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RBS: still bearish on EUR/GBP
Analysts at RBS claim that the outlook for the single currency versus British pound is still extremely bearish.
The specialists point out that EUR/GBP broke lower after the period of sideways consolidation at the beginning of this year.
In the medium term for the pair is still at 0.8069. There may be corrections within the downtrend at 0.8192 (the final retracement level from the credit crunch rally), 0.8140 (August 2010 minimum and the level from which the market rallied hard back to 0.8900) and 0.8069 (2010 low and level which has been underpinning price action since then).
Banks' forecasts for FX majors
Forecasts are submitted on April 13
Source: FX Week
NZD expected to weaken
The New Zealand dollar may weaken this week because the Reserve Bank of New Zealand is expected to leave the official cash rate (OCR) at 2.5% level due to CPI forecasts.
Release of a quarterly consumer price index (CPI) is scheduled on Thursday, April 19. Economists expect the CPI to have risen by 0.6% in Q1 vs. a 0.3% decrease in Q4 2011. According to experts, the RBNZ will have little reason to raise interest rates this year. The CPI was probably driven up by an increase in the government excise on tobacco.
New Zealand's food price index (FPI) released this morning showed prices fell 1% in March vs. 0.6% increase in February, adding to evidence that inflation level is favorable.
In March Reserve Bank Governor Alan Bollard held the official cash rate at 2.5% saying the strength of the kiwi would keep interest rates lower for longer.
Analysts at Barclays Capital expect the CPI to surprise to the upside at 0.7%. Key interest rate is unlikely to be cut further, because it remains at a historic low since March 2011. Analysts expect the AUD/NZD to strengthen.
According to currency strategists at RBC, the New Zealand dollar is overbought. Moreover, they add that low risk sentiment weighs on the commodity currencies, including the kiwi. The New Zealand dollar may also be influenced by the results of the Spain bond auction held on Thursday.
However, the kiwi should benefit from China’s trading band widening, because the country is expected to reduce the monetary reserves and to increase buying of trading partner currencies, such as the kiwi and Aussie.
Euro down before Europe's data
The common currency weakened against the greenback before Europe’s data releases.
German ZEW Economic Sentiment index is forecasted to decline from 22.3 (a 21-month high) to 19.7. Spain will sell 12-month and 18-month bills today. On the back of the deepening crisis country’s borrowing costs may grow. Yields on the nation’s 10-year notes touched 6.16% yesterday, edging toward the 7% level that may require international help.
The euro’s yesterday’s growth (EUR/USD strengthened to $1.3147) is nothing but a short covering. Early Tuesday the common currency trades in the $1.3090 area. Resistance lies at $1.3147 (yesterday's top), $1.3264 and $1.3380 (April 2 maximum), while support – at $1.2994 (yesterday’s low), $1.2880 and $1.2754. Moving below yesterday’s bottom or above yesterday’s high may define a trend of the euro.
Japan pledged $60 bln to expand IMF’s firepower
Japan said today that it provide $60 billion in loans to the International Monetary Fund, which acts as a lender of last resort for governments, in order to increase the fund's financial firepower and stop the contagion with the euro zone debt crisis. Japanese Finance Minister Jun Azumi encouraged European authorities to take more action in return.
The Fund wants to boost its funding by $600 billion. However, the IMF will face serious difficulties trying to secure firm commitments at meetings of the fund, the World Bank and the G20 this week: the US has showed reluctance to find troubled economies, while such nations as China, Brazil and Russia don’t rush to give commitments either.
The IMF Managing Director Christine Lagarde claimed last week that the fund may need less money as economic risks had subsided. Reuters reports that $400-$500 billion sum seems more likely. Euro zone countries have committed about $200 billion and other European Union nations an additional $50 billion.
There was speculation that big US bank have been buying on behalf of the IMF over last 24 hours. This process may continue during the European and North American sessions.
EUR/JPY: technical levels
According to JPMorgan Chase technical analysts, the EUR/JPY is approaching to its support zone (104.25 -104 yen). On the Fibonacci chart, the 50% retracement between a January low and a March high lies at 104.24 yen. Analysts expect the currency pair to bounce from these levels.
Strategists at Jyske Bank recommend selling EUR/JPY with a stop-loss at 107.52 yen. In their view, due to strong declines on Friday and Monday this is the first significant resistance for the pair. However, on a daily Ichimoku chart resistance is seen at 106.15-106.30 levels (above the cloud). Moreover, the RSI indicates divergence. Analysts see strong support in the 103.5-104 yen area.
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: $1.3000, $1.3090, $1.3125 and $1.3150;
GBP/USD: $1.5800 and $1.5815;
EUR/GBP: 0.8200 and 0.8250;
USD/JPY: 80.50, 80.75, 81.00 and 81.10;
USD/CHF: 0.9265;
AUD/USD: $1.0200, $1.0220, $1.0285, $1.0300, $1.0310, $1.0400.
EUR/USD: updates
Europe cheered the markets up with positive data: both German and European ZEW economic survey beat expectations, while Spanish and Greek auctions were successful enough.
Spain sold 3.18 billion euro of 12- and 18-month debt out of targeted 2-3 billion euro. The yields were higher, but that wasn’t a surprise.
Euro zone’s core CPI growth accelerated from 1.5% in February to 1.6% in March (y/y), while the headline CPI added 2.7% versus the forecast of 2.6%.
At the same time, it seems that the market participants hurry to take profit. Nobody believes in euro ability to strengthen. EUR/USD posted daily maximum at $1.3172, but the retreated to the levels around $1.3145. It’s necessary to note though that the pair managed to stay above 100-day MA which is now playing the role of support.
All in all, trading is quite volatile today. Euro will get chance to rise to $1.3380 (April 2 maximum), if it overcomes the recent highs in the $1.3210 zone.
Pound up on CPI data
The cable strengthened to $1.5953 level on Tuesday after the benign inflation figures were released.
The March consumer price index (CPI) rose in line with expectations by 3.5% after increasing 3.4% the previous month, reducing concerns on further QE.
Technical analysts at Commerzbank remain bearish on the GBP/USD prospects. In their view, the pair won’t break through the strong resistance at $1.6000.
Resistance lies at $1.5985 (high Apr.12), $16000, $1.6063 (high Apr.2) and $1.6095 (high Nov.14), while support – at $1.5843 (200-day MA), $1.5836 (55-day MA), $1.5808 (low Apr.10) and $1.5801 (low Mar.26).
This week watch out for important data on claimant count, Monetary Policy Committee meeting minutes and monthly retail sales. The MPC “dove” Adam Posen will give a speech today.
Westpac: trading AUD/JPY
Analysts at Westpac Institutional Bank believe that Chinese authorities wouldn’t have widened yuan’s trading range unless they expected national economy to recover in the second half of the year.
The specialists say that in the longer Australian dollar will benefit from better economic situation in China as the 2 economies have close trading connections. In the near term, however, Aussie’s rate will depend more on the RBA’s monetary policy.
Westpac expects Australian central bank to cut borrowing costs in May, so AUD will get under negative pressure. According to the analysts, one should sell AUD/JPY around 83.50 targeting 81.20 (200-day MA) and stopping at 84.60 as Japanese yen will enjoy safe haven demand as a refuge from European woes.