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USD/JPY remains under pressure
There's a talk that Japan conducted stealth intervention on June 1 to weaken the national currency and support the pair USD/JPY which spiked below 78 yen hitting fresh 4-month low at 77.64 yen. Analysts at Totan Research, however, don’t think that the nation has sold yen last week citing their analysis of the Bank of Japan’s current-account balances.
Analysts at Bank of America claim that US dollar may slide to 75.56 yen (October 31 minimum) as risk aversion will likely keep prevailing at the markets.
USD/JPY lost about 150 pips last week. The greenback managed to close last week above the lower border of the weekly Ichimoku Cloud. However, Tenkan-sen has crossed Kijun-sen upside-down - bearish signal. In addition, the prices have fallen below the 50-week MA, which is now playing the role of resistance. The daily Ichimoku chart oints at the downtrend.
At the same time, specialists at Westpac claim that “dips in the pair towards the low 78.00 region are likely to be well supported. Moreover, we are not too far away from previous intervention levels and if risk appetite does improve/stabilize we suspect the recent run of JPY strength can come to an end.” FBS thinks that the pair will have chance for recovery only above 78.72 (June 1 maximum) and 79.00.
Chart. Weekly USD/JPY
Chart. Daily USD/JPY
SocGen: forex majors in the short-term
-EUR/USD: there are offers at 1.2540/50. Focus on G7 meeting and ISM non-manufacturing PMI ahead of the ECB meeting on Wednesday. Sell EUR/USD on rallies.
-GBP/USD: UK markets still closed for the Queen’s Diamond Jubilee holidays, so sterling will remain driven by external forces today ahead of Thursday's Bank of England’s meeting.
-USD/JPY and EUR/JPY may get lower after G7 meeting.
-AUD/USD: although Aussie didn’t suffer from the Reserve bank of Australia’s rate cut as some investors feared that the central bank may reduce the borrowing costs more, the dovish RBA statement may make the pair revisit its recent minimums in the 0.9600 area after the G7 meeting.
-USD/CAD: the Bank of Canada will likely leave the benchmark rate unchanged at 1.0%. This may provide support for loonie for some time.
Image from andlestickcourse.blogspot.com
BOC may sound more dovish
The Bank of Canada interest rate decision is an important item on today’s agenda. The consensus forecast is that the central bank will leave the key rate unchanged at 1.0% without signaling higher borrowing costs in the near future as the European debt crisis is reducing global growth and demand for Canadian raw-material exports.
Analysts at RBS claim that there’s the risk that the BOC statement will be much more dovish. Note that at the end of April the BOC governor Mark Carney said that interest-rate rises may be necessary to contain inflation – today we’ll find out whether Carney’s position has changed.
According to Bloomberg calculations on overnight index swaps, there’s an 81% chance of at least one quarter-percentage point cut this year.
Such expectations made Canadian dollar weaken versus its US counterpart. The pair USD/CAD reached 6-month maximums in the 1.0450 area. Analysts at BMO think that the greenback may climb towards 1.5000 on the announcement. Technical outlook for the pair will remain bullish until it closes the day below the parity level. It would be sensible to buy USD/CAD on the bounces from support at 1.03 and 1.01.
Canadian economy in figures
GDP: +1.9% q/q in Q1.
CPI inflation: down from 3.7% in May 2011 to 2% y/y in April 2012.
Chart. Daily USD/CAD
GBP/USD: technical & fundamental comments
The pair GBP/USD has survived 5 weeks of losses from April 30 maximum of $1.6300.
British pound is currently consolidating below $1.5400 versus the greenback after losing more than 300 pips last week in the decline from $1.5690 to $1.5360.
The key support lies at $1.5267 (June 1 minimum, support from 2009). Higher sterling will be supported at $1.5320 (today’s minimum). Resistance for pound lies at $1.5416 (yesterday’s maximum), $1.5526/30 (May 31 maximum, 10-day MA) and $1.5600 (March 12 minimum).
On the fundamental basis important day for the pair is Thursday: the Fed’s Chairman Bernanke will testify after discouraging May NFP data, while the Bank of England will hold its monthly meeting. In both nations the monetary authorities may incline towards more monetary stimulus. In addition, watch UK Services PMI release.
Chart. Daily GBP/USD
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: $1.2350, $1.2400, $1.2425, $1.2450 (large), $1.2500, $1.2650, $1.2670;
AUD/USD: $0.9600, $0.9750, $0.9800;
USD/JPY: 78.25, 78.50, 80.00, 80.80;
EUR/JPY: 98.00;
EUR/GBP: 0.8060, 0.8110.
June 6: risk sentiment has improved
Yesterday’s emergency conference of G7 finance ministers and central bankers passed without big headlines: the officials agreed “to monitor developments closely ahead of the G20 summit in Los Cabos.” The market took an optimistic view thinking that the policymakers are preparing some major developments for 18-19 June 2012.
Risk sentiment improved, Asian stocks gained (MSCI Asia Pacific Index +1.2%), US dollar and Japanese yen weakened versus the most of their counterparts. The greenback was also affected as Chicago FRB President Charles Evans said that “extremely strong accommodation” is needed taking into account the poor economic data released in the US so far.
Australian GDP added 1.3% in the first 3 months of the year vs. 0.5% advance expected. AUD/USD rose by more than 100 pips. USD/JPY went up for the third day in a row as Japan’s finance minister Jun Azumi Japan’s indicated that G7 nations remain supportive of intervention to address extreme currency moves.
Important events today:
- Euro area: the ECB meeting results. The majority of experts think that the central bank will leave its benchmark rate unchanged at 1%. If the ECB does cut rates, euro will get a blow.
- US: beige book will give us more hints on the current economic conditions in the United States ahead of the FOMC meeting on June 19-20.
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Commerzbank: EUR/USD may break higher
The single currency recovered versus the greenback from June1 minimum at $1.2288 and is currently trying to overcome resistance at $1.2515 (23.6% Fibonacci retracement of euro’s decline in May, downtrend resistance).
Technical analysts at Commerzbank think that EUR/USD will break downtrend channel within which it has been trading since the beginning of last month. The next resistance for the pair will be found at $1.2624 (January 13 minimum). If euro manages to rise above this point, downward pressure will significantly subside. Note the positive signals from daily MACD and RSI.
On the other hand, the specialists warn that if EUR/USD breached support of $1.2288, it will become vulnerable for a decline to $1.2058 (200-month MA) and $1.2000 (psychological level).
Chart. Daily EUR/USD
BNP Paribas: bearish view on EUR/GBP
Analysts at BNP Paribas expect the single currency to decline versus the British pound in the medium term. The specialists think that the recent rise of EUR/GBP provides a good opportunity to go short.
According to BNP Paribas, 2 interest-rate cuts by the European Central Bank in November and December of last year have foiled euro’s value. “Further rate cuts by the ECB in the third quarter are likely to further erode the euro’s yields and drive EUR/GBP lower,” the analysts say.
The bank underlines that data from the Swiss National Bank show that reserves in pound have doubled this year. The specialists believe that such allocation strategy that could be used by other banks giving sterling more strength against euro.
Chart. Daily EUR/GBP
RBS: bullish on AUD/USD
Analysts at RBS recommend buying Australian dollar versus its US counterpart at the current levels stopping in case of the close below the 10-day MA ($0.9765) and targeting $1.0095 and then $1.0240.
The specialists give the following reasons for being bullish on Aussie: the market based around a previous minimum at $0.9667, MACD indicator gave a buy signal in overbought territory and the market has now broken both its 10- and 21-day MAs.
According to RBS, resistance levels for AUD/USD lie at $0.9861 (December 2011 minimum), $0.9934 (May 22 maximum) and $1.0000, while support for the pair is found at $0.9667 (November 2011 minimum) and $0.9397 (October 2011 minimum).
Chart. Daily AUD/USD
Will the Fed incline to more easing?
The FOMC’s meeting will take place on June 19-20. The odds that the Federal Reserve will do more stimulus increased due to the disappointing US economic data and continuing concerns about the euro zone’s debt crisis. At the same time, the Fed may refrain from active actions this month taking the wait-and-see approach in order to have better understanding of the economic situation. In addition, the proposals to add easing will surely face resistance from some Fed’s officials.
The Fed has different options:
- doing nothing and continuing to assess the economic outlook;
- more strongly signaling a willingness to act later if the outlook more clearly worsens;
- small precautionary measures like extending for a short period its Operation Twist as the $400-billion program is set to end this month (selling short-term securities and using the proceeds to buy long-term ones);
- bolder action such as launching another large round of bond purchases in case of significant slowdown.
The path chosen by the Fed will depend on its assessment of US economic conditions. An important thing will be whether the FOMC members downgrade their economic forecasts after slightly improving outlook in April. For now recession is not seen as a threat, the main source of concern is the pace economic growth – it should be high enough for the unemployment to keep lowering. In May US jobless rate rose to 8.2%, some experts say though that this is a temporary increase after unusually intense hiring in winter provoked by warmer weather. The Fed’s policymakers may worry about the seasonal adjustments which complicate their estimates.
The opinions in the Fed are divided. Chicago FRB President Charles Evans said that “extremely strong accommodation” is needed. Cleveland FRB President Sandra Pianalto, however, claimed that she wasn't yet convinced that the outlook had significantly darkened. There are those among the FOMC officials who doubt the effectiveness of buying more bonds when interest rates are already very low or worry about higher inflation.
Preparing for the Fed’s meeting later this month, don’t miss important comments: the Fed’s Chairman Bernanke will testify on Thursday, June 7, before the Joint Economic Committee of Congress. The Fed’s Vice Chairwoman Janet Yellen is speaking tonight.