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Analysts: trading EUR/USD
Analysts at Commerzbank expect EUR/USD to decline to $1.2053 (200-month MA) after having reached $1.2187. According to specialists, the descending triangle figure paves the ground for a decline to $1.1934 and to $1.1876 (2010 minimum). Resistance for the pair lies at $1.2287 (June 1 minimum), $1.2367 (200-day MA) and $1.2475 (triangle support line).
Strategists at Aspen Trading Group are also bearish on EUR/USD and recommend going short at $1.2150 with a stop at $1.2300 and a target of $1.1850. In their view, this level is close to fair value of the pair.The specialists claim that being bearish on euro is the best risk-off trade these days.
Chart. Daily EUR/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: $1.2135, $1.2170, $1.2175, $1.2200 (large), $1.2235, $1.2300, $1.2350, $1.2375;
USD/JPY: 79.00, 79.25, 79.75, 80.00;
AUD/USD: $1.0000, $1.0100, $1.0195, $1.0200, $1.0220;
AUD/JPY: 83.00;
GBP/USD: $1.5500, $1.5650;
EUR/GBP: 0.7900;
USD/CAD: 1.0150.
GBP/USD: technical comments
GBP/USD touched a new 5-week minimum in Thursday due to a risk-off market mode ($1.5392), but then started an upward correction to the $1.5440/50 area. Most technical indicators show the descending trend is likely to continue. Yesterday the pair broke through a flagpole of a bear flag pattern. All in all, GBP/USD trades in a downward channel since June 20.
It makes sense to sell GBP/USD on a pullback higher, targeting $1.5267 (June 1 minimum). The next support for the pair lies at $1.5233 (2012 minimum), while resistance – at $1.5450, $1.5510 (23.6% Fib. retracement of a May decline) and 1.5662/45 (38.2% Fib. retracement and a resistance of a downward channel).
Chart. H4 GBP/USD
BoA Merrill Lynch: delusions about euro area
Analysts at Bank of America Merrill Lynch looked at the euro zone’s problems from the point of view of the game theory. The specialists analyzed the economic situation in each of the 11 largest euro zone countries and assessed the likely impact of their exit from the currency bloc.
Delusion #1: Strong countries like Germany and Austria could leave the euro zone without too much pain, while the weaker peripheral countries need the stability of the euro.
BoA has found out that “Italy and Ireland have the highest relative incentive to voluntarily exit the euro, while Germany has the lowest incentive of any country to leave.”
Conclusion: Italy has a stronger incentive to leave the euro zone than Greece and, consequently, will be less likely to accept tough conditions to stay.
Delusion #2: The euro zone will hang together because it's to the member countries’ collective advantage.
BoA recalls the famous prisoner’s dilemma (the game theory problem, in which individuals’ own incentives outweigh their joint interests) in the context of Germany and Greece and austerity-Eurobonds debate. It would be in both countries' interests to cooperate – for Greece to adopt austerity and Germany to agree to Eurobonds – but each country will ultimately try to maximize its own benefit: Greece would be better off with Eurobonds but no austerity, while Germany would benefit more from the opposite.
Conclusion: countries have not so many incentives not to cooperate on resolving the crisis, so euro’s future is really under threat.
July 16: events to watch
Japan: Bank holiday
Euro area: CPI growth is to remain at 2.4% in June, while core CPI – at 1.6%. According to the ECB report, inflation rate will fall below the regulator’s 2% ceiling next year.
US: Core retail sales are expected increase by 0.1% in June, what is much better than a 0.4% drop in May, but still points at the weakness of the US economy. Retail sales demonstrate the similar dynamics: 0.2% growth in June vs. a 0.2% decline in May. Weak figures will add to investor’s concerns about a new QE.
Cartoon: jeffreyhill.typepad.com
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July, 16: economy and currencies
On Monday the single currency remains close to a two-year low vs. the greenback ahead of today’s releases. European inflation is likely to stagnate, while consumer confidence – to weaken. According to the latest comments of Angela Merkel, Germany hasn’t changed her position about the austerity measures for the problem European nations. However, Merkel said she is confident the majority of German members of parliament will support aid package for Spain’s ailing banking sector.
The MSCI Asia Pacific added 0.3% as Asian shares rose. Japan’s financial markets are closed for a holiday. Safe currencies benefit from a risk aversion as markets are expecting more easing from the world’s major central banks. Investors are looking forward to Ben Bernanke’s semi-annual report on US economic outlook to Congress tomorrow. Market participants will also pay special attention to today’s IMF growth forecasts.
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UBS: bearish outlook for EUR
Analysts at UBS note that euro fell to the record minimums versus Australian, New Zealand and Canadian dollars, but remains well above the all-time lows against US dollar, Japanese yen, British pound and Swiss franc. Such dynamics reflects foreign exchange intervention by the SNB and loose monetary policy of the Fed, the Bank of Japan and the Bank of England.
According to specialists, if the Fed and the BoJ continue to disappoint investors looking for further easing then the euro’s further decline will become likely. Analysts continue to target EUR/USD falling to $1.15 this year.
Image: Bloomberg
Westpac: the Fed won’t signal easing
The Fed Chairman Ben Bernanke is going to testify to the Congress on Tuesday and Wednesday.
Analysts at Westpac point out that Bernanke has said he is ready to take action as warranted, but so far he has been vague about what that means. If the Fed’s chief doesn’t signal that monetary stimulus is inevitable, the demand for riskier assets will fall. In this case the specialists recommend selling AUD/USD. On the other hand, if US central banker signals that there may be more easing, one should buy Aussie.
Westpac thinks that the first outcome is more likely as the Fed may decide to wait for more reports on employment and, probably, Greek bond redemption before deciding on a course of action. As a result, the bank’s recommendation is to sell AUD/USD at $1.0250 targeting $1.0100 and stopping at $1.0330.
Ben Bernanke, chairman of the Federal Reserve
Photo: Bloomberg
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 - $1.2175, $1.2200, $1.2250, $1.2300, $1.2325, $1.2350
USD/JPY - Y79.25, Y79.70, Y80.00
GBP/USD - $1.5500, $1.5490, $1.5450
AUD/USD - $1.0150, $1.0165, $1.0190, $1.0300
EUR/AUD - A$1.2000
Westpac: NZD/USD and the Fed
NZD/USD remains flat and close to a 200-day MA since July 9 after trading in an upward channel since the end of May. Specialists at Westpac expect the pair’s further movement to depend on the Ben Bernanke’s testimony on Tuesday and Wednesday.
According to analysts, NZD/USD will move higher to $0.8075 before Wednesday. Any positive outcome (a hint on QE3 or a verdict) would likely push it to $0.8200, while negative – to pull it down to $0.7840 and then to $0.7000 during the weeks ahead.
Chart. Daily NZD/USD
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