Comments and forex-analytics from FBS Brokerage Company - page 111

 

Greek deal speculation encourages euro

The single currency surged versus the greenback setting new daily maximum at $1.3197 after Reuters reported that “Greek government is drafting agreement on bailout deal to be put to political leaders for approval later today” citing the words of the unnamed government official.

Analysts at BNP Paribas claimed that “the whole focus on austerity measures is that it’s the prerequisite for the second bailout package. It would be a step closer to everything fitting in to place. The market has reacted very positively.”

Resistance for EUR/USD if found at $1.3200 and $1.3225 (January 30 maximum).

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USD/JPY gained on Japanese data

The greenback advanced versus Japanese yen climbing above 77 yen on the news that Japan’s current-account surplus dropped in 2011 to a 15-year minimum.

According to the nation’s Finance Ministry data, current-account surplus declined last year by 44% from the previous year to 9.63 trillion yen ($125 billion), the minimal level since 1996. Japan's current account surplus contracted for the tenth straight month in December to 303.5 billion yen (by 74.7% y/y) before seasonal adjustment versus the forecast of 331.4 billion yen surplus.

Analysts at Credit Suisse claim that Japan’s current-account balance will turn out to be a deficit in January, so yen will naturally weaken.

It seems that Japanese MOF is changing its intervention tactics in favor of stealth (unannounced) interventions rather from the shock-and-awe tactics with large amounts of yens sold which it used before. Yesterday the country’s MOF reported today that the nation sold 1.02 trillion yen ($13.6 billion) against the dollar in markets on the first four days of November in addition to an 8.07 trillion-yen sale on October 31 and expressed intentions to fight the appreciation of the national currency.

Despite the advance of USD/JPY one has to be cautious because large players are likely getting ready to sell on the rallies.

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The “art” of forecasting and Aussie’s prospects

24 out of 27 economists surveyed by Bloomberg News expected the Reserve bank of Australia to cut interest rates. The media widely spread these expectations, so the cut was widely seen as a sure thing and the central bank’s staying on hold was surprising for the market.

One has to understand that the analysts’ forecasts are no more than best guesses given available information. The predictability of future in such complicated environment as the modern globalizing world is a tricky and highly disputable thing. It’s necessary to remember about uncertainty. Don’t rush to comfort yourself with estimates and figures. Surely you have to take the figures into account, but don’t be fooled by the data stream.

Already much was said about the human nature of the forecasters: once an economist has made an assumption, he or she is tempted to interpret all new data in the way which would justify his already existing forecast. Yesterday’s situation is a good example: some of the market strategists were pessimistic about Australia’s labor market as payrolls contracted; others ignored this piece of information focusing on steady unemployment rate. That’s how 2 different points of view derive from the single data set.

The conclusion is simple enough: analyze all available data before drawing any forecasts and be flexible in your forecasting.

Anyway, let’s back to Australia. Now that the RBA has avoided easing, it’s time to elaborate a trading strategy which would suit the moment.

Analysts at BMO Capital are bullish on Aussie thinking that RBA’s staying on hold provides enough reason to expect AUD/USD to keep growing. The specialists also think that China may reduce reserve requirements encouraging risk appetite. In addition, the Fed plans to keep rates low until the end of 2014. As a result, BMO expects Aussie to rise to $1.0925.

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Euro’s in the positive zone, markets await Greece

The single currency is little changed to the upside versus the greenback on the speculation that Greek officials and creditors worked on the final draft of an agreement on budget and structural measures needed to free up a second aid package.

Bloomberg reports that Charles Dallara, managing director of the International Institute of Finance, Deutsche Bank AG Chairman Josef Ackermann and Jean Lemierre, a senior adviser to the chairman of BNP Paribas SA, had “constructive” talks with Greek

Premier Papademos and Finance Minister Evangelos Venizelos. A government spokeswoman said a meeting between Papademos and the leaders of the three parties supporting his government was postponed to tomorrow morning.

Analysts at Mizuho claim that “Greece is a big part of Europe’s debt crisis, so a step forward to its resolution is seen favorably in the near term, which is spurring the unwinding of short positions on the euro.” The specialists think that euro may rise to $1.34. Economists at Credit Agricole, however, warn about the possibility of “buy on rumors, sell on facts” outcome.

Specialists at Commerzbank think that the key resistance level for the pair EUR/USD lies at $1.3280. If euro manages to break above this point above this point, it will get chance to strengthen to $1.3436 and $1.3627 (50% and 61.8% Fibonacci retracement targets of the pair’s decline from October maximum to January minimum). Next resistance will be found at $1.3334 (100-day MA).

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Morgan Stanley: sell GBP/USD

Analysts at Morgan Stanley recommend investors selling British pound versus the greenback. The specialists advise to place stops for GBP/USD at $1.61 and look for the pair’s decline to $1.5460.

According to the bank, sterling will be under pressure due to 2 factors: UK economic weakness and Bank of England’s quantitative easing – Morgan Stanley expects the BOE to announce tomorrow another 50 billion pounds of bond purchases.

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Greek Parliament approved austerity measures

Greek Parliament approved austerity measures needed to secure an international bailout having voted 199 to 74. The situation in Athens is tense as people get involved in disorders protesting against such decision with 10 buildings were set ablaze at the center of the city

The adopted measures account for about 7% of Greek GDP over three 3 and include a debt swap that would shave 100 billion euro off more than 200 billion euro of privately held debt.

Prime Minister Lucas Papademos: “It is up to us, our vote, whether the country will remain in the euro or be led to a disorderly default. Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy.” In March Greece faces 14.5 billion-euro bond payment. As for the riots, Papademos noted: “Vandalism, violence and repression have no place in democracy and won’t be tolerated. In such critical times we have no luxuries for such conflict.”

The next step is the meeting of the euro zone’s finance ministers on Wednesday, February 15. The region’s finance chiefs are to approve the second aid package.

The pair EUR/USD returned up to the levels in the $1.3259 area after sliding to $1.3155 on Friday ahead of the vote. Resistance at $1.3260 and sell orders not far from there will likely limit further advance of the single currency for some time.

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Yen weakened on Greek news and Japan’s data

Japanese yen fell as the risk sentiment improved due to Greek Parliament’s approval of the austerity measures reducing demand for yen as a safe haven. In addition, the data released today showed that Japan’s economy contracted in the final quarter of 2011 more than expected undermined by the weakened exports: the nation’s GDP shrank by 2.3% (y/y) versus the median forecast of 1.3% decline.

That made the markets see greater possibility of Japan’s intervention as it seems quite evident that stronger yen’s affecting Japanese exporters. As a result, traders are cautious to go long on JPY. Bank of Japan meets today and tomorrow and more monetary easing steps may be considered.

Comments of Japan’s officials

Prime Minister Noda: Japan does not intervene with specific forex levels in mind.

Finance Minister Azumi: usual statement about decisive action when necessary.

Analysts at Commerzbank note that yen has been trading weaker again recently due to the verbal interventions of Japanese politicians, debates about the nation’s 2011 trade deficit and the smallest current account surplus in 15 years. In their view, as long as markets keep focusing on the deterioration of the trade and current account balances USD/JPY will likely remain supported.

The pair USD/JPY is trading in the 77.70 yen area up from 76 yen at the beginning of February. The pair EUR/JPY reached 103 yen zone up from 100 yen earlier this month.

 

CFTC trader positioning data

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• Euro shorts declined for the second consecutive weak. Net shorts account for around 141K contracts, down from the previous week’s total of 158K.

British pound shorts increased from 26K contracts on January 31 to 33K contracts on February 7 after 2 weeks of improvement.

• Japanese yen net longs declined from 57K contracts reported on January 31 to 55K as the data on February 7 showed. Yen speculative positions are still just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K.

• Swiss franc net shorts declined from 11K net short contracts on January 31 to 9.7K contracts on February 7. The shorts decrease for the third consecutive week.

• US dollar long positions were reduced from a total long position of $14.22 billion on January 31 to $10.63 billion on February 7.

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.

 

UBS: short-term outlook for USD/JPY

Analysts at UBS note that the greenback has posted its biggest weekly advance versus Japanese yen since the Bank of Japan’s record intervention at the end of October 2011.

USD/JPY rose from the 76.50 area on Monday to Friday’s peak at 77.80 yen. The pair went up due to the general strengthening of US dollar as well as on the speculation of potential intervention of Japan’s monetary authorities.

Never the less, the specialists claim that USD/JPY may find itself under pressure in the upcoming weeks. According to UBS, the outlook for the pair is mixed: on the one hand, the economists expect inflows into yen from semi-annual coupon payments of US T-bonds holders and some kind of repatriation due to the Japanese financial year-end; on the other, the Bank of Japan may further ease its monetary policy.

The bank thinks that USD/JPY isn’t likely to rise above 80 yen unless US Treasury yields can break significantly higher.

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UK economic forecasts: update

The Confederation of British Industry (CBI) lowered its 2012 forecast for the UK economy from the 1.2% (November 2011 estimate) to 0.9%.

Although Britain’s GDP contracted by 0.2% in the final 3 months of last year, the specialists think that the nation will manage to avoid technical recession or, in other words, 2 consecutive quarters of negative growth.

According to the CBI, British growth will accelerate to 2.0% in 2013. The economists say that in the quarterly basis growth will remain fragile in the first two quarters of this year (0.2%, 0.2%), improving modestly in the second half of the year (0.6%, 0.5%), as inflationary pressures ease.

The latest forecasts show inflation falling back towards target levels (2.2%) in the fourth quarter of 2012 and then remaining close to the BOE’s 2.0% target throughout 2013. The growth will be driven by trade and business investment. Household consumption, however, will be under pressure from modest wage growth and continuing high unemployment.

Later this week in the UK

On Wednesday the Bank of England will publish its latest quarterly Inflation Report with update forecasts for growth and inflation. The BoE Governor Mervyn King will give press conference the same morning. As the Monetary Policy Committee (MPC) increased asset purchases by 50 billion pounds to 325 billion pounds on Thursday, the forecasts might continue showing lower inflation in the medium term.

On Tuesday the Office for national Statistics will release January inflation data. The CPI growth is expected to slow from 4.2% (y/y) to 3.6%. King will have to write a letter to the Chancellor, explaining why inflation is more than one percentage point above the 2% target.

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