FBS.com - Daily/Weekly Analysis / Market News

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The lack of agreement between Greece and its creditors is weighting on the rate of the single currency. The weekend approaches, but the uncertainty remains strong.

Analysts at Mizuho claim that Greek creditors have no incentive to voluntarily agree on a debt write-down, so it would be very difficult for the nation to reach the deal with the bondholders. The specialists say that EUR/USD should fall below $1.20.

The single currency may show the weekly decline as it’s trading in the $1.3150 area, below Monday’s opening at $1.3222.

Analysts at RBC Capital Markets think that the downtrend will become evident if euro closes the day below $1.3028 (February 1 minimum). That would mean that the pair has topped and will be targeting $1.2875. On the upside, the upward move will be confirmed by the pair’s close above $1.3220. In this case, EUR/USD will head to $1.3291 and then to $1.3469.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...ek-uncertainty

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The European currency has so far approached the critical level versus Swiss franc at 1.20. Swiss National Bank interim President Thomas Jordan expressed resolve to defend EUR/CHF floor set in September with all efforts. Here are the analysts’ comments on this issue.

Swissquote Bank: “We’re seeing a test of the floor. If European policymakers make a deal, get Greece the money, and if markets cheer on Monday, the SNB is going to wipe the sweat off its brow. That’s the primary determinant.” Never the less, “already there’s a feeling that the longevity of the floor is highly questionable given what we’re hearing out of Europe. There’s also a question about Jordan’s commitment to the floor. Hildebrand had become a figurehead, the guy up front and there’s a feeling of less control.”

Citigroup: “SNB will defend the floor at any cost”.

RBS: “The closer we get, the more excited markets become, and if we touch 1.20, the SNB should be ready to act. It’s obviously watching very closely.”
Standard Bank: “If the euro-franc is sitting just above 1.20 and there’s a shock within the euro zone such as a Greek pullout, the euro could easily plunge through this barrier almost before the SNB has had time to react.”

Commerzbank: “Consumer prices are 0.7% below last year's levels. Excluding energy prices the figure even reaches 1.1%. If the SNB is breaking out in a cold sweat this is more likely to be caused by concerns about deflation. The SNB would be pleased about any franc it can create by intervention.”

Chart. Daily EUR/CHF

Comment here http://www.fbs.com/analytics/2012-02...nts-snbs-floor

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US Non-Farm payrolls data for January is released today at 1:30 p.m. GMT.

Bloomberg median forecast: +140K

Reuters’ median estimate: +150K

Prior three months:

December: 200K

November: 100K

October: 110K

ADP Non-Farm Employment Change: +170K vs. +292K in December.

Initial jobless claims 4-week MA: 375.8K vs. 374K at the end of December.

Challenger January job cuts: -53.5K vs. 18-year average of -101K.

Citigroup expects NFP to add only 100K. The bank underlines that the good outcome would only reinforce the recent trend of good US data, while a weak payrolls number could signal that expectations have begun to adjust.

Analysts at Ueda Harlow think that if US labor market figures turn out to be good and stocks rise, investors will get out of the dollar because of the low rates.


Comment here http://www.fbs.com/analytics/2012-02...ary-nfp-figure

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Analysts at Bank of New York Mellon think that the dynamics of the pair EUR/USD will depend more on dollar’s prospects than on those of euro.

The specialists think that as US economic data tends to improve that will encourage global risk appetite. As a result, the greenback will be widely used as a funding currency for the carry trade: investors will borrow in US dollars in order to invest in higher-yielding overseas assets. BNY Mellon thinks that American currency will get under pressure, especially in the second half of the year.

According to the bank, EUR/USD may rise to $1.40 by the end of 2012 and maybe even to $1.45.

It seems quite unusual to read such bullish euro forecast, don’t you think?

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...orecast-really

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The Asian session was marked by the weak Australian data: retail sales declined by 0.1% in December (m/m). This increases the possibility of the Reserve bank of Australia’s rate cut tomorrow (consensus opinion). The RBA reduced borrowing costs by 25 bps both in November and December. In January the central bank didn’t meet. It’s necessary to note, though, that some economists think that the RBA may stay on hold expecting the retail banks to follow up their warnings on funding costs and not pass on the easing. Another point in favor of keeping the rates unchanged – good US labor market data released on Friday (unemployment fell to 8.3%).

The weekend came and went, but Greek negotiations aren’t over yet. Greece’s Prime Minister Lucas Papademos will once again meet private creditors today as yesterday the talks finished with several points still under discussion. Papademos said the leaders of Greek political parties had agreed on a series of primary issues, such as additional new spending cuts equal to 1.5% of GDP in 2012. Never the less, the Prime Minister’s statement does not mention anything on the proposals causing the most friction, which include a further reduction of minimum wage, elimination of the 13th and 14th months of salary, and massive lay-offs in the public sector.

The Troika – the European Commission, the IMF and the ECB – is currently in Athens to examine the country’s finance, it progress on promised reforms, and to estimate its funding needs. Jean-Claude Juncker, the Eurogroup president and Prime Minister of Luxembourg, claimed that Greek default remains a possibility. There will be labor union strikes in Greece on Tuesday.

The market’s risk sentiment is affected by the tensions in the Middle East, particularly in Syria and Iran.

EUR/USD went down below $1.3100. USD/JPY kept its advance rising above 76.50 yen.

To watch today:
• France's debt auction (plans to sell 8.5 billion euro ($11 billion) of bills.
• St. Louis Federal Reserve President James Bullard and President of the FRB of Dallas Richard Fisher speak amid the speculation that the Fed may avoid further monetary easing.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...-coming-events

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US positive labor data released on Friday triggered speculation that the Federal Reserve may avoid further monetary stimulus.

Analysts at Brown Brothers Harriman are sure that the possibility of additional QE declined. Strategists at UBS note that if US employment data remain this strong going forward, the likelihood of further Fed easing will be lower than what the market priced in after the FOMC January 25 meeting.

As a result, the greenback now may be under less pressure than it was expected earlier. Consequently, UBS thinks that the risky currencies, such as Australian and New Zealand’s dollar will be capped and won’t be able to reach 2011 maximums. Euro, Swiss franc and Japanese yen which are the candidates for the role of the funding currency will fall against US dollar. The specialists underline that the single currency will become less and less correlated with the risk-on mode of the market.

In the short term analysts at J.P. Morgan recommend selling euro versus US and Canadian dollars. The economists say that euro may gain this week if the ECB doesn’t cut rates, so they advise to watch and see if EUR/USD manages to get to $1.3200 and then go short there stopping at $1.3600 and target $1.2800.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...e3-us-declined

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The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• Euro shorts declined, but remained excessive. Net shorts account for around 158K contracts, down from the previous week’s total of 171K.
• British pound shorts fell from 31K contracts on January 24 to 26K on January 31. Sterling positions are improving for the second week in a row.
• Japanese yen net longs increased from 44K contracts reported on January 24 to 57K on January 31. Yen speculative positions are just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K.
• Swiss franc net shorts declined from 13K contracts on January 24 to 11K net short contracts on January 31. The shorts decrease for the second consecutive week.
• US dollar longs were reduced by 1/3rd but overall positioning is not yet very significant, at around 100K contracts. Non-commercial futures traders, usually hedge funds and large speculators, decreased their total US dollar long positions from a total long position of $20.09 billion on January 24 to $14.22 billion on January 31.

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound.


Comment here http://www.fbs.com/analytics/2012-02...sitioning-data

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British pound may decline versus the greenback to $1.5620/43 as the bears are currently trying to push the pair below Friday’s minimum of $1.5749. Support for GBP/USD lies at $1.5705 (February 1 minimum) and $1.5600.

The short-term outlook, however, still remains bullish. If sterling manages to get above $1.5883 (last week’s maximum), it will be able to climb to $1.6000 and $1.6165 (October 2011 high).

Chart. Daily GBP/USD

Comment here http://www.fbs.com/analytics/2012-02...chnical-levels

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Australian dollar surged to the 6-month maximum versus the greenback at $1.0809 as the Reserve bank of Australia surprisingly decided to keep the rates unchanged at 4.25%, while the market was looking forward to a cut. For now the pair AUD/USD has returned back to the levels in the $1.0780 area.

The RBA Governor Glenn Stevens noted that “with growth expected to be close to trend and inflation close to target, the board judged that the setting of monetary policy was appropriate for the moment.”

Analysts at RBC claim that the central bank “has left the door open for a rate cut going forward, but the onus is going to be on the data.” Economists at ANZ think that the RBA is showing no signs of any immediate policy easing. According to the specialists, the policy statement was neutral, while the RBA made little mention of bank funding costs and won't incline to easing unless the global outlook seriously changes.

The RBA lowered costs both in November and December by 25 basis points. The majority of the economists expected the central bank to lower the borrowing costs.

Chart. Daily AUD/USD

Comment here http://www.fbs.com/analytics/2012-02...ates-unchanged

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The single currency is under pressure versus the greenback, unable to resume recovery from January minimum at $1.2625. The pair EUR/USD has so far been consolidating in the $1.3035/1.3225 area. The bias is still bullish. On the upside, if euro rises above $1.3233, it may get to $1.3375 (December 12, 2011, maximum). On the downside, below support at $1.3075, the pair may drift to $1.2856/75 (December 29, 2011, minimum/January 2011 minimum).

Investors are worried that the Greece’s policymakers may fail to reach an agreement on terms for a second aid package, which is a condition for the second bailout. Today Greek Prime Minister Lucas Papademos will resume talks with the heads of 3 political parties in his interim coalition government. In addition, Papademos begins today a second round of negotiations with the Troika – the European Commission, the ECB and the IMF.

Analysts at Westpac think that there will be a lot of problems and shocks before the Greek situation is resolved, so they are bearish in euro. The single currency lost 4.5% during the last 3 months.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...s-seem-endless

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There are 2 things to note about Swiss franc:

1) Hopes that that Swiss National Bank lifts up the floor for EUR/CHF from 1.2000 to 1.25/3000 in order to fight deflation crushed on December 15, when the SNB left the peg unchanged.
2) The market started worrying about the sustainability of the peg after former central bank’s President Hildebrand resigned.

Strategists at UBS claim that although the SNB interim president Tomas Jordan pledged to defend EUR/CHF minimum, the central bank is under pressure due to a lot of stops placed below the threshold: if franc strengthens, it may be very difficult for the SNB to act against the market.

However, the central bank will try to do its best as its credibility is at stake, thinks UBS. The specialists think that the SNB will lift up the floor in the second half of 2012 to 1.3000. The bank recommends watching Switzerland’s CPI figures due on Monday.

Chart. Daily EUR/CHF

Comment here http://www.fbs.com/analytics/2012-02...policy-options

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Japanese yen declined versus US dollar and the single currency as the government data showed that Japan conducted stealth intervention in November in order to weaken the national currency. Stealth intervention is carried out without any official announcement from the finance ministry.

Japan’s Ministry of Finance reported today that the nation sold 1.02 trillion yen ($13.6 billion) against the dollar in markets on the first four days of November in addition to an 8.07 trillion-yen sale on October 31. Finance Minister Jun Azumi said he won’t rule out any options to curb the currency’s appreciation.

Analysts at Bank of Tokyo-Mitsubishi UFJ claim that yen’s drop reflects the increasing risks that the Japanese authorities may intervene again to make yen depreciate.

Specialists at Commerzbank think, however, that interventions won’t reverse major USD/JPY downtrend as their effect seems to be short-lived.

Chart. Daily USD/JPY

Comment here http://www.fbs.com/analytics/2012-02...ntion-november

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The Swiss National Bank’s interim president Tomas Jordan said today that the central bank will not tolerate a breakdown of the CHF 1.20 threshold.

According to Jordan, the SNB is more than ever “committed to defending the cap” and can’t allow further appreciation of the national currency as strong franc affects Switzerland’s economy. To do that the central bank is ready to buy unlimited amounts of foreign currencies. The main risks come from further escalations of the euro zone’s debt crisis.

The pair EUR/CHF is trading in the positive zone, right below the daily peak at 1.2087. Resistance for euro is found at 1.2109 (January 25 maximum) and 1.2128 (January 13 maximum). Support for the pair lies at 1.2053 (200-day MA) and 1.2028 (February 1 minimum).

Chart. H1 EUR/CHF

Comment here http://www.fbs.com/analytics/2012-02...anc-strengthen

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The European Central Bank meets this Thursday. The majority of the economists expect the ECB to keep the borrowing costs unchanged. Some specialists, however, think that the central bank may cut its benchmark rate from the current level of 1%.

The arguments for the ECB’s staying on hold: better-than-expected key economic indicators released so far in the euro zone, successful bond and T-bill auctions in Germany and peripheral nations, positive impact of ECB’s LTRO which helped to increase liquidity.

The arguments for the ECB’s rate cut: austerity measures affecting the European economy and creating the threat of the region’s recession, the expansion of the central bank’s balance sheet as a result of the LTROs, unresolved negotiations in Greece.

Analysts at UBS think that the ECB will reduce interest rates. In their view, EUR/USD will stay under pressure ending 2012 at $1.1500.

Chart. Daily EUR/USD

Comment here http://www.fbs.com/analytics/2012-02...cb-lower-rates

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The single currency surged versus the greenback setting new daily maximum at $1.3197 after Reuters reported that “Greek government is drafting agreement on bailout deal to be put to political leaders for approval later today” citing the words of the unnamed government official.

Analysts at BNP Paribas claimed that “the whole focus on austerity measures is that it’s the prerequisite for the second bailout package. It would be a step closer to everything fitting in to place. The market has reacted very positively.”

Resistance for EUR/USD if found at $1.3200 and $1.3225 (January 30 maximum).

Chart. H1 EUR/USD

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