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CAD may slide to a 2-year low
According to strategists at Scotia Capital, USD/CAD may surge if the volatility grows.
Analysts advise to look out for the Volatility Index (VIX), which is the key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. According to specialists, USD/CAD has chances to rise to C$1.0800 in a long tearm, because yesterday the VIX index closed at 24.49 (above the critical 23.5 level).
Economists have trimmed expectation of the Bank of Canada’s rate hikes this year as the nation’s economy is affected by weaker US data. The loonie fell on Thursday even despite the positive manufacturing and wholesales data releases. Watch Canadian CPI release later today: the pace of consumer prices’ growth is expected to decline.
SPX Volatility Index
Source: Yahoo finance
Commerzbank: comments on EUR/USD
The single currency keeps sliding versus US dollar. Technical analysts at Commerzbank note, however, that there are bids in the $1.2660/70 zone, so the bears have so far been unable to pull the pair much lower. The specialists think, however, that soon they’ll ultimately succeed and EUR/USD will drop to $1.2624/1.2530 (January minimum, 78.6% retracement of the pair's advance from June 2010 minimum to may 2011 maximum), then rebound to $1.2911/82 before another decline.
There was no significant bullish correction in the last 3 weeks, so selling on rallies remains the preferred strategy. The situation will become more neutral if euro manages to crawl above $1.2758 (May 16 maximum).
Chart. Weekly EUR/USD
Commerzbank: EUR/GBP may get higher
The latest euro’s swing down versus British pound was lasting since the end of February. This week EUR/USD tried start rebounding after the Bank of England expressed concerns connected with the situation in the euro area.
Technical analysts at Commerzbank point out that euro managed to overcome an important psychological resistance at 0.8000 – a positive signal. Moreover, there’s a divergence of the daily RSI (12) confirming the idea of corrective rebound, while MACD has crossed the signal line bottom-up on the daily chart.
The specialists note that resistance lies at 0.8090 (downtrend resistance line) and 0.8221 (April 25 maximum), while support is found at 0.7950 (May 16 minimum) and 0.7795.
Chart. Daily EUR/GBP
Nomura: fx majors amid risk aversion
According to analysts at Nomura Capital, the greenback and the Japanese yen are likely to strengthen as “safe havens” if Greek elections in June take no effect and the country exits the euro zone. In the second half of the year specialists expect EUR/USD to decline to $1.15, while EUR/JPY may fall to 80.00 yen. Nomura specialists expect GBP to remain the strongest among the European currencies.
In the risk-off market mode commodity currencies will remain under unrelenting pressure. AUD/USD is expected to trade below parity in 2012. USD/CAD may climb to C$1.05 in Q3, while NZD/USD in Q2 is likely to depreciate to $0.72, according to Nomura forecasts.
ECB is likely to launch new round of QE if debt crisis extends; the key interest rate is expected to remain at 1.00%. Specialists point that the ECB policy, based on fiscal tightening, financial deleveraging and overly tight monetary policy, is gradually pushing the euro zone into recession.
Photo: The Telegraph
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BarCap: USD/CAD made bullish reversal
Can’t stop wring about USD/CAD today. Technical analysts at Barclays Capital note that what we are seeing on the pair’s chart is bullish reversal. Look yourself: this week the greenback managed to overcome resistance of 1.0051 (the upper border of the trading range since the end of January), $1.0062 (200-day MA) and 1.0097 (7-month downtrend resistance line).
According to the specialists, resistance levels have shifted upwards to 1.0159 and 1.0319 (2012 maximum). Support is now provided by the former resistance levels in the 1.0090 and 1.0050 areas and at 0.9978 (April 23 maximum). Barclays Capital says that the bearish trend reversal will occur only if USD/CAD closed below 0.9899 (uptrend line support, see the chart).
Chart. Daily USD/CAD
May 21-25: Events to watch
Monday, May 21:
• Canada: bank holiday (Victoria Day). The day is practically empty of important economic events. As a result, traders get ready for tomorrow with the Bank of Japan in focus.
Tuesday, May 22:
• New Zealand: the release of inflation expectations data (Q1), a leading indicator of economic sentiment.
• Great Britain: Consumer Price Index (CPI) in April is forecasted to grow by 3.1% (a decline in comparison with a 3.5% growth in March, but still much higher, than a 2% BoE target). It’s possible, however, that the rate falls to 3% (the lowest since February 2010) saving the BoE Governor Sir Mervyn King from issuing the inflation letter (the letter is only required if the inflation is below 1% or above 3% and is written to explain why inflation has overshot the target). Public sector net borrowing in April may decline to minus 5.4B vs. 15.9B in March.
• U.S.: Annualized number of existing home sales – the main gauge of housing market conditions – may increase from 4.48M in March to 4.65M in April supporting the idea of the nation’s economic rebound. The labor market is America’s weakest spot and many investors go the US nowadays only because it’s better than Europe.
• Europe: consumer confidence in the euro area will likely remain low. Don’t wait for any surprises here. Spain will sell 3- and 6-month bills.
• The OECD (Organization of Economic Cooperation and Development) will release its global growth forecast.
Wednesday, May 23:
• Japan: Trade deficit is expected to decline slightly to from 0.62T in March to 0.60T in April. Positive trade balance report may support yen ahead of the BOJ announcement. The markets will be eyeing the Bank of Japan’s meeting. The benchmark rate is seen unchanged at 0.10% level, though the central bank may be forced to do more easing. If it doesn’t – well, yen will surely strengthen. For more details see our special article.
• Europe: Leaders of the EU 27 member states will assemble in Brussels for a crisis meeting. New French President François Hollande will try to push the currency union from austerity to growth promotion and make Germany agree to the euro bonds – debt issued for the euro zone as a whole.
• Great Britain: MPC meeting minutes. According to the forecasts, the MPC officials have voted unanimously to keep the monetary policy unchanged. Retail sales in April are forecasted to decline by 0.5% vs. a 1.8% growth in March – that would be a very bad sign indicating that the condition of the recessed UK economy aren’t improving at all.
• Canada: Core retail sales in March may grow by 0.6% compared with a 0.5% increase in February. The nation’s economy for now seems stable enough.
• U.S.: New home sales are also expected to increase to 336K in April vs. 328K in March.
Thursday, May 24:
• New Zealand: April trade balance is to be released (134M trade surplus in March), while the government will make its annual budget statement.
• China: May HSBC flash manufacturing PMI will be released (in April the index reached 49.3, indicating the industry contraction).
• Euro zone: According to forecasts, French flash manufacturing and services PMIs in May are likely to increase to 47.1 and 45.9 respectively (however, the reading below 50.0 still indicates industry contraction). German flash manufacturing PMI is forecasted to reach 47.2, while the services one – to decline to 51.9 from 52.2. Euro zone’s flash purchasing managers’ surveys are expected to show a 10th successive monthly decline in manufacturing output (46.1) and a fourth successive fall in services (47.2). German Ifo business climate in May is expected to go down to 109.5 from 109.9 in April, indicating that concerns of entrepreneurs have risen on the back of the extending crisis. Later in the day, ECB president Mario Draghi is to speak; his comments will be closely watched for any indication of the future possible direction of monetary policy.
• Great Britain: Britain’s revised GDP in is expected to confirm that the economy shrank 0.2% in Q4 after having declined by 0.3% in Q4 2011. The release of a preliminary GDP showed that UK is in a technical recession – a second consecutive quarterly decline. If the final GDP remains unchanged, the downward pressure on the sterling will grow. New QE is becoming more and more likely; last week a dovish inflation report was issued. The BoE Governor Mervin King sounds rather pessimistic: according to him, the euro zone is tearing itself apart.
• U.S.: Core durable goods orders in April may increase by 1.3% vs. a 0.8% fall in March. Number of weekly unemployment claims is forecasted to reach 374K after the previous reading 370K
Friday, May 25:
• Japan: Tokyo Core CPI is forecasted to decline by 0.5% in May, while national – to grow by 0.1%.
• Euro zone: GfK German consumer climate, which is an important indicator of consumer spending, may increase to 5.8 in May from 5.6 in April.
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CFTC trader positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• The net short euro position increased to 174k contracts on May 15th from the previous week’s total of 107k contracts. This is the highest level on record beating the Jan.23 level (171.3k contracts).
• The net short yen position decreased to 34.3k contracts after the previous number 41k contracts. Yen positions keep improving for a fifth consecutive week.
• The net long pound position declined slightly to 25.0k contracts following the previous total of 25.3k contracts. Pound positions reached its highest level on May 3 (30.8k contracts)
• The net short Swiss franc position fell sharply to 26.6k contracts following a total of 16.4k contracts.
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.
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: $1.2700, $1.2780, $1.2800, $1.2900 and $1.3000;
USD/JPY: 79.50, 79.75 and 80.00;
GBP/USD: $1.5785, $1.5880 and $1.5900;
EUR/GBP: 0.8000.
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Nomura: short-term economic outlook
Global:
• China‘s growth re-accelerates in the second half after a first half slowdown to just above 8%.
• Downside risks: an oil price spike; a euro-area flare up; the US end-2012 fiscal cliff effect; a China investment slump.
• Upside risks: US consumers shrug off post-crisis blues, releasing pent-up demand; oil prices drop; euro tensions ease further.
U.S.
• Healthier labor market will continue supporting a revival of pent-up consumer demand in 2012.
• Look for the FOMC to maintain its current policy for now, but to respond quickly if downside risks intensify.
• Policymakers won’t act until after the election to avert the effects of severe fiscal tightening scheduled to begin in 2013.
Europe
• Look for the European Central Bank to cut the refinance rate to 0.50% in July with risks skewed towards less and later.
• Assume the euro zone crisis will escalate and expect a new round of QE.
Asia
• Reconstruction is set to spur Japanese growth in the first half of 2012 even with slowing overseas economies.
Source: Forbes
Greece: update from the battle-front
Greece’s future remains extremely cloudy. Opinion polls differ. According to one, the distribution of votes will be the following:
28% - for Coalition of the Radical Left (SYRIZA);
24% - for conservative New Democracy;
15% - for socialist PASOK;
8% - for the Independent Greeks, a right-wing anti-bailout party;
7% - for pro-European but anti-austerity party.
According to another survey, ND is ahead of SYRIZA. New Democracy and PASOK signed Greece’s debt deal with socialist PASOK but has long pushed for a renegotiation of the terms of the agreement. Alexis Tsipras, the leader of SYRIZA, started 2-day visit to Paris and Berlin today. Yesterday Tsipras claimed that his party’s opposition to Greece’s debt deal would not mean a euro zone exit, while ND leader Antonis Samaras accused him of making empty promises.
REUTERS/Yannis Behrakis