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Commerzbank: bears on AUD/USD
Commerzbank analysts expect AUD/USD to drop to $1.0300 levels (lower boundary of the upward channel and the 200-day MA) after the pair failed to fix above $1.0583 (78.6% Fib of a decline from February). Close above $1.0583 would open way to $1.0670 levels, though it is not expected.
Chart. H4 AUD/USD
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Goldman Sachs: EUR Olympics
Well, it’s Friday, so here’s some entertaining stuff from Goldman.
Image from markettraders.com
In July Goldman Sachs outlined 8 major issues that would determine the fate of euro. Now the bank returned to these problems to assess the progress. The specialists measure the developments by awarding EUR Bull and EUR Bears with… Olympic medals! No medal is given in case the estimate hasn’t changed.
1. Spanish Bank Bailout – Silver for EUR Bears.
2. Stabilizing Growth in Greece and Italy – Bronze for EUR Bears.
3. Euro area Banking Union – Bronze for EUE Bulls.
4. Franco-German Vision for a Political/Fiscal Union – Silver for EUR Bulls (with some help from the ECB).
5. Continued Strong BBoP (broad basic balance of payments) Position – Bronze for EUR Bulls.
6. More Fiscal Tightening Outside the Euro area – No Medal.
7. Monetary Policy Differentials – No Medal.
8. A Notable Reduction in EUR Short Positions – No Medal.
So, bulls (1 silver, 2 bronzes) outran the bears (1 silver, 1 bronze). According to Goldman, this calculation reflects euro’s dynamics: the currency firstly slid to $1.20 on rising Spanish yields and then started rebounding on the ECB’s comments. Analysts are still bullish on euro in the medium term (they entered long on August 02 at $1.2153 targeting $1.30 and stopping close below $1.18). The bank thinks that “the ECB’s proposal for a conditional SMP would gradually reduce the euro zone risk premium and confirm a temporary bottom in EUR/USD accordingly”.
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Noda sacrifices re-election chances for tax hike
The upper house of Japanese parliament approved the increase of the nation’s sales tax. This will be the first sales tax increase since 1997. The change won’t be instantaneous: the tax will be raised to 8% in April 2014 and 10% in October 2015.
Prime Minister Yoshihiko Noda has been struggling for about a year to make this piece of legislation pass. During this period, 50 anti-tax lawmakers quitted the ruling Democratic Party of Japan which now has only a slim majority and risks losing in the next election. The lawmakers agreed for the tax increase only in the last minute and to make the deal Noda had to promise the main opposition Liberal Democratic Party to dissolve the lower house “in the near term” in exchange of their support for bill.
Photo from washingtonpost.com
Also note that there’s one condition necessary for the hike to take place and this clause is… an “economic upturn”! The members of the LDP are good negotiators indeed. As it’s not specified what exactly is to be considered as an “upturn”, lawmakers have different interpretations.
One thing is quite clear at this point. There will surely be more debates. The LDP will be calling for an early election and the parliament may get in a gridlock by/in September. Just when the nation has an immense debt problem to solve! Sales tax increase would help to improve the debt outlook in the longer term, but any tax hike it would be a burden for economy. Time to make a choice!
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Nomura: Britain may part from EU
According to analysts at Nomura, Japan's biggest bank, Great Britain may leave the European Union entirely or partly as soon as in autumn.
As the euro zone’s crisis progresses, the region’s policymakers will have to take steps aimed at making the European integration closer. As a result, UK could lose its power to influence the regional policy and decide to drift from the continental Europe and even quit the European Union – in other words, commit BRIXIT (British Exit).
Specialists don’t precise the consequences of discord between the EU and UK, but underline it is bound to raise both economic and political concerns on financial markets. Though analysts think it’s unlikely the UK will hold a referendum on BRIXIT under the current government, Britain’s “euro skeptic” politicians may start being more and more active and even push through a vote.
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Morgan Stanley: buy EUR vs. GBP and AUD
Specialists at Morgan Stanley recommend going short on EUR/GBP at 0.7850, targeting 0.8200 and with a stop at 0.7750. In their view, current downward trend formed because of the high demand for safe currencies. However, specialists expect the financial flows to reverse as ECB will aggressively support peripheral debt markets.
Chart. Daily EUR/GBP
Moreover, experts recommend buying EUR/AUD at 1.1450, targeting 1.3000 and with a stop at 1.1300 for the same reasons.
Chart. Daily EUR/AUD
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August 13: forex news
According to the preliminary data, Japanese GDP added only 0.3% q/q in Q2 (cons.: +0.6%, prev.: +1.2%). Annualized economic growth declined from 5.5% in the first 3 months of the year to 1.4% last quarter. Weaker exports and consumer spending are probably to be blamed for this disappointment. USD/JPY is trading on the upside, though still below 78.30 after initial increase to 78.36.
Asian stocks are exhibiting a mixed trend on Monday: some of the region’s markets opened in red, but regained a bit of lost ground as the session progressed. Investors are cautious due to the mounting evidence of economic slowdown, but still await fresh stimulus from the central banks of the United States, Europe and China. Aussie and kiwi are little changed.
EUR/USD was supported in the $1.2260 area (former downtrend resistance, the recent uptrend support line and 100-period MA on H4 chart). However, demand for euro is limited ahead of German and French GDP figures released tomorrow – economists expect slowdown and contraction respectively.
US dollar is likely to outperform amid such expectations. No major data releases are scheduled during the European session.
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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, $1.2400;
USD/JPY: 77.00, 78.00, 78.50, 78.70;
AUD/USD: 1.0250;
EUR/GBP: 0.7790;
EUR/AUD 1.1600.
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CFTC traders positioning data
The latest Commitments of Traders (COT) report, released on Friday, August 10, by the Commodity Futures Trading Commission (CFTC), showed that on a week ended August 7.
Speculators reduced EUR net short positions by 4.5% ($1 billion) from the week before to $20.4 billion. After positioning reached extreme short levels in June, EUR has seen a decline in net shorts for the past 4 consecutive weeks. GBP shorts are building up. AUD’s positioning saw the largest change ($1.7 billion) as net longs keep increasing. Positions are at net long territory already for 6 weeks in a row. JPY net longs decline for the first week since early July as the Japanese currency weakened versus the greenback. Investors also bet that CHF would fall, holding a net $2.3 billion short position, 4% smaller than the week before. Net long USD position against seven major currencies decreased by 18%.
Take a look at the following table.
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.
In the COT report all the market players are divided into three categories: hedgers (commercials), big speculators (non-commercials) and small traders (non-reportable positions). We analyze only non-commercial positions (mainly, these are banks and investment funds).
We recommend you paying attention to:
Extreme Positions: If everyone is already long or short it is a strong indication price may reverse because there is no one left for buyers to buy from and no one left for sellers to sell to.
Changes in Market Positions: When large speculators change their position and go from net long to net short or vice versa, there typically is a good reason they do this.
Changes in Open Interest: Rising or falling open interest may reflect directional commitment or lack thereof and therefore indicate strength or potential reversal of a particular price trend.
Find more at the CFTC website.
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Euro area: events calendar
Find out what awaits the euro area in August/September.
Aug. 20: Greece to redeem 3.1 billion euro bond held by ECB.
Aug. 21: Spanish T-bill auction. Greek T-bill auction.
Aug. 22: Eurogroup president to meet the Greek prime minister.
Aug. 24: Greek prime minister to meet the German Chancellor.
Aug. 25: Greek prime minister to meet the French president.
Aug. 27: German August Ifo business-climate index.
Aug. 28: Final Spanish second-quarter GDP. Spanish T-bill auction. Euro-area July M3/private-sector loan data. Italian bond auction.
Aug. 29: Italian T-bill auction.
Aug. 30: Italian bond auction.
Aug. 31: Euro-area flash August inflation data. Italy to redeem 11.5 billion euro of bonds.
Early Sept.: Troika team to return to Athens. European commission expected to make a proposal for a banking union in the euro area by September 11.
Sept. 1: No new disbursement of aid to Greece expected before this date.
Sept. 3: Euro-zone August manufacturing PMI data.
Sept. 5: Euro-zone August services PMI data. German bond auction.
Sept. 6: ECB rate decision and press conference. Revised EU second-quarter GDP data. Spanish and French bond auctions. German July manufacturing orders.
Sept. 7: German July industrial production.
Sept. 10: French industrial production.
Sept. 11: Greek T-bill auction.
Sept. 12: German constitutional ruling on European Stability Mechanism injunction. General elections in the Netherlands. Italian T-bill auction. German bond auction.
Sept. 13: Italian bond auction.
Sept. 13-14: G20 finance ministers and central bankers to meet in Mexico City.
Sept. 14-15: Informal Eurogroup/Ecofin meeting in Cyprus.
Sept. 15 (approximate): Auditors due to release report with detailed capital needs of Spanish banks. Italy to redeem 10.4 billion euro of bonds.
Sept. 15-Sept. 30: French 2013 budget due.
Sept. 18: Spanish and Greek T-bill auctions.
Sept. 19: Portuguese T-bill auction. German bond auction.
Sept. 20: Spanish and French bond auctions.
Sept. 25: Italian bond auction. Spanish T-bill auction.
Sept. 26: Italian T-bill auction. German bond auction.
Sept. 27: Italian bond auction.
Sept. 30. Irish government hopes by this date to have completed talks with euro zone on ways to refinance bank-rescue debts.
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AUD/USD: slowed growth
On Monday AUD/USD trades below $1.0550 as demand for high-yielding assets declined. On Thursday the pair opened a new four-month high at $1.0613 and now we observe a bearish correction.
According to analysts at Westpac, the key driver for the Australian dollar this week will be external, not domestic data. These external releases will likely bring more pessimism to the markets: data released today showed Japan’s economy grew less than forecasted, while data tomorrow may show the euro zone’s economy contracted in Q2. However, demand for the Aussie was supported as futures traders increased their long positions.
RBC: AUD was the best-performing G10 currency in July, consistent with elevated risk appetite. However, we are cautious about AUD's ability to sustain this outperformance as AUD already belies the relative performance of Asian equity markets. We see scope for a correction in AUD/USD back below parity.
Chart. Daily AUD/USD
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