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USD/JPY weak ahead of BoJ meeting
The yen keeps weakening against most of its peers on the back of yesterdays BoJ officials’ “dovish” comments and the unexpectedly wide trade deficit.
On Wednesday the BOJ Governor Masaaki Shirakawa said in the central bank is “committed” to adding monetary stimulus. Deputy Governor Kiyohiko Nishimura confirmed that the bank is ready to implement additional easing if necessary. The next BOJ meeting will be held on April, 27.
Japan posted a trade deficit of 82.6 billion yen in March from a revised surplus of 29.4 billion yen in the previous month and forecasted 223.2 billion yen deficit.
Mitsubishi UFJ: Markets are pricing in additional easing by the BOJ. A trade deficit is a negative catalyst for the yen.
The USD/JPY trades in the 81.57 area above the daily Ichimoku cloud. The traders see resistance at 81.87 (21-day MA) and at 82.24 (Kijun-sen). A strong impulse may cause a break through 83.30 (high April 2). Support lies at 80.10 (Ichimoku cloud bottom), 79.84, 79.21 and 78.98. The cross strengthened 0.9% this week.
EUR/USD: analyzing today’s trade
German PPI rose by 0.6% in March vs. the forecast of 0.5%. The market’s now waiting for April German Ifo Business Climate index which is forecasted to decrease to 109.6 from 109.8 in March.
The single currency didn’t show significant advance on the news as traders were selling “on facts”. As technical indicators remain slightly bullish one may do buying on the dips today, though no strong growth of EUR/USD is expected. It seems wise to take profit on the pair’s advance to $1.3225.
ING Groep: if euro closes above resistance 50-day MA, it will be able to rise to $1.3265 (longer-term downtrend line). MACD (moving average convergence/divergence) rose above the signal line hinting on the possibility of euro’s advance. Support for the European currency is provided by the 100-day MA at $1.3120.
Danske Bank: buy EUR/USD in the $1.3097 area targeting $1.3213 and stopping at $1.3024.
Analysts: trading GBP/USD
According to Commerzbank analysts, the pair GBP/USD is unlikely to close the day above $1.6062/67 resistance, despite the intraday breach. The further resistance is seen at $1.6077 (high April 19), from where the cross would target $1.6170 (high Oct. 2011 and 61.8% Fib. of the 2011-2012 move). In their view, support lies at $1.5856 (low April 17), $1.5844 (55 – and 200-day MAs intersection), $1.5600 (March low) and $1.5412 (78.6% retracement seen this year).
However, analysts at Societe Generale expect the sterling to strengthen against the greenback. They recommend entering the trade at $1.6000 with a stop at $1.5800 and a target of $1.6500.
Britain’s monthly retail sales data in March grew by 1.8% vs. forecasted 0.4% growth and 0.8% decline in February.
What prospects does Spain have?
Analysts at Citigroup expect that Moody’s Investors Service and Standard & Poor’s will downgrade Spain, Italy, Ireland and Portugal within a year. As reasons for such assumption the specialists cite recession and continuous debt crisis. In their view, deficits will beat official forecasts this year and in 2013.
Spain had to pay a yield of 5.743% to sell new 10-year bonds on Thursday (up from 5.403% in January). The auction results made the experts say that the nation’s borrowing costs are too high to be sustainable in the long term, though not high enough to trigger a near-term meltdown. Reuters poll showed only a one in four chance that Spain would need an international rescue.
It seems unlikely that the increase IMF funding resources by $400 billion (249 billion pounds) which is being currently discussed in order to help bail out Spain (or Italy) will change the overall pessimism about the face of these nations which is only beginning to unfold.
The sentiment will become positive in the medium and longer term only if we get improvement of economic fundamentals, reduction of the nations’ finances and secure the banking system. As this would take time (Spanish government is projecting output to shrink by 1.7%, unemployment rate’s approaching 24%) the levels of uncertainty and volatility will remain high.
Renaissance Capital: “things will carry on until the government, in two years' time, has either proven that it is pursuing sufficient reforms so that the market is beginning to give it better yields or the population is out on the streets… Spain can survive if they push through the right reforms in the next couple of years.”
Aussie's hurt by the external risks
The Australian and New Zealand dollars keep declining: the resurgent concerns on the euro zone’s debt crisis switch the market into a risk-off mode. Aussie lost 0.5% this week, while kiwi fell by 1.5%.
According to Nomura specialists, the market is expecting bad news out of Europe. In their view, Aussie can weaken to $1.0150 (low Jan. 9) against the greenback. The IMF and the Worlds bank officials meet in Washington on Friday to discuss Europe’s financial problems.
AUD/USD is currently trading in the $1.0321 area. The pair may bounce back to $1.0400 level, the strong resistance lies at $1.0376 (200-day MA), $1.0432 (100-day MA) and $1.0479 (a 38.2% retracement from Dec.2011-Feb. 2012 move). However, if the cross breaks below the $1.0300 support, further decline towards $1.0240 (a 61.8% retracement from Dec.2011-Feb. 2012 move) in the coming sessions will be expected.
Gaitame.com: EUR/JPY technical
Technical analysts at Gaitame.com Research Institute claim that the pair EUR/JPY may have bottomed out in the near-term as it closed yesterday above the bearish candle formed on April 13.
In their view, the single currency may be heading to 109.94 (February 27 maximum). The result of such move will be the “head-and-shoulders” pattern with the top of the heat at 111.43 (March 21 maximum). If the pattern is formed, it will provide a bearish reversal signal.
USD/CAD down on CPI data
The Canadian dollar strengthens against the U.S. dollar due to March inflation figures. CPI grew 0.3% in line with forecasts vs. 0.4% in February. Core CPI increased by 0.4%.
The pair USD/CAD trades in the C$0.9922 area on Friday. This week the loonie strengthened 0.8% after the BoC Governor Mark Carney said that perhaps the economy may do without the monetary stimulus due to stronger growth and inflation. The BoC could raise interest rates from a record 1% low sooner than expected.
French elections: Hollande wins the first round, concerns on euro
Socialist Francois Hollande won the first round of French election with 28.5% of votes versus Nicolas Sarkozy who got 27.1%.
IG Markets Securities: “Hollande’s victory may mean a collapse of the ‘Merkozy’ axis and that would hamper efforts on the debt crisis.” EUR/USD may finally breach support at $1.30.
Lloyds: bond yields rose last week due to the concerns that Hollande may relax the nation’s deficit-tackling policy if he’s elected.
CBA: “European politics are going to come up in the next few weeks and add a lot of volatility to the euro.”
French Socialists are hoping to return to the Elysée Palace for the first time in almost two decades. According to survey by the Ipsos polling firm, Hollande would beat Sarkozy by 54% to 46%. The Socialist got support from the left parties in the final round.
The centrist François Bayrou remains in an influential position, but has not said yet whether he will endorse a candidate. As for Sarkozy, he will now try to attract the far-right voters by pledging to tighten border controls, tighten immigration rules and take new steps to fight crime.
The next round of the election will take place on May 6.
NZD: Key’s comments, technical levels
New Zealand’s Prime Minister John Key claimed that though the national currency’s overvalued, he wouldn't support the Reserve Bank of New Zealand intervening in the currency market. According to Key, government was doing what it can to support monetary policy by running a tight fiscal policy which removes pressure from the central bank. “Dreaming that we can somehow get the exchange rate down through intervention is la la land stuff,” said the official.
From the fundamental point, kiwi may decline this week as the RBNZ is expected to keep official cash rate at the record minimum of 2.5% on Thursday. In addition, being a risk-sensitive currency New Zealand’s dollar may be affected by the renewed concerns about euro zone’s future.
NZD/USD is trading today on the downside remaining in range between $0.8060 and $0.8320 within which it’s trading since the beginning of March. HSBC China PMI Index for April rose to a 2-month maximum at 49.1, though the reading below 50 still indicates contraction of the industry.
Support for the pair lies at $0.8117 (March 29 minimum), $0.8091 (200-day MA), $0.8062/58 (March 15, 22 minimums), $0.8050 (38.2% Fibo retracement of the advance from November to February).
Resistance is situated at $0.8198 (April 19 maximum), $0.8234/50 (April 17, 16 maximums), $0.8265 (April 3 maximum) and $0.8280/88 (April 12, March 19 maximums).
April 23-27: events to watch
Tuesday, April 24:
• Japan: 20-year JGB auction
• Australia: The Q1 CPI is expected to rise by 0.8% vs. 0.0% in Q4. According to UBS analysts, the CPI data will be close enough to RBA’s forecasts to allow the central bank to trim rates by 25 bps from the current 4.25%.
• Canada: Canada’s Core Retail Sales in February are expected to increase by 0.8%. In January the report reflected a 0.5% decline. The BoC Governor Mark Carney in his speech may give a hint on a more hawkish monetary policy: the central bank could raise interest rates from a record 1% low sooner than expected.
• Great Britain: Public Sector Net Borrowing in March is forecasted to show£15.6 billion budget deficit vs. £12.9 billion deficit in February.
• U.S.: The current expectations are that the April Consumer Confidence index may reach 70.1. New Home Sales in March may increase by 321K vs. 313K in February. However, if the number of new home sales will fall, it may further indicate a slowdown in the U.S real estate market. U.S. 2-year notes auction is scheduled.
• Switzerland: The trade surplus in March is forecasted to decline to 1.99 billion Swiss francs vs. 2.68 billion surplus in February.
• Euro zone: Spanish 3- and 6-month T-bill auction; Italian bond (CTZ, BTPei) auction.
Wednesday, April 25:
• Great Britain: The Preliminary Q1 GDP is expected to grow by 0.1%. In the Q4 2011, the GDP contracted by 0.3%.
• U.S.: A bunch of important data is expected. The Federal Open Market Committee will hand down its monetary policy decision. Members have been slightly more positive on the economic outlook; however, it is still very much in the realm of “cautious optimism”. Any discussion about the prospect of more QE will be important. Core Durable Goods Orders (the de-facto gauge of business investment) are expected to increase by 0.6% in March vs. 1.8% rise in February. 5-year notes auction is scheduled.
• Euro zone: Allotment of ECB three-month long-term refinancing operation. Following the April ECB rate decision in which the rate wasn’t changed at 1% Mario Draghi will speak and may refer to ECB’s plan to calm the markets including implementing LTRO 3 or resuming the SMP. According to UBS analysts, in order to lower the fears circling the euro zone debt situation, ECB's officials are speaking about the likeliness of new SMP. However, Germany is strongly against such a measure or another LTRO, so the ECB may use the strategy of cutting the interest rates. In general, the UBS analysts expect the ECB to remain more dovish than the Fed in 2012.
Thursday, April 26:
• Canada: The BoC Governor Mark Carney speaks.
• New Zealand: The Reserve Bank of New Zealand meets on April, 26. Last month, the RNBZ Governor Alan Bollard forecasted the cash rate to remain unchanged at 2.50% for much of 2012. However, there may be a dovish slant to the statement. The deterioration of Australia's terms of trade is suggestive of New Zealand, especially given the recent sharp drop in milk prices.
• U.S.: Unemployment Claims are forecasted to increase by 378K this week vs. 386K the previous week. U.S. Pending Home Sales in March may increase by 1.4% vs. a 0.5% decline in February. 7-year note auction is scheduled.
• Euro zone: Italian T-bill auction.
• Japan: 2-year JGB auction.
Friday, April 27:
• Japan: The Bank of Japan is seen as likely to ease its policy further at a meeting on April 27 after coming under intense pressure to help support the still fragile economy. There are widespread expectations that it increases its asset purchase fund by 5 trillion yen to 24 trillion yen. The Overnight Call Rate is expected to remain at 0.10%. The annualized Retail Sales in March may increase by 11.5% vs. 3.4% in February.
• U.S.: The U.S. reports its preliminary estimate of Q1 GDP. Aided by government outlays (military spending and less drag from state and local governments) and strong capital spending, the GDP likely to expand by 2.6% vs. a 3.0% in Q4.
• Euro zone: Italian bond (BTP) auction is scheduled. The KOF Economic Barometer, the outlook of the Swiss economy, in April may grow to 0.26 vs. previous 0.08.