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"BofA: bearish on NZD/USD" (2012-08-15)

BofA: bearish on NZD/USD


According to technical specialists at Bank of America, NZD/USD may fall after descending from the top of its year-long downward range.

The kiwi broke below the important support (previous resistance) at $0.8067, confirming the slide from the top. The pair again and again repelled from this level in 2011 and 2012. Strategists expect the pair to decline to $0.7841 and then to $0.7489.



Chart. Daily NZD/USD

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"USD/JPY is up from the recent range" (2012-08-15)

USD/JPY is up from the recent range


The technical picture improved. The pair USD/JPY rose yesterday above 20-day MA and reached 1-month high at 78.93 helped by positive American data. Today the bulls pushed the pair through the resistance line at 78.75 connecting March, June and July maximums.

Commerzbank: The greenback will rise to 79.01 (55-day MA) and 79.19 (200-day MA). The pair should close above 79.19 to get chance to rise to 80.63 (June maximum) in the coming weeks. If USD/JPY fails to overcome this obstacle, it will be vulnerable for a slide to 78.03/77.90. The resistance at 200-day MA is traditionally strong.

Chart. Daily USD/JPY

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"Olli Rehn: Spain may ask for sovereign bailout" (2012-08-15)

Olli Rehn: Spain may ask for sovereign bailout


European Economic and Monetary Affairs Commissioner Olli Rehn signaled yesterday that Spain’s government is considering a request for a sovereign bailout after earlier accepting 100 billion euro of aid to help the nation’s banks, reports Bloomberg.

“The Spanish government has an open mind on this issue, but no decision has been made. We stand ready to act if there is a request,” said Rehn.

Spanish 10-year bond yields reached record maximum of 7.62% on July 24. Yesterday yields eased to 6.72%. Another euro zone’s nation, Belgium, on the contrary, sold 3-month bills at negative yield. In other words, investors paid to lend Belgium money. Rehn underlined that this is “not a healthy phenomenon”, but a “sign that the euro-zone economy is not doing well”.

Olli Rehn, EU Commissioner for Economic & Financial Affairs

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JPY: contrary prospects


The yen issue doesn’t leave us. The views, as always, differ.

Nomura says that global risk-on environment suggests a higher possibility of JPY weakness in the near future. The specialists have already proposed to buy GBP/JPY. “US yields are always one of the most important determinants for USD/JPY and yield movements ahead of the next FOMC meeting in September may increase volatility.” Tuesday’s strong retail trade figures “could also be seen as an encouraging sign of a risk rally in the near future.”

RBC reminds yen tends to strengthen in August. The specialists say that although this hasn’t happened yet, things may change. “With a heavy concentration of US Treasuries coupon payments this week repatriation flow is likely to pick up against a background of depressed liquidity, particularly so given the Obon holidays (August 11-19) in the early part of the week.” According to the analysts, USD/JPY declined by an average of 137 pips every August through 2005.

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EUR/GBP: reasons for a drop


Despite the recent bullish correction of the EUR/GBP, we see enough reasons to remain bearish on the pair in a longer term.

As can be seen from the H4 chart, last week EUR/GBP broke below the short-term bullish support line, hinting that the upward retracement is over.

What’s more, we can see a head-and-shoulder pattern with a neckline at 0.7825. This pattern marks a significant top in the market and would be confirmed by a break below the neckline.

Taking into consideration the reasons cited above, we recommend selling EUR/GBP at 0.7820 (just below the neckline), targeting 0.7760 (lowest level since August 2008) and with a stop at 0.7885 (above the right shoulder of the pattern).

From a fundamental point of view, euro zone’s debt woes are reviving with renewed vigor as the summer comes to an end. On August 20 Greece faces redemption of a 3.2 billion-euro bond held by the ECB. Note that the British pound may find support after we’ll see the first economic results of the London Olympics.

Chart. H4 EUR/USD

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"RBC: UK economic paradox" (2012-08-15)

RBC: UK economic paradox


Analysts at RBC note a strange inconsistency between the UK GDP (-0.7% in Q2) and the positive employment figures. In their view, it would be similar if the US NFP rose by 300K a month for three straight months along with the GDP contraction. However, the improvement of employment figures may be due to a short-term effect from the London Olympics.

Despite the fact that all the MPC members voted to leave the current monetary policy unchanged, many market participants still believe the BoE will opt for more monetary easing in the coming months to aid an economy struggling in a deep recession.

On Wednesday GBP/USD trades on the upside after the MPC minutes and the positive labor market data, but still remains below the $1.5700 mark. The pair remains capped in a sideways channel and below the 200-day MA resistance.

Chart. Daily GBP/USD

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US data disappoints


Why can’t US data be unambiguous? Today’s figures disappointed the market after positive data released yesterday.Lower inflation and tumbling manufacturing activity is just what the Fed has been worried about. The fig
ures increase the odds of QE3. Does anyone here want certainty at last?

US consumer prices were unchanged in July (vs. +0.2% expected). Core CPI, which excludes the volatile categories of food and energy, rose by 0.1% (vs. 0.2%) expected. Empire State manufacturing index fell to -5.9 in August from 7.4 in July, showing the biggest miss in 14 months.

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August 16: forex news

US dollar strengthened versus its major counterpart after better-than-expected industrial production data (+0.6% m/m in July). The market has started to take out a little bit of pricing for QE3 in the near term.

High-yielding currencies were also affected by negative foreign direct investment figures from China showing a decrease by 3.6% y/y. AUD/USD trades below $1.0500 mark after falling to $1.0453 yesterday. NZD/USD remains close to the key $0.8060 levels. New Zealand business manufacturing index slid to 49.4, indicating industry contraction. USD/CAD reached a new three-month low around 0.9880.

EUR/USD slid yesterday below $1.2300. Today euro revisited this area, but then dived to the levels around $1.2280. In Europe the most important publication is one of the CPI at 09:00 GMT. Spanish debt auction was canceled. GBP/USD is consolidating this week above $1.5660. Watch for UK retail sales data at 8:30 GMT.

USD/JPY managed to keep pushing higher: the pair rose above the 200-day MA as US bond yields climbed to more than 6-week maximums.

US housing data (building permits, housing starts) are released today at 12:30 GMT. Stronger than expected figures will further decrease the odds of QE3, especially after more solid industrial production reading came on Tuesday. As usual on Thursdays, watch for US unemployment claims, also at 12:30 GMT.

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"QE3: analysts' reasoning" (2012-08-16)

QE3: analysts' reasoning


The expectations that the Federal Reserve will launch QE3 as early as in September weakened after amid better-than-expected July retail sales and industrial production figures.

Standard Chartered: “We are seeing increasing signs of stabilization in the US. The U.S. improvement is in contrast to the persistent weakness elsewhere. So that's dollar positive because (interest) rate spreads move in favor of the dollar.”

At the same time, there are more data releases ahead. And in case of disappointments the economic pessimism and the talk of more easing from the Fed may return very quickly.

Mizuho: “It's too early to celebrate with both hands in the air. Corporate sentiment provides the best gauge of current conditions. You have to think about what might happen if the Philly Fed index turns out to be weak. That could change the trend again.”

Empire State manufacturing index released on Wednesday slid to -5.9. Watch for Philly Fed manufacturing index at 14:00 GMT.

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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, $1.2300, $1.2320, $1.2335, $1.2500 (large);

USD/JPY: 78.85, 78.90, 79.25, 79.50;

GBP/USD: $1.5550, $1.5730;

AUD/USD: $1.0300, $1.0445, $1.0480, $1.0510;

EUR/JPY: 95.00.

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"AUD/USD: technical comments" (2012-08-16)

AUD/USD: technical comments


AUD/USD trades below $1.0500 mark after falling to $1.0453 yesterday. The pair still remains in a correction mode. At the same time, uptrend borders are intact for now and Aussie has chances to further gains as long as it’s staying above support in the $1.0440/50 area (August 1, 3, July 30 minimums, July 19 maximum).

It makes sense to look for opportunities to buy AUD/USD at $1.0530 and higher. Note that resistance for the pair lies at $1.0600 (psychological level, recent maximums), $1.0660 (downtrend resistance line connecting 2011 and 2012 maximums).



Chart. AUD/USD

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"US Treasuries: Japan’s catching up with China" (2012-08-16)

US Treasuries: Japan’s catching up with China


For now China remains the top holder of US debt, but if both countries continue buying at their respective paces until the end of 2012, Japan will end the year with more Treasuries. Japan’s buying US dollars trying to contain yen’s appreciation.

Japan bought $10.4 billion of Treasuries in June. All in all, the nation purchased $61.3 billion of American debt in 2012. Japan’s total holdings of Treasuries account for $1.1193 trillion.

China increased its portfolio of US government securities by $300 million in June. This year’s purchases are equal to $12.4 billion. All in all, China’s holdings of Treasuries account for $1.1643 trillion.

While China’s holdings have fallen by around $143 billion in the past year, Japan has boosted its portfolio by $237 billion in the same period.

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"Analysts: comments on BoE easing prospects" (2012-08-16)

Analysts: comments on BoE easing prospects


Positive July UK retail sales figures (+0.3% vs. consensus 0.0%, June reading was revised to +0.8%) together with yesterday’s labor market data made many investors more optimistic on Britain’s economic prospects. However, specialists at ING and Rabobank still expect the BoE to continue monetary policy easing.

ING: The uncertainty over the UK data, coupled with worries about Europe and the US fiscal cliff will keep the BoE wary. We expect the central bank to introduce more stimulus in November.

Rabobank: The BoE's QE expansion is possible at the end of 2012. We acknowledge the positive UK employment and retail sales data, but on balance the UK economy is providing little cause for celebration.

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"USD/JPY needs to close above 200-day MA" (2012-08-16)

USD/JPY needs to close above 200-day MA


The greenback is rising versus Japanese yen for the fourth day in a row. USD/JPY has tested the levels above the 200-day MA for the first time since the middle of July. Today the pair renewed 1-month maximum rising to 79.36. We think that US dollar has to close today above the 200-day MA at 79.20 for the bulls to keep pushing the pair up towards 80.60 (June maximum). If this line is only pierced, the pair could drift lower aiming at 78 yen.

Here’s what other analysts say.

Standard Chartered: The greenback may rise to 80 yen in the short term.

CBA: When non-Japanese yields start rising, then you get more Japanese investors putting money offshore. This and low volatility are “very supportive of the yen’s weakness”.

Mizuho: In any case US dollar will find it tough to break above the 79.50 yen to 80.00 yen region unless there is another strong catalyst, given the potential for dollar-selling by Japanese exporters at such levels.

Chart. Daily USD/CHF

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"EUR/USD is seen under pressure" (2012-08-16)

EUR/USD is seen under pressure


The single currency keeps descending from this week’s maximum at $1.2385 hit on Tuesday. On the fundamental front European data disappointed, while American, on the contrary, were better than expected.

Investors await details on a new ECB scheme to help reduce the borrowing costs of Spain and Italy that the central bank is now considering. According to Reuters’ poll, conducted at the beginning of August, economists expect the euro zone’s central bank to start purchasing Italian and Spanish bonds in September and cut benchmark rate to new record minimum of 0.5%.

Standard Chartered: “EUR/USD is in a range for now but we still expect it to move lower in September on the prospect of more headlines out of Europe, a lot of event risk in September, and rate cuts as well. Our forecast for EUR is $1.18 by the end of the quarter.”

Nomura: According to the data, "central banks have been strongly accumulating US dollars. If this trend continues, demand for dollars will outpace that of euro, so it will be hard for EUR/USD to bounce meaningfully".

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