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Analysts: USD/CHF will reach parity
On Monday the greenback keeps strengthening vs. the Swiss franc as risk aversion dominates the global markets and concerns continue to weigh on the euro area. According to analysts at largest Swiss banks, USD/CHF is moving up towards parity following the depreciating euro.
Credit Suisse: If the euro weakens due to global risk aversion toward $1.20, we would expect USD/CHF to reach parity.
UBS: If the SNB is intervening to defend the cap, they are essentially recycling the euros into a series of other currencies, 50% of which are going to be dollars, what is going to push USD/CHF higher.
Last week the pair reached its highest level since December 2010. The next resistance for USD/CHF lies at 0.9873 and 0.9904, while support - at 0.9838, 0.9807, 0.9772 and 0.9741.
Chart. Daily USD/CHF
HSBC: currency outlook
Analysts at HSBC gave the following comments on the currency pairs:
AUD/USD: Aussie is dominated by changes in risk appetite. There are plenty of external headwinds for a highly “risk-on” currency out there, and global developments will continue to be the main determinants of the price action, so AUD seems vulnerable.
USD/CAD: CAD has stabilized and recovered following its risk-related declines in May. Recent Canadian economic data shows the economy holding up fairly well. Other factors also seem quite positive for loonie: stabilization and partial recovery in oil prices and the fact that Canada is one of the only triple-A credits left in the world.
USD/JPY: Everyone expects USD/JPY to rise. This has fostered a prejudice that interprets most breaking Japanese news in terms of potential adverse implications for the JPY. The latest example is the recent weakness of the JPY as Japan moves ever closer to a possible consumption tax hike. The logic behind the resultant rally in USD/JPY is flawed and will reverse. Looking further out 2012 will finish with a lower dollar.
HSBC points out that as the central banks all over the world are easing their policies. As a result, the market’s sentiment is risk-on even though state of the global economy is deteriorating. “This risk rally comes with contradictions for the USD, because the upswing in financial assets is USD bearish while the worsening economy is USD bullish. The USD resilience may not last. The focus may shift to the fiscal cliff facing the US,” warns HSBC.
Credit Suisse: sell EUR/USD on a pullback
EUR/USD has strengthened after the US retail sales have come out worse than expected. Retail sales contracted in June by 0.5% m/m, while core retail sales (excluding the auto sector) – by 0.4%. The released data added to investors’ concerns about the possibility of new monetary easing by the Fed. NY Empire state manufacturing index jumped to 7.39 in July from 2.29 in the previous month; these positive figures, however, were completely offset by the retail sales contraction.
Specialists at Credit Suisse remain bearish on the single currency regardless of a current pullback higher. Analysts recommend going short on EUR/USD at $1.2295, targeting $1.2000 and with a stop at $1.2348. What is more, the pair has all the chances to break $1.2163 and $1.2151 support levels and to reach key support at $1.1985/1.1876. Resistance at $1.2276/89/97 is forecasted to limit the upward correction of the euro. If the EUR/USD manages to overcome $1.2335/40, a surge to $1.2749 will become possible. However, in current economic environment the bearish scenario looks more realistic.
Chart. Daily EUR/USD
July 17: economic & forex news
Ben Bernanke is once again the hero of the market’s expectations: investors expect to hear his hints on further monetary easing as he testifies to Congress today. It’s obvious that US economic recovery really is stumbling: data released yesterday showed that retail sales fell for a third month in June, contracting by 0.5%. The Fed’s chief is speaking in front of the Senate Banking Committee and the House Financial Services Committee tomorrow. US dollar’s weakening versus the majority of its counterparts on the news.
Also watch for US CPI data later today. Median forecast is that US CPI was unchanged last month from May when it declined by 0.3% (m/m). Annual inflation is seen sliding from 1.7% in May to 1.6% in June, below the Fed’s 2% medium-term target – another argument for more QE.
EUR/USD trades on an upside for a third consecutive day ahead of the ZEW economic sentiment release. The release may show today that the index of German investor expectations slid to minus 20 this month (the lowest since January) from minus 16.9 in June. Moody’s rating agency downgraded 13 Italian banks tonight. The IMF has slightly lowered its outlook for global growth in latest report on the world economy.
AUS/USD appreciates as the RBA meeting minutes released today made the new rate cuts less likely. The Australian policymakers reveal confidence in economy: national labor market looks stronger, China's economy wasn't slowing as much as previously anticipated and the overall mood in euro area seems to be better on the back of progress made by EU leaders late June. However, the euro zone’s debt woes still threaten the Australian economy. NZD/USD is up despite a CPI release (inflation in Q2 increased by 0.3%, what is below a forecasted 0.5% growth).
The MSCI Asia Pacific Index (MXAP) of shares advanced 0.6%. The overall market sentiment is positive ahead of Bernanke’s testimony: demand for USD and JPY vs. the other key currencies has dropped. USD/JPY strengthens after a three-day decline after touching the lowest since June 18 yesterday. According to Japan’s finance minister Jun Azumi, gains in the yen were “speculative” and officials will “take decisive action if needed.”
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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: $1.2100, $1.2190, $1 .2200, $1.2250, $1.2300, $1.2400;
USD/JPY: 78.00, 79.00, 79.15;
AUD/USD: $1.0250;
EUR/GBP: 0.7970;
USD/CHF: 0.9800, 0.9900.
USD/JPY: technical comments
USD/JPY remains within the broad triangle. The pair has been trading important psychological resistance at 80 yen, but then turned lower to 78.70 (support line connecting February and June 4 minimums and June 15-20 minimums) before returning higher to 79 yen. The bulls are now trying to hold above the key 200-day MA.
Now resistance lies at 79.40: as long as the greenback’s trading below this level, the outlook for the pair will remain bearish. One may see a bearish channel on H1 chart. Sell on the breach of the 78.70 support. Between these levels, in the recent consolidation zone, the outlook is neutral.
Other resistance levels: 80.62 (June maximum), 81.78 (mid-April maximum) and 84.19 (March maximum). As for support, it seems that the Bank of Japan won’t let USD/JPY sing below 78 yen.
Comment from Wells Fargo: “Longer-term, we see some moderate yen weakness as global economic and market conditions improve. The recent crossing of the 20-day MA above the 50-day MA suggests a bullish technical bias for USD/JPY”.
Chart. Daily USD/JPY
CFTC trader positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• The US dollar long positions increased to $24.58 billion on July 10 from a total long position of $23.58 billion on July 3.
• The net short euro positions rose to 166K contracts on July 10 from the previous week’s total of 146K net short contracts on July 3.
• The net long yen positions edged higher to 8,9K contracts following a total of 4K net long contracts the previous week.
• The net long pound positions fell to 7.6K contracts following 5K net short contracts the previous week.
CFTC trader positioning data part 2
• The net short Swiss franc positions declined to17.5K contracts following 19K net short contracts the previous week.
• The net long Canadian dollar positions contracted to 4.3K contracts following 8.7K net long contracts the previous week.
• The net long Australian dollar positions rose to 19K contracts after rising to 9.3K net long contracts the previous week.
• The net long New Zealand dollar positions increased to 5.6K contracts following a total of 4.3K net long contracts the previous week.
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.
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EUR/USD: ZEW, Fed, technical levels
German ZEW economic sentiment index came at -19.6 in July from -16.9 in June. Negative figures were pretty much expected. Reuter’s median forecast was of -20.0. The index for the euro area was at -22.3 from -20.1 last month.
EUR/USD slightly retreated from today’s peak at $1.2317. The market’s awaiting Ben Bernanke’s Congressional testimony later today/tomorrow. There’s the speculation that the Fed may cut deposit rate like the ECB did.
Technical analysts at Commerzbank claim that EUR/USD won’t be able to overcome resistance at $1.2365/1.2425 (38.2% and 50% Fibonacci retracements of July decline) and will slide to $1.2053 (200-month MA) and $1.1876 (2010 minimum).
Chart. Daily EUR/USD
USD/CAD: BOC left rates unchanged
As it was expected, the Bank of Canada left rates unchanged at 1%.
In its statement the central bank pointed out that financial conditions have deteriorated since April. At the same time, the policymakers believe that domestic economy will keep feeling well enough. GDP growth forecasts for 2012 and 2012 were revised down in comparison with April estimated – from both 2.4% to 2.1% and 2.3% respectively. All in all, the BOC maintained its hawkish tone, signaling potential rate hikes even though it acknowledged gloomy external factors.
TD Securities: “The bias is still clearly towards tightening, but it’s a very weak tightening bias. USD/CAD is still stuck around 1.0140.”
BBH: “The 1.0100 area is the lower end of the recent range and a convincing break may spur a move towards parity.”
Support: 1.0130, 1.0115 and 1.0100;
Resistance: 1.0160, 1.0200 and 1.0250.
Chart. Daily USD/CAD