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US employment forecasts improved
US National Association for Business Economics announced today that the forecasts for US employment improved.
According to NABE’s survey of the leading economists, payrolls will rise 170,000 a month on average in 2012. In November the consensus was of 127,000 new jobs a month. Unemployment will average 8.3%, down from 8.9% be the previous estimate.
Such change in expectations reflects a potential positive shift in consumer confidence and better growth prospects for the world’s largest economy. At the same time, economists maintained forecasts for consumer spending, which may rise 2.1%, and predicted GDP to add 2.4% in the fourth quarter from a year earlier, unchanged from the November survey.
In January US non-farm payrolls by 243,000, showing the biggest advance in 9 months, while the unemployment rate fell to the minimal level since February 2009 at 8.3%.
US February labor data will be released on March 9.
Forecast Pte: USD/JPY is facing correction
Yesterday the greenback spiked to 81.67 yen reaching the maximal level since May 31. Since the end of January it gained more than 5%.
However, technical analysts at Forecast Pte claim that the pair USD/JPY may lose about 1.5%.
The specialists base their conclusions on the momentum indicators. The greenback’s 14-day relative strength index was at 72 yesterday, above the 70 level some traders see as a sign an asset’s price is set to change course.
“The candle formation looks to signal a possible reversal,” say the analysts noting that American currently seems to be extremely overbought.
As a result, the specialists think that US dollar will go though correction in the short term. In their view, USD/JPY may drop to 78.85 yen (50% retracement of dollar’s advance from the February 1 minimum to yesterday’s maximums). Then the pair may climb to 85 yen in the next 1-3 months.
BBH: US dollar’s under pressure due to oil prices
Analysts at Brown Brothers Harriman note that as oil prices are rising, US dollar will find itself under pressure.
The specialists say that the current oil price’s advance is caused by several factors. Firstly, supply from Sudan, Syria and Yemen has sharply contracted due to political instability if not to mention Libya and Iran. Secondly, Japan’s increasing oil consumption replacing nuclear fuel. Moreover, the unusual cold in Europe may be fueling demand as well.
According to BBH, high oil prices increase the risk that the Federal Reserve will launch another round of quantitative easing as the economy of the United States will suffer as oil import becomes more and more expensive.
The Fed’s Chairman Ben Bernanke will be testifying before Congress on Wednesday and Thursday, so the bank recommends watching his comments for the hints of the central bank’s opinion on the issue.
Westpac: trading ahead of LTRO
The European Central Bank will conduct its second LTRO operation on Wednesday, February 29.
The first round of low-cost refinancing operation took place in December: European banks got 489 billion euro in 3-year credits.
Analysts at Westpac claim that if the region’s banks borrow less than 480 billion euro, investors will worry that the markets are too illiquid and will buy the safe-haven greenback against Canadian dollar. At the same time, if banks borrow more than 480 billion euro, one should sell US dollar versus its Canadian counterpart.
The specialists favor the second outcome and recommend traders to take risk. Westpac advices to go short on USD/CAD stopping at 1.0060 and targeting 0.9770.
At the same time, the bank warns that one has to be careful as investors could soon change course if they reevaluate and decide that a large take-up implies weakness in the system.
Barclays: comments on USD/JPY
Technical analysts at Barclays note that the pair USD/JPY tested the levels above the weekly Ichimoku Cloud and are now looking for confirmation of the bullish trend.
The specialists claim that the greenback may add about 10% versus Japanese yen if it managed to close the month above 21-month MA at 80.90 yen. In this case American currency will climb to 88 yen.
Nomura: forecast for euro is still bearish
Nomura has made the best 3-month forecasts for EUR/USD and USD/JPY, according FX Week. Such conclusion was made due to the comparison of the bank’s 3-month projections made in the middle of November and the actual rates at the middle of February. What does the bank expects next?
Nomura is still bearish on the single currency. According to Nomura, the pair EUR/USD will fall to $1.20 by the middle of this year. The analysts think that the sovereign debt crisis will continue in spite of last week's bail-out package for Greece as other European economies may find themselves in need of bailouts as well.
The specialists think that the European Central Bank's second longer-term refinancing operation LTRO on Wednesday will be lower than expected: the banks will get only 200-300 billion euro from the ECB. At the same time, according to the survey of Nomura’s clients most people are expecting ECB to grant the region’s 500 billion euro in credits. As a result, the bank thinks that euro will start sliding in case of the lower number.
Citigroup: sell EUR/GBP
According to the Confederation of British Industry, the gauge of retail sales growth improved from minus 22 in January to minus 2 in February (versus -17 forecast).
British pound declined by 1% versus the single currency since February 21, the day before Bank of England minutes showed two policy makers voted for a larger increase in asset purchases than agreed at this month’s meeting.
Analysts at Citigroup think that now there’s a good chance to buy pound n the dips. The specialists advise traders to open shorts on EUR/GBP at 0.8473 targeting 0.8250 and stopping at 0.8555.
BOTMUFJ: EUR/USD technical forecast
Technical analysts at Bank of Tokyo-Mitsubishi UFJ claim that the single currency may rise to the 200-day MA at $1.3722.
The specialists note that EUR/USD’s 5- and 21-day MAs are both pointing up – long-term bullish signal.
At the same time, the bank says that if euro doesn’t manage to overcome $1.3509 (38.2% Fibonacci retracement from the pair’s decline from the May 4 maximum at $1.4940 to January 13 minimum at $1.2620), it may slide to the 90-day MA at $1.3243. As the recent advance of the single currency was very rapid, EUR/USD may survive short-term correction.
ECB allotted 530 billion euro to euro zone’s banks
The single currency fell versus the greenback after the European Central Bank the injected a huge amount of three-year cash into the banking system.
The ECB allotted 530 billion euro in 3-year contracts at 1% interest. The first long term refinancing operation (LTRO) in December accounted only for 489 billion euro. However, the figure was close to what the market has been expecting, so EUR/USD got limited on the upside.
One may see that euro’s correlation with risky assets has broken as higher-yielding currencies such as Australian and New Zealand’s dollars rallied against US dollar. The reason is that increased liquidity may boost carry trades in which investors use lower-yielding currencies buy riskier assets, so that EUR will get under pressure.
On the one hand, money from the ECB will help the region’s banks to meet their financing needs and continue easing tension at the euro zone’s bond market. On the other hand, LRTO can’t resolve the euro zone debt crisis and the excess liquidity could weigh on the single currency in coming months.
Support levels for EUR/USD lie at $1.3400 and $1.3388, while resistance levels are situated at $1.3485, $1.3500 and $1.3547.
The essentials of Ben Bernanke’s testimony
- The Fed’s Chairman confirmed that the interest rates are likely to stay low at least until the end of 2014 as unemployment level is still high and inflation outlook is subdued.
- Bernanke didn’t mention additional monetary stimulus measures like QE3.
- “Gasoline prices have moved up, primarily reflecting higher global oil prices – a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power.”
- Comments on the situation in euro area: “if Europe has a mild downturn… and if the financial situation remains under control that the effect on the US might not be terribly serious”. At the same time, there is “significant risk” of stress and contagion from “a major financial accident”.
Analysts at Barclays Capital note that US central bank is passively moving away from excessive easing approach that will be a positive factor for US dollar.
According to the data released yesterday, US GDP added 3% in the final 3 month of last year (vs. the consensus forecast of 2.8% growth). Conference Board said that confidence among US consumers climbed to a 12-month maximum in February.
Beige Book, regional business survey, also published yesterday showed that American economy expanded at a “modest to moderate pace” in January and early February, the main driver of the expansion was manufacturing.
Bernanke will continue giving its semiannual testimony to the House Financial Services Committee.