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Euro’s pressed by Greek uncertainty
The single currency fell to 3-month minimum versus the greenback.
Tomorrow German’s Chancellor Angela Merkel meets Italian Prime Minister Mario Monti. The leaders will hold a joint press conference afterwards.
On Monday, February 20, euro zone’s finance ministers will gather to discuss a second bailout package for Greece. Initially the meeting was scheduled to take place yesterday, but then was postponed. Luxembourg Prime Minister Jean-Claude Junker assured the markets that “all the necessary decisions” on the issue will be taken at February 20 meeting.
The markets worried that a delay in Greek aid will increase borrowing costs for the region. The situation remains rather uncertain. According to Reuters, several EU sources said on Wednesday the euro zone is examining ways of holding back parts or even the entire bailout program until after Greek elections in April while still ensuring it avoids a disorderly default. The risk sentiment was also affected by Moody’s announcement that the ratings of several banks including UBS, Credit Suisse and Deutsche Bank are put on review to the downside.
In the current circumstances watch Spain’s and France’s debt auctions later today. France will offer 8.5 billion euro in 2-, 3- and 5-year bonds, while Spain plans to sell 4 billion euro in securities maturing in January and July 2015 and in October 2019.
Analysts at Nomura believe that by the end of the month EUR/USD will hit $1.2500. In their view, the market has lost confidence and investors won’t have much incentive to buy euro.
The pair fell today below 38.2% Fibonacci retracement of its rally this year at $1.3056 and 55-day MA at $1.3050. Support for euro is now found in the $1.2970 area (50% retracement of the same rally, daily Ichimoku charts' Kijun-sen line and also the Cloud’s bottom).
ANZ: scenarios for EUR/JPY
Analysts at ANZ underline that the level of divergence in both monthly and weekly indicators suggests that if the current rebound can be maintained, EUR/JPY may also have formed a base.
In their view, the outlook for the pair will become bullish if it overcomes resistance in the 105.50/107.00 area. In such case euro will get chance to repeat the 2009 rally and to climb through 112.00 towards 125.00 and possibly to 133.50.
At the same time, the specialists claim that one can’t rule out the possibility that the single currency may survive a gradual decline to 2000 minimum versus Japanese yen at 88.95 yen. The potential rally of EUR/JPY will be undermined below 100.00 yen.
Spanish and French auction results
Spain managed to sell the planned volume (4.074 billion euro out of the 3-4 billion euro target) of bonds with lower yields and better cover ratio. Here are the details:
- 3-year bonds: 2.268 billion euro, yield 3.332% (vs. 2.861%), cover 2.2 (vs. 1.6);
- January 2015 papers: 733 million euro, yield 2.966 (vs. 4.984%) %, cover 4.4 (vs. 2.4);
- October 2019 papers: 1.073 billion euro, yield 4.832% (vs. 5.352%), cover 3.3 (vs. 2.1).
France was able to sell 8.45 billion euro out of a targeted 7-8.5 billion euro. Here are the details:
- 5-year bonds: 5.025 billion euro, yield 1.93%, cover 1.99;
- July 2014: 2.090 billion euro, yield 0.89% (vs. 1.05%), cover 2.361 (vs. 2.12);
- January 2015: 1.335 billion euro, yield 1.09%, cover 3.303.
The actions may be regarded as successful enough. Never the less, euro didn’t get much help and keeps trading in minus for the fifth day in a row.
Commerzbank: USD/CAD technicals
Technical analysts at Commerzbank note that the greenback keeps trading around the 200-day MA versus its Canadian counterpart.
According to the bank, resistance for US currency lies at 1.0049/73 (December minimum and January 3 minimum) and at 1.0149/46 (55-day MA and the 3-month downtrend). The outlook for the pair will become positive only above the latter. Commerzbank says US dollar won’t likely get that high this week.
The specialists think that the pair USD/CAD may slide to October minimum at 0.9892. In their view, this level will contain further declines as only an unexpected drop and 2 daily closes below the October low would point towards further range trading with a bearish bias and the possibility of such outcome isn’t high.
USD/JPY: will the recovery continue?
The greenback keeps rising versus Japanese yen. On Tuesday USD/JPY broke above the 200-day MA spurring the bullish sentiment.
Today the pair set 3-month maximum at 78.88 yen. The cross is still trading below the post-intervention spike at 79.52 set at October 31 and November 1 maximum at 78.97.
However, some analysts keep warning investors that it may be premature to turn bullish on US dollar. The specialists remind that in the past few years USD/JPY broke above the 200-day MA many times, but this signals turned out to be false and there was no bullish reversal afterwards.
In addition, as the possibility that the Federal Reserve will decide to launch another round of quantitative easing seems strong enough, it would be hard for traders to sell yen. Expectations of QE3 will keep US short-term note yields (in particular, 2-year Treasury yields) low. USD/JPY is strongly correlated (90%) with yield spread between Japanese and US 2-year debt, so in such conditions US dollar will remain under pressure.
Western Union about NZD/USD
New Zealand’s dollar got a lift today versus its US counterpart as the Reserve Bank of New Zealand’s governor Alan Bollard claimed that the nation’s growth numbers are currently understated due to conservative statistical interpretations and the particular nature of the economy. According to Bollard, if Australian conventions are applied New Zealand’s GDP could be 10% higher.
Analysts at Western Union claim that NZD/USD is helped by more positive sentiment towards Greece: “All it takes is another bit of speculation that the Greeks have found more places to slash their budget, and while there is nothing concrete they have said that it (the second bailout) is likely to be green lit on Monday – which is all the market apparently needs”.
The specialists expect kiwi to trade at the current levels or edge higher to 0.8400. In their view, support for NZD is situated at 0.8320 (February 15 and 9 minimums), while resistance is found at 0.8420 (February 15 maximum).
BofA: euro may renew 2-month minimum
Analysts at Bank of America claim that the single currency may fall to more than 2-year minimum versus the greenback.
The specialists note that if euro doesn’t manage to hold at the current levels and resume decline closing the day below $1.3026, this would mean another wave of the downtrend within which EUR/USD has been trading since May 2011. In such case the pair will move down to $1.2644/$1.2510.
Euro’s moving average convergence/divergence, or MACD, was at 0.0036, below the signal line of 0.0045. A reading below the signal line indicates the euro may decline.
Commerzbank: comments on GBP/USD
Analysts at Commerzbank claim that British pound may rise higher versus the greenback testing 200-day MA at $1.5919.
The specialists note, however, that sterling’s advance will be limited, if not by this level, then by the next resistance at $1.5967 and $1.6016 (55-week MA).
According to the bank, support for the pair GBP/USD lies at $1.5603/1.5580 (55-day MA and 50% Fibonacci retracement).
Euro strengthened on Greek bailout news
The single currency went up versus the greenback erasing earlier decline and reached 3-month maximum against Japanese yen as the euro-zone finance ministers agreed on a second bailout package for Greece saving the nation from default in March. The package includes a 53.5% write-down for Greek bondholders – it’s a bigger trade-off from the nation’s private creditors than initially expected. Debt-swap bonds will have a coupon of 2% in 2014, 3% in 2015-2020 and 4.3% after that. ECB President Mario Draghi expressed his approval of the deal.
Euro shorts are covered now. The pair EUR/USD opened around $1.3250 and started sliding lower as the press conference was constantly delayed. The market players were pretty sure that there would be an agreement and there were enough longs on an intraday basis and these longs kept getting squeezed out, the longer the decision was delayed. After the announcement euro made 70-pip spike up. Currently the pair came close to the opening levels as stop-losses were all done.
Analysts at Credit Suisse claim that euro will likely be capped as although “short-covering is supporting the euro, this much was within expectations”. In addition, EUR/USD will get under pressure due to improving US economy. The specialists think that the pair will trade in range between $1.3150 and $1.3350 for the rest of the global day and between $1.3050 and $1.3350 during the coming week.
UBS: dollar’s long-term advance against euro will go on
Analysts at UBS claimed that the single currency will continue declining versus the greenback in the longer term from the record maximum at $1.6038 reached in July 2008.
The specialists think that US dollar will break its negative relationship with oil prices as the United States become more independent of foreign energy supply due to the development of shale-gas deposits and an increase in domestic oil production.