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GBP/USD ahead of BoE inflation report
GBP/USD is currently bouncing back towards $1.5600 psychological level after a fall to $1.5572 low just ahead of the BoE inflation report.
According to specialists at ING, the report is expected to be dovish. Both GDP and CPI forecasts are to be revised down, permitting the regulator to adopt more stimulus. However, a new policy easing is unlikely to happen before November, with last QE round introduced by the central bank only in July and the funding for lending scheme launched just recently.
Chart. H1 GBP/USD
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NZD/USD slid from a three-month high
On Wednesday NZD/USD slid to $0.8140 levels, demonstrating a two-day decline. On Monday the pair reached a three-month high at $0.8222.
H4 chart
NZD/USD trades above the up-directed 200-, 100- and 50-day MAs. Today the pair bounced back from the 50-period MA at $0.8122
Chart. H4 NZD/USD
Daily chart
On the daily chart we see a bullish divergence. In our view, these days kiwi’s prospects are worse than Aussie’s as NZD/USD is close to a strong resistance area.
The next resistance for the pair lies at $0.8233 (April 26-27 double top), at $0.8316 (April 13 maximum) and at $0.8469 (February 29 maximum). There is also a resistance line, connecting August 2011 and February 2012 maximums. On a downside, support lies at $0.8060 (August 1 minimum, March minimums and early July highs) and at $0.7962 (100- and 200-day MAs crossing).
Chart. Daily NZD/USD
BNZ: The likelihood of further global policy easing, a high and rising interest rate differential and buoyant soft commodity prices all speak in favor of NZD/USD uptrend. However, this week we expect some consolidation in a $0.8100-0.8245 range.
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USD/JPY’s supported by rising US yields
Everyone noticed that USD/JPY is supported by rising US yields, but will this become a trend and even if so, will it be able to ensure recovery of the pair?
Both 2-year and 10-year US Treasury yields have reached 1-month maximum amid the improvement of the market’s risk appetite. As a result, the yield spread between US and Japanese debt has widened.
Credit Agricole: “Two-year yields have jumped in recent days. As long as US yields move higher then of course USD/JPY will be under upward pressure. However, for bond yields to move higher you need to see some credible signs of U.S. recovery. But the lack of data in the coming days suggests it's not going to happen.” We’d also like to add that yen, on its part, will be supported by the repatriation flow.
Yield spread between 2-year US and Japanese bonds. Source: Bloomberg
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BOE сut growth and CPI forecasts
As widely expected, the Bank of England cut its growth forecast and said inflation will be below its target in two years as the crisis in the euro area and the U.K. fiscal squeeze weigh on demand.
The central bank sees annual GDP growth of about 2% in two years, compared with a projection in May of 2.5%. It sees CPI growth at about 1.6% by then, below its 2% goal.
Other key points:
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USD/CAD: bullish long-term bias (MIG Bank)
Technical analysts at MIG bank note that the greenback keeps sliding to 0.9954 versus its Canadian counterpart.
The specialists regard this level (support of the trend line connecting July 2011 lows and April 2012 minimums) as an important support saying that above this level the bulls will retain strength of pushing USD/CAD higher. If the pair fails to hold above 0.9954, it will slide to 0.9800. Below the latter, the outlook for USD/CAD will turn bearish.
According to the bank, in the longer-term, the ‘falling wedge’ pattern is a bullish signal.
Chart. Daily USD/CAD
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BofA: US recovery is limping
According to Bank of America, US manufacturing sector was resilient and has already reached the pre-crisis levels. However, 70% of US GDP is based on a service sector, which remains depressed. Specialists think this is the reason why the economy still remains weak and is extremely vulnerable to external shocks.
Economists point out that last year the share of manufacturing in the economy increased, but it happened not because of exceptional boom in manufacturing, but because of an exceptionally slow recovery in services.
The dynamics of the recovery of both sectors can be seen from the charts below. This revelation means that US economy faces more obstacles than one can see on the surface.
Source: Bank of Amarica Merill Lynch
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Standard Chartered: BOJ will increase APP
Analysts at Standard Chartered believe that USD/JPY will stick to the current levels. On the downside USD/JPY will be supported by the risk of the BOJ intervention. On the upside, its advance will be limited by the expectations of more QE from the Fed. The specialists expect the pair to close Q3 (September) at 79.00 and then to strengthen to finish 2012 at 82.00.
Standard Chartered thinks that the Bank of Japan will increase APP (Asset Purchase Program) target by another 5-10 trillion yen tomorrow. As the reasons the specialists cite Japan’s economic growth which is losing momentum, deflationary pressure, strong national currency, expectations of stimulus in the US and Europe. If it happens, markets will be surprised and yen will weaken, though only in the short term.
According to Standard Chartered, Japanese economy will add 2.2% in 2012 and 2% in 2013, while inflation will remain benign at 0.2% in 2012 picking up slightly to 0.3% in 2013. The bank claims that in the longer-term, “the case for more sustained yen’s weakness is building: Japan's shift away from nuclear power adds to the negative terms-of-trade and current account outlook and the nation faces substantial sovereign debt risks of its own.”
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August 9: forex news
The MSCI Asia Pacific Index (MXAP) of stocks rose for a fourth consecutive day. AUD/USD opened a new 4-month high at $1.0612 after data showed Australian labor market is strong. The number of people employed rose in July by 14K vs. expected increase of 10K. The jobless rate fell from a revised 5.3% in June to 5.2% last month. However, Aussie’s gains were tempered on the news from China.
China released a bunch of important data today: CPI dropped to a 30-month low, rising by 1.8% y/y in July (consensus: 1.7%; previous: 2.2%). PPI dropped by 2.9% (consensus: -2.5%; previous: -2.1%). According to economists, slowing Chinese inflation may offer room for further easing in Asia’s biggest economy, what will support AUD and NZD in the medium term. There are reasons to expect more loose policy in China indeed: the nation’s retail sales added only 13.1% in July (vs. consensus of +13.6%), while industrial production rose only by 9.2% (vs. consensus of +9.8%).
NZD/USD declined to $0.8130 levels. The jobless rate increased to 6.8% from 6.7% in Q1, exceeding the median estimate for 6.5%. Employment fell by 0.1% vs. a forecasted 0.3% growth. According to specialists, negative data is likely to accelerate kiwi’s downward correction.
The consensus opinion won: the Bank of Japan left its monetary policy unchanged (benchmark rate below 0.1%, asset-purchase fund at 45 trillion yen ($573 billion) and lending facility at 25 trillion yen). Japan’s machinery orders, an indicator of capital spending, rose 5.6% in June after slumping by 14.8% in May, though economists expected 11.1% gain. USD/JPY is trading to the upside fluctuating up and down on the H1 chart. The spread for 2-year notes increased to 18.4 yesterday, the highest level since July 5. The yield spread between 10-year US Treasuries over JGB widened to more than 2-month maximum.
EUR/USD is capped by the 50-hour MA at $1.2385. Yesterday the pair tested the levels below support at $1.2340. On Wednesday Toronto-based DBRS Inc. cut credit ratings on Spain and Italy. Spanish 10-year yields rose to 6.87% yesterday. German industrial production declined by 0.9% in June from May, when it gained a revised 1.7%. Tomorrow watch for French data. Soft data in the euro area hinders further advance of the single currency.
GBP/USD strengthens for a third consecutive day, while USD/CAD demonstrates a five-day drop, remaining below parity. Canada will release trade balance and housing market data later today.
Also watch US data releases at 12:30 GMT. American trade deficit probably shrank in June as cheaper oil reduced the import bill and slower global growth led to reduced demand for American-made goods. According to the consensus forecast, the gap probably narrowed to $47.5 billion, the 4-month minimum, from $48.7 billion in May. Weekly jobless benefit claims are expected to edge up to 371K from 365K in the previous week.
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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: $1.2250, $1.2280, $1.2295, $1.2300, $1.2305, $1.2310, $1.2315, $1.2400, $1.2500;
GBP/USD $1.5600, $1.5650;
USD/JPY: 78.00, 78.15, 79.10;
AUD/USD: $1.0550;
USD/CAD: 0.9975;
EUR/JPY: 97.55, 97.75, 98.00;
EUR/GBP: 0.7800, 0.7825, 0.7890, 0.7900.
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EUR/GBP: trading comments
EUR/GBP declines for a third consecutive day. The pair slid below 0.7900 after peaking at 0.7961 on Monday.
We expect EUR/GBP to continue a long-term downtrend after a two-week upward correction. The inability to overcome the 50-day MA counts in favor of a downward movement. A break below 0.7845 (23.6% Fib. retracement of a June-July decline) will signal a slide back to 0.7753 (July 23 minimum). In a longer term key support lies in the 0.7694 area (2008 minimums).
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