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"Deutsche Bank: USD may remain strong in medium term"(2012-06-21)

Deutsche Bank: USD may remain strong in medium term




Analysts at Deutsche Bank don’t think that the extension of the Fed’s Operation Twist program would have much negative impact on the greenback.

The specialists say that in the short-term revived risk sentiment will make investors go short on US dollar versus its Australian and Canadian counterparts. In the medium term, however, American currency “has nothing to fear from balance sheet neutral actions like Operation Twist.” In addition, if lower long term rates boost commercial lending and borrowing, US economy will benefit. “Operation Twist has been associated with lower long-term rates, and a flatter yield curve that is generally consistent with USD strength.”

Operation Twist is a program under which the Federal Reserve is selling short-term debt and uses the money to purchase longer-term one.

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Monday, June 25: economy and currencies
(2012-06-25)

Monday, June 25: economy and currencies





EUR/USD weakens on Monday ahead of the Italy’s and Spain’s debt auctions scheduled on Tuesday. Spain is to sell 3- and 6-month bills tomorrow, while Italy will auction inflation-linked securities maturing in 2016 and 2026, as well as up to 3 billion euro in zero-coupon bonds. At the end of the last week Spain’s bond yields declined to 6.38% after overcoming the critical 7% level. Investors fear that the euro zone’s crisis will contaminate bigger economies. The EU leaders meeting in Brussels on June 28-29 is likely to become one of the most important events of the week: politicians will discuss measures towards a regional banking union, tight fiscal integration and the possibility of a debt redemption.

The MSCI Asia Pacific Index (MXAP) of shares slid 0.3%: the market switched into a risk-off mode with an increased demand for safe-havens. AUD/USD and NZD/USD fell on speculation the euro zone’s borrowing costs will continue to grow. USD/JPY demonstrates a downward movement after three days of a consecutive growth.

Event to watch today: the US new home sales in May are expected to climb to 347K from 343K in April.

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"Key options expiring today"(2012-06-25)

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: $1.2500, $1.2580, $1.2650, $1.2700;

USD/JPY: 79.00, 79.50, 80.25, 80.35, 80.50;

GBP/USD: $1.5600, $1.5800;

AUD/USD: $0.9850, $0.9965, $1.0030, $1.0200;

USD/CAD: 1.0110.

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"Key options expiring today"(2012-06-26)

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: $1.2450, $1.2500, $1.2525, $1.2675;

USD/JPY: 79.25, 79.50, 80.00, 80.50;

GBP/USD: 1.5600, 1.5650;

AUD/USD: $0.9975, $1.0000, $1.0050, $1.0200;

USD/CHF: 0.9650.

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"Commerzbank: comments on EUR/USD "(2012-06-26)

Commerzbank: comments on EUR/USD




Technical analysts at Commerzbank expect the single currency to consolidate versus the greenback in the near term. In the longer run, however, the outlook for EUR/USD remains bearish.

The specialists underline that euro failed to make a sustainable break above $1.2746, 38.2% Fibonacci retracement of the entire move seen this year, so its short uptrend is over.

According to the bank, EUR/USD will slide below $1.2435 (June 8 minimum) to $1.2288 (June 1minimum). Commerzbank says that resistance for the pair lies at $1.2583/1.2610 (June 22 and 13 maximums) and $1.2746.

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"Westpac: trading USD/JPY this week "(2012-06-26)

Westpac: trading USD/JPY this week




Japan will release CPI report on Thursday. According to consensus forecast, the nation’s core CPI may have risen by only 0.1% y/y in May or even stayed flat compared with the 0.2% y/y increase in April. Tokyo core CPI has been posting negative readings since the short respite last summer.

Analysts at Westpac claim that if core CPI comes in stronger than expected, the Bank of Japan will leave policy unchanged. In this case it would be wise to sell USD/JPY. However, if consumer prices are lower than expected, one should do quite the opposite thing as the possibility of more easing from the BOJ will increase and yen will get under bearish pressure.

Since the specialists think that the second outcome is more likely, they recommend buying the greenback on the upside breakout at 80.50 stopping at 79.70 and targeting 83.00. According to Westpac, “80.50-80.60 area is the top of a trend line, and if we break, it will break big.”

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"USD/CAD: technical comments"(2012-06-26)

USD/CAD: technical comments




The USD/CAD pair trades sideways for a third consecutive day consolidating between 1.0250 and 1.0300. Today the greenback's trading on the downside.

This week the Canadian dollar will depend on the news from euro zone and on the overall market sentiment, which are expected to be negative. In a short term analysts at BMO Capital forecast the cross to go up and to trade in a range of C$1.0250-C$1.0400. It makes sense to sell the Canadian dollar at current levels, targeting at C$1.0400 and with a stop at C$1.0200.

On the other hand, the US modest recovery and the stable domestic situation may push the Canadian dollar up. On Friday GDP and raw materials price index releases may support the CAD – the forecasts are rather positive. If the pair breaks below the C$1.0240 support, a further decline to C$1.0200 and C$1.0160 will become likely.

Support:
1.0240 (June 22 minimum);
1.0200 (38.2% Fibonacci retracement from a May rally);
1.0160 (June 20 minimum);
1.0123 (50% Fibonacci retracement);
1.0100 (psychological level).

Resistance:
1.0292 (23.6% Fibonacci retracement);
1.0320 (June 25 maximum);
1.0382 (June 6 maximum);
1.0400 (psychological level);
1.0440/45 (June1, 4 maximum).

Chart. H4 USD/CAD





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"MIG Bank: trading EUR/JPY"(2012-06-26)

MIG Bank: trading EUR/JPY




Currency analysts at MIG Bank note that EUR/JPY tried to recover from 95.56 (June 1 minimum).

The specialists say that the individual outlook for the USD/JPY and EUR/USD shows that the prospects for EUR/JPY are negative. If the pair breaks below 98.54, then the levels around 100.95 will be regarded as lower maximums.

According to the bank, it will be possible to say that the major minimum has been formed only if euro rises above 102.13 (May 22 maximum). In such case the single currency will get chance to rise to 104.62 (100-day MA) retracing decline from 111.43 (March 21 maximum).

The bank proposed the following trading strategy: place sell limit at 100.05 targeting 99.05/95.50/90.00 and stopping at 101.05.

Chart. Daily EUR/JPY





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June 27: economy and currencies
(2012-06-27)

June 27: economy and currencies





The market’s in the uncertainty stalemate ahead of EU summit on June 28-29. Investors seem very cautious and are reluctant to make any wagers.

Commodity currencies are trading on the downside. Yesterday GBP/USD managed to rise above Friday’s maximums to print daily highs at $1.5650, but failed to sustain gains above and now trades below it. Despite the political issues in Japan yen will be likely driven by the global risk sentiment these days. EUR/JPY is staying close to the opening price of 99.30 after hitting yesterday 2-week minimum at 98.74 yen. USD/JPY edged a bit higher after 2 days of declines staying in the 79.55 area, above support at 78.60. Equities in Asia managed to hold their ground: Japan’s Nikkei Stock, Australia’s S&P/ASX 200 and South Korea’s Kospi rose by 0.46%, 0.74% and 0.06% respectively.

As for EUR/USD, it’s just below magnetic $1.2500 level. Yields on Spanish and Italian bonds rose at short-term debt auctions on Tuesday, reflecting investors’ doubts about the ability of the EU leaders to come up with any breakthrough agreements on a forthcoming summit. The market needs rapid actions, but even if some key decisions will be made on a summit, their implementation takes time. European Council President Herman Van Rompuy on Tuesday released a report on a closer fiscal and banking union, planning a euro zone treasury that would issue common debt in the medium term. Meanwhile, the German Chancellor, Angela Merkel, told German law makers yesterday that there would be no shared liability for debt "in her lifetime". With regard to Merkel’s inflexibility, Egan Jones, the small UK-based rating agency, downgraded Germany from AA- to A+ with negative outlook. Greece also should be kept in mind: Greek center of Planning and Economic Research (KEPE) expects the national economy to contract by 9.14% in Q3.

As a result, some analysts claim that what we see today may be calm before the storm, so be prepared and don’t say we didn’t warn you.


Events to watch today:

Germany: Preliminary CPI in June is forecasted to remain unchanged after a 0.2% decline in May.

US: A bunch of positive US data is expected to be released. Core durable goods orders, leading indicator of production, are expected to go up in May by 1.0% m/m compared with a 0.9% decline in April, what will be a positive sign for the economy. Durable goods orders (including transportation items) may increase by 0.5% after a remaining flat in the previous month. Pending home sales in May are to increase by 1.3% m/m vs. a 5.5% drop in April. However, the confidence in the stability of the US housing market is still weak.

Japan: Retail sales in May are likely to increase by 3.1% y/y after a 5.7% growth in April.

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Zerohedge: EUR/USD and CB balance sheets
(2012-06-27)

Zerohedge: EUR/USD and CB balance sheets



Analysts at Zerohedge, US financial blog, point out an interesting thing about EUR/USD.

The European Central Bank announced yesterday that in the past week its balance sheet increased by 31 billion euro to a new all time record maximum of 3.058 trillion euro due to the increase in the main refinancing operations (MRO). The Federal Reserve’s balance sheet, on the other hand, continues to be flat, or is even modestly declining.

The authors of the blog claim that EUR/USD moves have been based upon balance sheet correlation. However, in recent months this trend got broken as the markets were on the constant guard of more QE from the Fed. Now the fair value of the pair, according to this method, is at $1.1600. Look to the chart below which is the perfect illustration of this relationship.

Zerohedge points out that there are 2 possible scenarios here.
1. If the Fed keeps refraining from further stimulus and the ECB will do all the unsterilized intervention, EUR/USD will continue its way down.
2. If the Fed announces large-scale asset purchases, EUR/USD will surge by at least 400 pips.

“Place your bets,” the bloggers say.

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