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AUS/USD: mixed Chinese data, RBA’s coming
The closely watched Chinese data came mixed on Sunday: the nation’s official PMI rose from 50.6 in February to 53.1 in March. However, HSBC PMI posted the reading below 50 that indicates industry contraction. AUD/USD opened about 100 pips above Friday’s closing level, but then slid lower returning to that area.
The Reserve bank of Australia will announce its interest rate decision tomorrow. According to the consensus forecast, the central bank will leave rates unchanged at 4.25%, though today’s data may make the policymakers hesitate: TD-MI gauge showed that Australian inflation fell in March to 1.8%, below RBA’s 2% target, while the building approvals dropped by -7.8% in February (m/m).
The most likely outcome is that the RBA will stay on hold, but we’ll see some more dovish notes in the statement.
Nomura: “Support for the currency will be evident all week in the Australian dollar as shorts get taken off the table.”
Yen: volatile week ahead
Japanese yen opened the week on the down versus the greenback on the weak economic sentiment data: Tankan manufacturing index was unchanged in the first quarter from -4 at the last 3 months of 2011. The negative reading means that there are more pessimists than optimists.
Such figures encouraged the talk about the prospects of more easing from the Bank of Japan. The BOJ policy board members are set to meet April 9-10 and April 27.
However, the advance of USD/JPY stalled at 83.30 yen and the pair began once again drifting lower. Dollar’s move higher was probably constrained by the selling from exporters.
Standard Chartered: “Exporters are clamoring for a weaker yen, but the Cabinet office survey and the Tankan survey suggest you have to take some of those complaints with a grain of salt because both measures suggest Japanese exporters had adjusted to the strong yen in the low 80s.”
Trading will likely be quite volatile this week. US dollar will have support at 82 yen – the level from which it has recoiled up 4 times in March.
CFTC trader positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
•The value of the dollar's net long position rose to $19.58 billion in the week ended March 27, from $11.67 billion the previous week.
• Euro shorts grew by 6.2k to 89.1k contracts. The euro's volatility (3-month implied volatility) is at its lowest level since August 2008.
• The net short pound position declined by 4.7k contracts to 11.1k, the minimum since last September. Small longs were established (658 contracts) and short were pared by (4.1k).
• Net short Japanese yen positions jumped 41.8k to 67.6k contraction, the smallest since mid-2005. This was a function of new shorts being established (17.8k contracts) and longs being cut (24k contracts).
• Swiss franc net shorts dropped 3.9k contracts to 15.1k. Both longs and shorts decreased (5.5k and 1.5k).
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. Although the CME speculators represent a small fraction of trading in the currency markets, their trades are widely seen as typical of hedge fund investors' currency movements.
USD/JPY: analysts’ forecasts
Bullish views
UBS: as new fiscal year started in Japan, yen will lose support of the seasonal repatriation conducted by Japanese companies. USD/JPY will rise to 85 yen in 3 months. Among the factors positive for the pair there are: possibility of higher US Treasury yields in the coming months, more optimism about US economy and more easing from the BOJ. As the central bank meets twice this month, if the policymakers “decide to keep policy on hold on April 10, they can always choose to ease further on April 27,” claim the analysts.
J.P.Morgan: in the longer term USD/JPY fair value lies at 115 yen.
Bearish views
BNP Paribas: USD/JPY will fall to 80 yen in Q3 and to 78 yen by the end of 2012.
Standard Chartered: USD/JPY will decline to 77 yen in Q3 and to 74 yen by the end of 2012 as investors seek Japan’s real yields and the US recovery stagnates.
It’s also necessary to note that the BOJ has signaled that it doesn’t want the government to become dependent on it printing money. There is a limit to how much the central bank can do, so the bets on weaker yen may shrink.
Nomura Securities: yen’s decline which started at the beginning of February was caused mainly by global factors (US yields, stabilization in the euro area). Now reversal is likely, so sell USD/JPY stopping at 84.00 yen and targeting 80.00.
Standard Chartered: ECB may have to conduct another LTRO
Analysts at Standard Chartered Bank expect further contraction of euro zone’s GDP. In their view, there are 3 main concerns: austerity measures, credit squeeze and high oil prices. The specialists underline that confidence isn’t back and credit isn’t flowing into the real economy (the money, which the ECB provided the region’s banks through LTRO, hasn’t reached households and companies). The unemployment rate will likely continue to rise (10.8% in February).
The bank claims that “the ‘true’ firewall remains the European Central Bank”. The ECB’s 1 trillion for banks is “the magic number the market wanted to see.” With 2 rounds of loans committed already, “if the crisis escalates, we think the ECB will have no other option but to provide another”.
According to Standard Chartered, EUR/USD will weaken due to the growth differential between the United States and Europe. Euro will be also under pressure due to the ECB’s liquidity increase.
The outlook for RBA’s actions
The Reserve bank of Australia meets tomorrow for an interest rates decision. The majority of the economists expect the central bank to leave the rates changed. Here’s more detailed into on the issue and the expectations of future RBA’s moves.
Outcome Looking Ahead
ANZ Hold Cut in May
NAB Hold Cut in May
JP Morgan Hold Hold in 2012
HSBC Hold Cut likely in May
TD Securities Hold Two cuts in May/June
UBS Hold Hold in 2012
StanChart Hold
Westpac Hold Two cuts in May/July
Citigroup Hold Cut in May
CommSec Hold Cut likely in May
Deutsche Bank Hold Cut in May
AMP Capital Hold Cut in May
Moody's Hold Hold in coming months
Barclays Hold Expect more easing
St George Hold Cut likely in May
Macquarie Hold Cut in May
Nomura Hold Hold in 2012
RBC Capital Hold Two cuts in 2012
Goldman Sachs Hold Cut in May
RBA Hold Two cuts in May/June
RBS: trading recommendations on EUR/GBP
The RBS analysts recommend going short on EUR/GBP at current levels, targeting at 0.8000 and with a stop on a 2-day close above 0.8510.
The reason why the specialists propose such trade is that the common currency is extremely vulnerable to any market pressure. Credit spreads narrowed due to LTRO, but the market sentiment toward financials remains unchanged.
RBS: trading recommendations on AUD/USD
Specialists at RBS recommend buying the Aussie against the dollar, potentially targeting at 1.0751 and stopping at 1.0290. The support lies at 1.0337/54 and at 1.0238 levels, whereas the resistance is placed at 1.0496 (previous support, now resistance), 1.0612 (76.4% retracement of the previous range), 1.0691 and 1.0856 (2012 maximum).
According to RBS analysts, going long on AUD/USD may be one of the best trading strategies of April 2012, because the Aussie is strengthening every April at an average of circa 4%. Moreover, the slowing of a downside momentum in the MACD seems to be a positive sign.
GBP/USD: analysts’ forecasts
According to market strategists at J.P. Morgan Asset Management, nowadays the U.K. currency is on the rise due to high merger-and-acquisition activity in the country, demand for Britain's triple-A bonds, and rising stock prices.
However, analysts at Shelter Harbor Capital say from the $1.6000 level problems for the U.K. economy will start; therefore the demand on the sterling is expected to contract. Strategists recommend going short on the pound against the greenback at $1.5991 level with a stop at $1.6100 and a target of $1.5600.
Specialists at Westpac Institutional Bank also do not believe the sterling is a reliable currency today, considering the fact that two members of Britain's Monetary Policy Committee are in favor of further QE.
CMC Markets: EUR/USD, USD/CHF and AUD outlook
Analysts at CMC Markets believe that EUR/USD will fall to $1.20 over the next 12 months. IN their view, USD/CHF would rise from 0.90 to 0.92 in a year.
“There was a concern that the Swiss National Bank would not tolerate a stronger Swiss franc and that turned out to be the case.” The specialists expect EUR/CHF floor to hold in the short to medium term.
According to CMC Markets, Australian dollar is significantly overvalued and could weaken this year. “There will be further rate cuts out of Australia over the coming months because of deteriorating economic data and a possible slowdown in China.” The economists don’t mean the hard landing scenario in China, but think that demand out of China will diminish for Australian commodities and that will drive flows out of Aussie.