FBS.com - Daily/Weekly Analysis / Market News

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New Zealand’s dollar keeps rising versus its US counterpart continuing its 6-week advance: kiwi has already strengthened from December 15 minimum at $0.7460 to the levels above $0.8200.

The Reserve bank of New Zealand decided this week to leave the rates unchanged at 2.50%, while the Federal Reserve pledged to keep borrowing costs at the record low between 0 and 0.25% until late 2014.

New Zealand posted today its first trade surplus in 5 months: the nation’s exports exceeded imports by NZ$338 million ($278 million) in December, while the economists predicted a NZ$50 million deficit.

Specialists at Commonwealth Bank of Australia underline that they are seeing ongoing offshore demand for kiwi dollars. In their opinion, New Zealand’s economy is going OK, and certainly some of the individual sectors of the country are doing quite well.

Analysts at Westpac believe that NZD/USD may reach $0.8300 in the near term on positive global risk phase. However, the specialists underline that in the longer term they aren’t yet ready to abandon the view that NZD hits $0.7000’s this year.

Strategists at Barclays Capital don’t see any signs of the top, so the pair, in their view, may retest $0.8345. According to the bank, support is situated at $0.8120.

Never the less, it’s necessary to note that 14-day RSI is in the 76 zone, over the 70 level that signals an asset’s price may have risen too quickly. As a result, analysts at Standard Chartered think it’s natural to assume that there will be a period of consolidation. Strategists at Deutsche Bank also think that New Zealand’s dollar is now a bit overvalued and that its fair value lies at $0.7600.

Specialists at Forecast Pte recommend selling Aussie and kiwi on the rallies reminding about the ongoing concerns over Greece.

Chart. Daily NZD/USD

Comment here http://www.fbs.com/analytics/2012-01...rsus-greenback

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Analysts at Deutsche Bank claim that in the near term the Swiss National Bank may start aggressive sell-off of Swiss franc versus the single currency trying to protect the floor for EUR/CHF.

The specialists warn that the SNB’s intervention may occur any day. In their view, if Swiss monetary authorities act aggressively, investors will seek to sell franc in anticipation of central bank intervention.

The pair EUR/CHF is trading within a very narrow range just below 1.2100 down from December maximums in the 1.2445 zone.

Chart. Daily EUR/CHF

Comment here http://www.fbs.com/analytics/2012-01...ervene-any-day

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The EUR/USD is currently trading in the $1.3100 area, down from this year’s maximum at $1.3184.

The negotiations between Greece and its private creditors continue. The nation needs to make massive debt repayments in March, so it needs to make a deal soon. According to Olli Rehn, EU economic and monetary affairs commissioner, the deal will be likely at last reached at the weekend.

Today euro’s advance stalled on the concerns about another European economy – Portugal. The markets worry that the country may follow Greece and seek another bailout. Yields on Portuguese government bonds renewed historical maximums – the 10-year yield passed yesterday above 15% level (today the yield is just below this mark).

Analysts at ING warn that Portugal may trigger euro’s decline in February. The troika will be reviewing Portugal's adherence to its bailout package, while bond investors are already pricing in Portuguese debt’s restructuring. The specialists recommend selling euro at $1.3130/50 expecting it to break of channel support at $1.3020.

Another blow for single currency dropped after US advance GDP disappointed the market: American economy grew at a 2.8% annualized rate in the fourth quarter below the expectations of 3%-growth.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-01...ebound-stalled

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The single currency declined versus the greenback ahead of EU summit later today. The European leaders meet in Brussels to make the final amendments to the deficit-control treaty and endorse the statutes of a 500 billion-euro ($659 billion) rescue fund to be set up this year.

According to Financial Times, Greece’s finance minister Evangelos Venizelos rejected a German plan for the euro zone to impose to create a European Union “budget commissioner” with the power to veto Greek tax and spending decisions, saying it would improperly force his country to choose between “financial assistance” and “national dignity”.

At the same time, euro found some support on the speculation Greece and its private-sector creditors will reach an agreement on a debt-swap plan this week.

AUD/USD fell as Fitch Ratings placed Australia's four biggest banks on credit watch with negative outlook, though it’s necessary to note that the move only brought Fitch in-line with other major ratings agencies.

In addition, many experts expected the People’s Bank of China to reduce reserve requirement ratio this weekend at the end of the New Year holiday but Chinese monetary authorities didn’t loosen monetary policy. If the PBOC cut RRR, this would encourage spending and boost demand for commodities.

Important events today:

• EU Economic Summit;
• Italian will sell debt maturing in 2016, 2017, 2021 and 2022. On January 27 Fitch ratings lowered the ratings of Italy, Spain, Belgium, Slovenia and Cyprus, saying they lack financing flexibility in the face of the regional debt crisis.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-01...e-ahead-summit

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Loonie and other commodity currencies

Many experts think that Canadian dollar will outperform Australian and New Zealand’s dollars against their American counterpart. The explanation of this assumption seems to be simple enough: economic growth of the United States, Canada’s main trading partner (about 75% of Canadian exports go to the US) is gaining pace, while the growth of Chinese economy, Australia’s main trading partner (about 25% of Canadian exports go to China) is slowing down.

According to Bloomberg’s purchasing power parity analysis, Australian currency is overvalued by 28.6% against USD, while Canada’s dollar is undervalued by 6.2%.

The correlation between the currencies which tend to trade in tandem with stocks and commodity prices is declining: CAD weakened by 2.3% in 2011, while Australian and New Zealand’s currencies finished the year almost unchanged.

Canada’s positive economic outlook

Canadian growth data seems optimistic enough: leading economic indicators gained in December for the sixth month in a row, while the nation’s GDP added 2.7% in October from a year earlier (US economy increased in the fourth quarter by 2.8% y/y). The odds that the Bank of Canada will loosen its monetary policy declined. In addition, Canada’s trade balance switched to surplus of C$1.07 billion in November due to the increased exports of energy and automobiles.

Data from Canadian Imperial Bank of Commerce shows that the demand for Canadian securities more than doubled last year from 2008’s record C$11 billion. Strategists at Nomura Securities have found out that for every C$10 billion of net investment into Canada’s bond market, loonie strengthens by 0.7% versus the greenback.

USD/CAD prospects

At the end of last week loonie reached the parity versus the greenback for the first time in almost 3 months. On January 26 the pair USD/CAD declined to 0.9980.

Analysts at RBS claim that US economic outlook looks reasonably good and that has not yet been reflected in Canadian dollar’s rate. In their view, the currency is attractive because it hasn’t run up as much as some of the other commodity currencies.

Economists at UBS are positive on loonie in the longer term. At the same time, the specialists warn that the problems in the euro area and Iran may worsen risk sentiment and make USD/CAD return to 1.04 before starting to decline.

However, not everyone believes in loonie’s appreciation. Canadian banks, for example, aren’t bullish on the national currency. Toronto-Dominion Bank, the most bearish, expects loonie to weaken to C$1.09 per US dollar, while Bank of Nova Scotia, the least bearish, thinks that Canadian currency will decline to C$1.02 per dollar.

Chart. Daily USD/CAD

Comment here http://www.fbs.com/analytics/2012-01...-and-forecasts

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Analysts at UBS note that last week we saw an improvement of the market’s risk sentiment due to stronger-than-expected readings of some key euro zone’s indicators promises of the deal between Greece and the private creditors, successful bonds and T-bill auctions in peripheral euro zone debt markets (except worried about Portugal). In addition, the Fed decided to leave the interest rates at “exceptionally low” levels until late 2014 and indicated that further quantitative easing is possible if US economic fundamentals worsen.

All that had negative impact on the greenback. Analysts at UBS, however, claim that as US GBP gained 2.8% in the fourth quarter on the annual basis after adding 1.8% in the previous 3 months (revised down), QE3 seems unlikely. As a result, the specialists think that the dovish stance of the Fed may be already priced in the greenback’s rate, so one shouldn’t become bearish on American currency.

The specialists advise investors to pay attention to Ben Bernanke’s testimony to Congress on February 2.


Comment here http://www.fbs.com/analytics/2012-01...t-decline-much

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European leaders met in Brussels on Monday to discuss the region’s debt crisis and other issues.

Analysts at UBS claim that the lack of positive surprises at yesterday’s EU summit may lead to further disappointment of the market. In their view, “the positive news flow markets have enjoyed since the beginning of the year is proving hard to sustain and there will be far bigger challenges up ahead”.

Euro zone’s future actually seems quite challenging: Britain’s Prime Minister David Cameron and French President Nicolas Sarkozy disagree on everything from the new treaty on tighter fiscal rules – which only Britain and the Czech Republic of the EU's 27 countries won't join – to a financial transactions tax and single EU patent and industrial policy, reports Reuters.

Among other sources of tension – the dissatisfaction of Poland and other several east European countries which aren’t fully included in euro zone summits (Poland. Hungary, the Czech Republic and Slovakia aren’t the members of the currency union, but they "don't want to see Europe divided" and intend to attend all EU-17 meetings) and concerns of Spain and other peripherals on the negative effects of severe austerity measures they have to conduct (Spain is tasked with reducing its budget deficit from 8% of GDP to 4.4% – the target almost impossible to reach for the stumbling economy).

European finance ministers are meeting on February 12-13.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-01...stuck-tensions

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The single currency is trading today on the upside versus the greenback on the hopes for a Greek debt restructuring deal as the nation’s Prime Minister Lucas Papademos said that “significant progress” in talks had been made.

Resistance for EUR/USD lies at $1.3244 (38.2% Fibonacci retracement of the euro's decline from October to January). Analysts at BNP Paribas claim that if the pair manages to overcome this level, it will rise towards $1.3500 on the short-covering. The specialists note, however, that such outcome will be possible only if Greece reaches the ultimate agreement with its private creditors.

In addition, it’s the end of the month, so the managers may sell UD dollars to adjust their portfolios.

At the same time, bear in mind that the Greek debt talks have yet to be resolved and the market seems really worried about Portugal’s future.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-01...omments-eurusd

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At the end of last week the greenback hit the parity level versus its Canadian counterpart for the first time in 3 months.

Bearish view

Analysts at Morgan Stanley believe that USD/CAD will breach the 200-day MA in the 0.9955 area and become vulnerable for a decline to 0.9835.

Bullish view

Strategists at Brown Brothers Harriman, however, note that the pair has been declining for 3 consecutive weeks and say that technical indicators show that the downside momentum for the pair has started weakening. In their view, the pair will be able to bounce by 1% to 1.0135 and then probably to 1.0250/80.

Chart. Daily USD/CAD

Comment here http://www.fbs.com/analytics/2012-01...s-or-downwards

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The single currency has been strengthening so far even without the resolution of the Greece’s negotiations with its private creditors.

Analysts at RBC Capital Markets think that when Greek debt deal is reached, we won’t see much of euro’s advance as most of the good news for EUR is already priced in. In their view, austerity measures will cause severe slowdown of the region’s economy putting euro under negative pressure.

The specialists propose going short on EUR/GBP at 0.8450 stopping at 0.8625 and targeting 0.8100. According to RBC, British economic outlook seems better than the euro zone’s one as the economists expect UK GDP to gain 1% this year, while the European economy will likely stagnate.

Chart. Daily EUR/GBP

Comment here http://www.fbs.com/analytics/2012-02...dy-priced-euro

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Analysts at Nomura claim that as the US and European macroeconomic data has so far improves reviving global market’s sentiment, negative risks for the euro area subsided. As a result, the bank revised up its currency forecasts.

The specialists expect EUR/USD to trade at $1.20 by the end of the second quarter, at $1.23 by the end of the third quarter and finish 2012 at $1.25.

In their view, the pair USD/JPY will end Q2 at 80 yen, Q3 as well at 80 yen and Q4 at 81 yen level.

Nomura thinks that AUD/USD will reach $1.05 by the end of Q2, $1.07 by the end of Q3 and finish 2012 at $1.08.

Chart. Daily USD/JPY

Comment here http://www.fbs.com/analytics/2012-02...yen-and-aussie

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As Greece is trying to reach agreement with its private creditors, the market became worried about the situation in Portugal.

Analysts at Westpac don’t think that Portugal is an immediate concern, though they admit that one has to be cautious about that. In their view, by the middle of the year the discussion about whether this nation will need the second bailout like Greece will be heating up.

For now, the specialists say that it Greek deal is made and EUR/USD rises to $1.3400, one has to sell the single currency. At the same time, the bank underlines that the uncertainty surrounding the Greek negotiations and the prospect of the Fed’s Chairman Ben Bernanke’s testimony on Thursday makes it hard to trade EUR/USD, so one may better sell Australian dollar versus New Zealand’s dollar at 1.2930 stopping at 1.3115 and a targeting 1.2650.

Westpac expects the Reserve bank of Australia to cut interest rates new week. In addition, “there has been renewed interest over the weekend of sovereign wealth funds buying kiwi assets”, say the analysts.

Chart. Daily AUD/NZD

Comment here http://www.fbs.com/analytics/2012-02...ac-sell-audnzd

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Japanese yen keeps strengthening versus the greenback for the 6th day in a row.

The market's speculating about potential Japan’s currency intervention and further monetary easing by Bank of Japan – this talk may provide USD/JPY some support keeping it from falling much below 76 yen.

BOJ Deputy Governor Hirohide Yamaguchi repeated today that Japanese central bank is ready to act as the European debt crisis still poses a high threat to the global markets and economy.

The nation’s Finance Minister Jun Azumi and Economy Minister Motohisa Furukawa spoke about the necessity to overcome deflation. Azumi underlined that “speculative moves are increasing in the market and we can’t overlook them” signaling that the Federal Reserve is partly to blame for yen’s recent advance.

Strategists at Bank of America Merrill Lynch think that Japanese monetary authorities may intervene if USD/JPY falls below 75 yen in order to save the national exporters. Last year Japan sold 14.3 trillion yen ($187 billion).

Never the less, analysts at JP Morgan believe that yen-selling intervention is highly unlikely even if the pair renews the record minimums as the United States strongly criticizes Japan's unilateral interventions.

At the same time, Nomura Research Institute argues that Japan has to abandon the intervention approach as stronger yen makes lower the cost of fuel imports – a very important expense item for Japan given its current nuclear capacity issues.

Chart. Daily USD/JPY

Comment here http://www.fbs.com/analytics/2012-02...l-intervention

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The negotiations between Greece and its private creditors are still going. On January 31 Greek Prime Minister Lucas Papademos claimed that the nation will try to make the agreement reached by the end of the week.

Bloomberg reports that there’s speculation that Athens managed to persuade bondholders agree to lower coupon on the new 30-year securities from 4.25% to 3.6%.

The hopes of soon Greek deal allowed the single currency to gain despite all the worries about the euro zone’s future. At the same time, many experts say that when the deal is actually reached, one should sell euro.

Analysts at BMO Capital claim that the Greek negotiations could continue into March, when Greece has a big bond payment due. The specialists are also deeply concerned about Portugal’s fate. The yield on the nation’s 10-year bonds is above 15% after Monday’s peak of 17.4%.

According to BMO, investors should sell EUR/USD at $1.3185 with stopping at $1.3285 and targeting $1.2885. Those investors who would rather wait for a potential rise on news of a Greek deal can just adjust the trade levels to reflect the same 3:1 ratio of target to stop, says the bank.

Analysts at TD Securities point out at the risk of euro’s decline. Bank of New York Mellon thinks the success of the Greek deal is already prices in euro’s rate and there won’t be much of an advance. Westpac keeps expecting move up to $1.3400 to sell there.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...eady-sell-euro

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Analysts at Morgan Stanley lowered their forecast for EUR/USD’s minimum this year from $1.20 to $1.15.

The specialists note that ECB’s expanded its balance sheet and expect more easing from the central bank.

“We believe that the relative performance of money multipliers will be a significant driving force for currency markets in the coming year. We see the ECB liquidity as a negative for the EUR,” said the economists.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...urusd-forecast