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AUD/USD: technical comments
AUD/USD strengthens for a sixth consecutive day, trading close to a new four-month high at $1.5037 (July 31 maximum). The pair trades close to the upper boundary of the upward channel existing since mid-June, but scruples breaking it. On the daily and H4 chart the pair trades above the up-directed 200-, 100- and 50-period MAs.
In our view, a medium-term uptrend looks rather resilient: the next strong resistance lies only at $1.0750/60 (Sep. and Oct. 2011 maximums) and at $1.0855 (2012 maximum). Bulls have a clear advantage above $1.0475 (April 27 maximum, beginning of a sharp May decline). However, we concede a correction to $1.0400 (middle of the channel) and to $1.0280 (lower boundary and the 200-day MA). Yesterday a shooting star candlestick formed on a daily chart. Exit from the upward channel will pave the ground for a further decline to $1.0176 (July 25 minimum) and to $1.0100 (July 12 minimum).
Chart. Daily AUD/USD
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USD/JPY: technical comments
The bears pulled the greenback down to test 77.90, but then USD/JPY returned back above the key support of 78.00. So, what we see is a range trading inside the small 78.30/00 region.
The broader technical picture remains negative (see the daily chart where the 50-day MA is going to dive under the 200-day one).
Resistance: 78.30, 78.45 (July 20 minimum, 50-period MA on H4 chart), 78.80 (July 20 maximum), 78.65 (July 27 maximums, June 15 minimums), 79.00, 80.00.
Support: 78.00, 77.95 (July 23 minimum), 77.65 (June minimum), 77.35 (February 15 minimum, January 6 and 19 maximums).
Analysts at RBS recommend opening longs at the current levels as the Bank of Japan may surprise the markets next week.
Chart. H4 USD/JPY
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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: $1.2200, $1.2220, $1.2300, $1.2350, $1.2400 (large);
GBP/USD: $1.5850;
USD/JPY: 78.40, 78.50, 79.00;
AUD/USD: $1.0500;
EUR/GBP: 0.7800;
GBP/JPY: 122.50.
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AUD's in demand as reserve and safe haven
From a fundamental point of view, the Australian currency is supported on Wednesday ahead of the Fed meeting results. Most analysts believe any policy easing signals from US will sap demand for the greenback and lift the high-yielding currencies. Moreover, economists expect RBA to stay on hold in August and to post upbeat comments on the Australian economic conditions.
According to specialists at OCBC, AUD/USD is likely to hold its ground in a short term. Increased risk appetite and expected demand for the Aussie as a reserve currency support the bullish forecasts. What is more, any monetary easing signals from central banks may also keep the pair supported.
Analysts at RBS also expect AUD/USD to remain in a bullish trend as the Australian economy looks healthy compared with the other countries. In their view, weak major currency fundamental data are likely to increase sovereign and safe haven flow towards the Aussie.
Photo: shutterstock.com
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UBS: CAD will strengthen vs. USD
Analysts at UBS expect USD/CAD to trade around the parity for some time and then go down below 1.0000 reaching 0.9800 within a month. In their view, loonie will be supported by the ongoing worldwide commodity demand.
The specialists point out that Canada’s May GDP was slightly disappointing (only 0.1% increase) due to weaker manufacturing sector with the negative effects offset by mining, oil and gas extraction, which contributed most to the nation’s economic growth.
Also note that the pair USD/CAD had so far breached an important support at 1.0050 – this level supported the prices late in 2011 and acted as resistance in February-May 2012.
Chart. Daily USD/CAD
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GBP/USD: technical comments
GBP/USD declines for a third consecutive day after the pair reached a five-week high at $1.5767 on Friday. The pair has been bouncing in a flat range since June after trading in a bearish channel in May. Sterling tested the upper boundary of a sideways channel aligned with the 200-day MA, but now moves into the middle of the range. On the H4 chart GBP/USD trades above the 200-, 100- and 50-day MAs.
In our view, GBP/USD is likely to remain in a sideway channel in the nearest future because of the strong resistance levels concentrated in the $1.5743/80 area. A close above $1.5780 could open the way for a further rise to $1.5904. On a downside the next support for the pair out of the bounds of the sideways channel lies at $1.5392 (July 12 minimum) and at $1.5267/33 (June and 2012 minimums).
Chart. Daily GBP/USD
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JP Morgan: scenarios for EUR
Analysts at JP Morgan try to clarify the load of information and different factors we have in the euro area by distinguishing scenarios of euro’s potential future moves.
According to the specialists, one may expect EUR/USD trading up and down around $1.2000 as the ECB and the Federal Reserve act.
Down
If the crisis in Europe escalates, EUR/USD will slide below $1.2000.
The key elements of this scenario are: discussions of Greece’s exit from the EMU, Italy and/or Spain losing access to the debt markets, failure of Greek government, the end of Greece’s financing program if EU doesn’t reach consensus with Greek government, the rejection of ESM by German Constitutional Court, the election of anti-EMU party in the Netherlands.
Up
If the situation improves, EUR/USD will be able to return above $1.2500 in Q3.
The key elements of this scenario are: the launch of QE3 by the Fed, the signal from EU parliaments about their intention to fast-track banking union and transfer costs of Spanish bank recapitalization to the region, the ECB’s restart of direct bond purchases or granting ESM a banking license with a higher lending ceiling, the focus on US fiscal cliff and the concerns about sovereign rating in run-up to US Presidential election.
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ECB: Draghi vs. Weidmann
It seems that nationalities have a great impact on the ECB’s policymakers. The central bank meets tomorrow, but Italian central banker Mario Draghi, the ECB President, and German Jens Weidmann who heads Bundesbank have quite different opinions on how the central bank should act in the current crisis.
Draghi pledged last week that the ECB would “do whatever it takes to preserve the euro.” The market’s speculating that Draghi proposes the central bank to restart bond purchases in order to lower the borrowing costs for the troubled euro zone nations.
Weidmann made clear he loathes such move as it, according to Bundesbank would risk violating the ECB charter's ban on central-bank funding of government debt.
(Ansa)
Of course, at first glance Weidmann is not a big force in the ECB's 23-member Governing council. However, WSJ experts say that But “boxing the Bundesbank into a corner could undermine Mr. Draghi's credibility” in Germany, the leading economy of the currency union.
Weidmann has already opposed the ECB decisions for several times. At the same time, he doesn’t have any allies. Some ECB officials claim that Bundesbank’s discord undermines the central bank’s efforts to overcome the crisis as this way the region’s monetary authorities seem uncertain in their actions.
For now, the compromise would be if on Thursday the ECB announces its intention to buy bonds and to take other measures, without yet implementing them.
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ADP comes better than expected
ADP employment report showed that US companies added 163K jobs in July (cons.: +121K, prev.: +176K).
Economists often use ADP figures to adjust their expectations ahead of official non-farm payrolls report. According to the forecasts, NFP added 100K in July, while the unemployment rate remained at 8.2%.
Note though that since April 2010 initial estimate has either overstated or understated the Labor Department’s initial reading on private payrolls by 72K on average.
All eyes are now focused at the Fed’s decision due at 18:15 GMT.
Captain America (c) Marvel Comics
Big Mac index: currencies vs. US dollar
The Big Mac Index is published by The Economist and is based on the theory of purchasing-power parity: in the long run, exchange rates should adjust to equal the price of a basket of goods and services in different countries.
The journal has chosen McDonald’s Big Mac to play the role of such basket – this product is sold in every country worth analyzing. In short, The Economist compares the Big Mac prices in different countries and derives exchange rates from these ratios. By comparing the obtained rates with the nominal exchange rates the economists conclude whether the currencies are at parity, undervalued or overvalued.
Below you may see US dollar’s against a broad range of currencies. Note that the greenback is largely under-valued against the major currencies and over-valued against the emerging market currencies, with some notable exceptions.
Remember that, according to market’s mechanisms, the undervalue currency will tend to appreciate and vice versa. From what we see now, one may expect the major currencies will have to depreciate against the emerging market currencies.
Source: The Economist
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