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Commerzbank: comments on GBP/USD
British pound is strengthening versus the greenback for the 7th day in a row. It rose from $1.5820 to today’s maximum in the $1.6157 area.
The bulls got even more active after the release of UK public sector net borrowing which rose from 9.9 billion pounds in February to 15.9 billion in March. The nation’s net debt reaches 66% of GDP, the highest level since the records began.
Technical analysts at Commerzbank note that GBP/USD is facing resistance at $1.6165 (October 2011 maximum and 61.8% Fibonacci retracement of the decline in 2011 and 2012). In their view, sterling will recoil down from this level to support at $1.5984, $1.5874 and $1.5843 (200-day MA). If the pair managed to rise above $1.6167, it will head to $1.6425 (78.6% retracement of the move mentioned above).
EUR/USD: little reaction to debt auctions
Although the market had been eyeing results of the European bond auctions, we didn’t see much of a reaction to their results.
Spain sold 1.93 billion euro of 3- and 6-month bills. The yield on 3-month bills rose from 0.381% to 0.634%. At the same time, demand exceeded supply 7.6 times versus a bid-to-cover ratio of 3.5 in March. The 6-month yield rose from 0.84% to 1.58%, while the bid-to-cover fell from 5.6 to 3.3.
The Netherlands – one of the few European economies still rated AAA – sold 1.995 billion euro of 2- and 25-year government bonds, roughly in the middle of its target range, a day after Prime Minister Mark Rutte resigned in a crisis over budget cuts.
EUR/USD is little changed on the day. Resistance lies in the $1.3200/23 area. The pair remains trapped between 50-day MA on the upside and 100-day MA on the downside.
Bank of Tokyo-Mitsubishi: “There has been more chat about the resilience of the euro that's spooking some people out of playing it lower over the short-term, but there are some very significant risks ahead. As we move into May and June we could see further volatility and turmoil which we think will see the euro break below $1.30.”
Nomura Securities: “We expect euro/dollar to resume a weakening trend in coming weeks, with a break of $1.30 opening up a trading target of $1.25 within a 2-3 month horizon.”
USD/CAD: economic news, technical comments
Canadian retail sales came worse than expected declining by 0.2% (m/m) in February, while the forecast was for the indicator to remain unchanged. Core retail sales rose 0.5% vs. +0.4% forecasted and up from January’s -0.8%.
The pair USD/CAD initially rose on the news, but then began retracing down the gains as Case-Shiller HPI which in is measuring change in the selling price of single-family homes in 20 metropolitan areas also turned out to be quite disappointing: the index contracted by 3.5%in February (y/y).
The greenback will gain positive momentum if it manages to rise above 0.9921/23 (100-hour MA and 38.2% Fibo retracement of the decline from yesterday’s high. Support lies at 0.9886 (today’s minimum), 0.9879 (April 19 minimum) and 0.9864 (April 17 minimum).
All in all, USD/CAD is still in range between 0.9840 and 1.0050 within which it has been trading since the end of January. There’s a chance that the pair will retest the bottom of the range, but it will likely soon start drifting to the upper border of the band. Of course, US currency should close the week above 0.9850.
USD/JPY: trading recommendations
This week the meetings of the Fed (April 26) and the Bank of Japan (April 27) may influence the currency markets. Some analysts believe both central banks will adapt a relatively loose monetary policy to stimulate the economic growth.
However, strategists at Shelter Harbor Capita are convinced that the Fed is leading a much more hawkish policy than it pretends, pointing to recent statements by normally dovish officials.They recommend going long on the USD/JPY, entering the trade at 81.60, setting a stop at 81.20, and targeting a move to 83.00.
Analysts at UBS also advice to buy the USD/JPY on the dips, entering the trade at a current 80.00-85.00 range. They expect the pair to break the top of the range in the next three months. According to UBS analysts, the Japan's inflation in 2012 is likely to remain below the 1.0% target. Therefore, the BOJ has enough reasons to add a ¥5-10 trillion monetary stimulus on a meeting on Friday, April 27.
April 25: main events to watch
Australian and New Zealand markets closed for Anzac holiday.
Risk sentiment is on due to the news that Apple profit almost doubled in Q1.
Nikkei +0.75%, other regional markets are almost flat.
EUR/USD is almost unchanged, USD/JPY edged higher.
Events to watch today:
• Euro zone: Allotment of ECB three-month long-term refinancing operation. Following the April ECB rate decision in which the rate wasn’t changed at 1% Mario Draghi will speak and may refer to ECB’s plan to calm the markets including implementing LTRO 3 or resuming the SMP. According to UBS analysts, in order to lower the fears circling the euro zone debt situation, ECB's officials are speaking about the likeliness of new SMP. However, Germany is strongly against such a measure or another LTRO, so the ECB may use the strategy of cutting the interest rates. In general, the UBS analysts expect the ECB to remain more dovish than the Fed in 2012.
• Great Britain: The Preliminary Q1 GDP is expected to grow by 0.1%. In the Q4 2011, the GDP contracted by 0.3%.
• U.S.: A bunch of important data is expected. The Federal Open Market Committee will hand down its monetary policy decision. Members have been slightly more positive on the economic outlook; however, it is still very much in the realm of “cautious optimism”. Any discussion about the prospect of more QE will be important. Core Durable Goods Orders (the de-facto gauge of business investment) are expected to increase by 0.6% in March vs. 1.8% rise in February. 5-year notes auction is scheduled.
Bank of America: outlook for USD/JPY
According to analysts at Bank of America, the greenback will soon resume a bullish trend against the yen after a recent correction. USD/JPY declined 4% since Mid-March before gaining 1% since April 16.
In their view, the cross may go up to ¥ 84.82 or ¥ 85.45 after demonstrating ability to leap from a ¥80.28 low.
Commerzbank: EUR/USD will decline
Technical analysts at Commerzbank note that the single currency’s facing key resistance versus the greenback in the $1.3300/12 area.
The bank expects EUR/USD to slide to $1.2974/54 (February minimum and 61.8% Fibonacci retracement). There will be some support at $1.3174/73 and $1.3045.
If the pair manages to overcome resistance, it will get chance to rise to $1.3487/1.3510 (February maximums).
Analysts: outlook for GBP/USD
The British pound strengthened to a six-month high vs. the greenback before a release of GDP data on Wednesday.
According to Bloomberg survey, the preliminary GDP in Q1 gained 0.1% after shrinking 0.3% in Q4. The British economy is expected to avoid recession, reducing concerns that the additional monetary easing will be needed.
Moreover, the “dovish” MPC member Adam Posen stopped standing up for a new round of QE. The U.K. inflation unexpectedly accelerated in March for the first time in six months. Some specialists believe the BoE may stop its 325 billion pound QE program on May, 10.
GBP/USD keeps strengthening for 8 consecutive days. Today the pair trades in the $1.6159 area, facing a strong resistance at this level (a 61.8% retracement of Apr. 2011 – Jan. 2012 decline).
The EUR/GBP pair bounced away from the 19-month low at 0.8142 pounds that the cross reached yesterday. Mario Draghi’s speech pushes the common currency up.
According to analysts at Barclays Capital, EUR/GBP will decline to 0.7600 pounds in a year. They recommend selling the cross at 0.8190 pounds, targeting at 0.7800 and with a stop at 0.8270.
Westpac: bearish on euro in the medium term
Analysts at Westpac Bank believe that the elections turmoil in the Netherlands, France and Greece will make the single currency breach its trading range to the downside and make it start to “unravel quietly, certainly through the first week of May.”
According to the bank, the current band EUR/USD is trapped in is “almost frustrating”. The specialists say that it seems that “here is a barrier, some sort of physical option structure in the market that's limiting downside through the $1.30 level.” However, euro shorts will mount and once the bears push the pair down through $1.31 and $1.30, downside momentum for EUR/USD will significantly increase. Westpac says that the possibility of euro’s slide to the levels around $1.25 in the second quarter is rather strong.
GBP/USD down on UK recession
The Great-Britain has slid into a double-dip recession according to today’s GDP data release. The preliminary GDP in Q1 unexpectedly shrank 0.2% vs. a 0.1% gain expected and a 0.3% contraction in Q4. In the same tone, index of services also missed the expectations, rising 0.2% in Feb. vs. a 0.6% growth estimated.
“Abandoning deficit reduction measures would only make UK situation worse. Conditions are very tough and recovery is taking longer than had been envisaged”, George Osbourne said.
The Public Sector Net Borrowing, released yesterday, grew to 15.9 billion pounds in March vs. a 15.0 billion forecast and 9.9 billion in February. However, the U.K. inflation surprisingly accelerated in March for the first time in six months.
The GBP/USD cross fell on GDP data to $1.6086. The sterling had been rising for 8 consecutive days and reached $1.6163, the highest since Nov. 2011.
The sterling also weakens against its other counterparts. Analysts at Goldman Sachs recommend selling EUR/GBP at current levels with a stop at 0.8250 and targeting at 0.8150.