAD
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