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EUR/USD: trading week begins
On Friday EUR/USD reached a 3-week high as far as fears of a global meltdown are a little bit down. Some market participants, however, believe bond auctions in Spain and Italy on Tuesday could put a downward pressure on the European currency. Italy is looking to raise 7.5 billion euro ($9.95 billion) in debt markets.
Barclays Capital: Any sign of erosion in restored confidence for Italian and Spanish bonds is likely to weigh on the euro. In our view, the euro drops to $1.20 in 12 months because of the lackluster economic data continuing to come from Europe.
Der Spiegel reported the German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble are expected to allow a temporary increase in the euro zone’s financial “firewall”. Before that Merkel opposed to any increase, but in Berlin they say she cannot resist the international pressure indefinitely. Euro zone finance ministers are supposed to reach a decision at a meeting in Copenhagen this Friday, March 30.The expansion of the euro-zone's rescue funds could open the way for the IMF to increase its own anti-crisis firewall during a spring meeting next month.
In contrast to Europe, economic climate in U.S. is gradually improving. On Friday, however, lower than forecasted data on the country's new home sales were released (313K in Feb. versus 318K in Jan.).
The German Ifo business climate index, started to grow in November 2011, in February increased to 109.8 versus 109.6 in January. The Fed's Chairman Ben Bernanke will speak later today.
EUR/USD is now trading in the $1.3260 area. According to analysts, the support levels for the currency pair lie at $1.3190 (March 13 maximum) and $1.3178/68 (100- and 50-day MA). The resistance is seen at $1.3320 (February 9 maximum), $1.3365 (February 27 minimum).
Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
During the last couple of weeks GBP/USD was going up leaning against the Turning line (1).
Tenkan-sen (1) and Kijun-sen (2) act as support – the lines have so far crossed forming the “golden cross”, though the signal isn’t very strong as the intersection took place below the Cloud. Kumo itself keeps narrowing (4) as Senkou Span A continues moving upwards.
The chances of bulls aren’t bad: they are approaching the Cloud which is thin in that area and thus not a great obstacle. However, the prices met some resistance in the $1.5920 area (downtrend resistance line) and sterling opened this week on the downside. That’s why Tenkan-sen seems a critical level for now: if the pair fails to hold above it, it will likely slide to Kijun-sen.
Daily GBP/USD
On the daily chart GBP/USD keeps moving sideways: the pair consolidated above the horizontal Standard line (1). The bullish Ichimoku Cloud (3) stopped narrowing and began gradually widening.
Tenkan-sen (2) is slowly moving up to meet Kijun-sen (1): if the 2 lines intersect, they’ll form “golden cross” – strong bullish signal as the lines are currently above Kumo.
For now the prices enjoy strong support of both the Standard and the Turning lines. As for resistance, it’s provided by last week’s maximums and the late February/early March highs.
CFTC trader 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 March 20:
- US dollar net longs shrank by 37% (their value dropped from $19.0 to $11.67 billion);
- Euro net shorts decreased by 16%;
- Pound net shorts contracted by 62%;
- Yen net short fell by 40%;
- Franc net shorts declined by 23%;
- Aussie net longs declined by 33%;
- Kiwi’s net longs reduced by 68%.
Among forex majors only loonie showed increased net interest from investors (net longs rose by 58%).
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.
Ichimoku. USD / JPY. Week of 26-30 March
Weekly USD/JPY
As it can be seen from the chart, prices consolidate in the 82.00/84.20 area. The Tenkan-sen and Kijun-sen lines are moving horizontally, as well as the lines Senkou Span A and B. The descending Cloud narrowed, signaling that bears are losing power.
Bulls have to make a decisive spurt to reverse the current flat trend. In February the greenback managed to break through Kumo (bullish signal). However, given the fact that the prices are rather far from the support levels (Tenkan-sen and Kijun-sen lines and the upper bound of the Ichimoku Cloud), there seems to be a risk of a pullback before further growth.
Analysts advise to wait for positive signals before going long (the Ichimoku Cloud to change the color, the Turning line and the Standard line to reverse upwards).
Daily USD/JPY
According to the daily chart, dollar fell below the Turning line (1), which from now on became a resistance level. The pair’s move down turned the Tenkan-sen line horizontally. The up-directed Standard line (2) supports the prices.
As a whole, USD/JPY outlook stays positive. The bullish Ichimoku Cloud is growing quickly (3), signaling the steep upward trend started in February will continue. The currency pair may dip to Kijun-sen (2) due to retracement. However, the bulls are still expected to continue the upward movement.
J.P. Morgan: trading AUD/USD on China
Analysts at J.P. Morgan Asset Management believe that in the near term Australian dollar will weaken due to concerns about China’s economic outlook. In the longer term, however, Chinese authorities will be able to improve the situation and promote growth (China's Ministry of Commerce has recently announced the launch of the 2012 Consumption Promotion Month between April 2 and May 4).
As a result, the specialists recommend buying AUD/USD at 1.0100, stopping at 0.9875 and targeting 1.0600.
“If you hold this position over time, you make money on the interest rate differentials as well,” says the bank.
HSBC: comments on Swiss franc
Analysts at HSBC believe that the role of Swiss franc as a safe-haven has deceived markets into thinking that the demand from foreigners is the main determinant of franc’s exchange rate.
The specialists note that Switzerland's balance of payments data shows that while foreign events may drive franc, it is the response of the Swiss rather than foreigners to these developments that predominantly influences the CHF.
The bank says that it is the Swiss that who will ultimately determine the sustainability of the current EUR/CHF floor. In addition, the dynamics of the balance of payments suggest that efforts to limit CHF strength are ultimately doomed to failure. The best the EUR/CHF floor can hope to do is limit the damage.
If the world looks to be healing further and were EUR/CHF to creep up to 1.30 on its own accord the Swiss authorities should consider declaring this emergency floor as having done its job. This will then allow the CHF to eventually resume its appreciating trend albeit at a slower rate, says HSBC.
Comments on EUR/USD
Many analysts think that EUR/USD will trade sideways in range between $1.30 and $1.35.
Resistance for the pair lies at $1.3373 (76.4% Fibo retracement of the decline from the end of February to the middle of March). Support is found at $1.3189 (March 23 minimum) and $1.3133 (March 22 minimum).
On the upside the single currency will be limited by concerns about Spain’s fiscal state as the nation presents its budget plan on Friday.
Analysts at RBC also advise investors to watch out Italy’s bond auction on Thursday. The country’s authorities will offer 7.5-10 billion euro ($10-$13.3 billion) of debt.
In addition, don’t forget about the summit of euro area’s finance ministers and central bankers on Friday. There’s a lot of talk this week German Chancellor Angela Merkel no longer opposes the idea of temporarily increasing the region’s bailout funds. However, until the actual decision is made the uncertainty will remain. Traders have been disappointed with European decisions too often so far.
On the one hand, decline in Treasury yields after yesterday’s Bernanke’s comments may put negative pressure on dollar versus euro. On the other hand, concerns about peripheral euro zone’s nations could make investors get rid of euro looking for a safer currency. Isn’t it always like that with EUR/USD?
Danske Bank: sell USD/JPY
Analysts at Danske Bank recommend selling the greenback versus Japanese yen stopping at 83.25 yen.
Resistance for USD/JPY is found at 82.95, 83.25 and 83.47 yen.
Support for the pair lies at 82.29, 81.97 and 81.89 yen.
Bernanke revived concerns about QE3
On Monday the US dollar declined against the other major currencies on the back of the Federal Reserve Chairman Ben Bernanke comments. According to him, the U.S. labor market is still weak, and the recent signs of improvement may be due to statistical errors. Bernanke said that he doesn't expect the unemployment rate (8.3% in Feb.) to keep falling.
The Fed Chairman comments raised concerns about the U.S. economy prospects and increased the likelihood of a third round of quantitative easing (QE3). Analysts believe the Fed will keep interest rates near zero in 2012 to sustain recovery, so the greenback continues to decline.
Analysts’ comments
Societe Generale: QE3 is on its way or at least a very dovish stance until such a point as unemployment falls enough.
Barclays Capital: The improvement in US economic prospects has continued, but the USD remains weak. In our view, the USD will be viewed as an increasingly unattractive funding currency, compared with the JPY, EUR and CHF.
UBS: EUR/USD may rise to $1.3489, the highest since Dec. 2, after it broke the $1.3294 to $1.3303 resistance range yesterday.
Today Bernanke is scheduled to give a new lecture at George Washington University.
Will the stock market remain bullish?
More and more specialists start to think that the current rally in stocks, commodities and emerging markets could be a long-lasting one.
Last week the S&P 500 index closed above 1,400 points for the first time since the 2008 financial crisis rising by 30% from the bottom at the beginning of October (the index gained 11% in 2012). It seems that investors don’t hurry to take profits, but prefer to stay at American markets.
Goldman Sachs: “The prospects for future returns in equities relative to bonds are as good as they have been in a generation”.
Wells Fargo: individual investors have started wading back into higher-risk, higher-yield assets, including high-yield and emerging market funds. There’s an increase in demand for high-dividend-yield stocks, high-yield corporate debt, and emerging market fixed income.
Barclays Capital underlines that the prices for US Treasuries regarded as the safe haven dropped by 7.3% this year.
EUR/USD is up by about 2% by the end of the first quarter. Goldman Sachs expects euro to rise to $1.38 over the next 6 months and $1.45 by the end of 2012.
So, we see that the market was quite optimistic about US economic recovery. The main question now is whether Bernanke’s concerns will prove to be correct (read more). Another thing to worry is seasonal patterns: according to some researches, American data tends to deteriorate in spring. The market’s sentiment may change quickly enough. Still, the current situation is much less tense than in 2008 or in 2011. As the specialists at Credit Agricole say, “markets love a grizzly story, but there is no grizzly story – the bears have left the room.”