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It was a grim week for the euro area
The single currency hit 3-weel low versus the greenback and lost 2.7% this week against Japanese yen showing the steepest 5-day slide since the week ended September 9.
Spain
The main theme of the past week was Spain. Analysts at Citigroup said that the nation was at “a greater risk than ever before” of a debt restructuring. Spain’s main IBEX 35 index touched the lowest in 7 months approaching to its post-credit-crisis minimum.
Spain’s 10-year borrowing costs returned above 5% after bottoming at 4.815% after the ECB’s second long-term refinancing operation (LTRO) in February. In March the indebted country shocked markets by announcing that it had missed its 2011 budget deficit target of 4.4% and set a lower goal of 5.3% for 2012. Spanish government failed to sell the planned amount of debt at this week’s auction (April 4) managing to borrow only 2.59 out of 3.5 billion euro target.
Bank stocks plunge
It’s also necessary to note that this week was the worst for European bank stocks since December with Italy’s Unicredit falling by more than 11% and Banca Poplare di Milano slumping by more than 15%.
ECB: downside economic risks
The ECB President Mario Draghi repeated that downside economic risks prevail and called talk of an exit strategy from LTO premature.
Discouraging data
German February industrial output data: -1.3% m/m vs. the Reuters consensus forecast of -0.5%.
EUR/USD
Scotiabank: watch the bearish signals from MACD, RSI and candlesticks. However, EUR/USD is still caught in sideways trend between $1.30 and $1.35 which has been in place since the end of January. As a result, wait for the breach of $1.2974 support for bearish confirmation.
NFP: Bloomberg survey in details
Bloomberg Survey
================================================================
Nonfarm Private Unemploy Hourly
Payrolls Payrolls Rate Earnings
,000’s ,000’s % MOM%
================================================================
Date of Release 04/06 04/06 04/06 04/06
Observation Period March March March March
----------------------------------------------------------------
Median 25 215 8.3% 0.2%
Average 208 220 8.3% 0.2%
High Forecast 250 265 8.4% 0.2%
Low Forecast 175 185 8.1% 0.1%
Number of Participants 80 45 76 49
Previous 227 233 8.3% 0.1%
----------------------------------------------------------------
4CAST Ltd. 200 215 8.2% ---
ABN Amro Inc. 210 230 8.3% ---
Action Economics 210 215 8.3% 0.2%
Aletti Gestielle 200 --- 8.3% ---
Ameriprise Financial Inc 215 210 8.2% 0.2%
Banca Aletti & C spa 230 246 8.2% ---
Bank of Tokyo- Mitsubishi 200 210 8.2% ---
Bantleon Bank AG 190 --- 8.3% ---
Barclays Capital 200 215 8.2% 0.1%
BBVA 200 210 8.3% 0.2%
BMO Capital Markets 190 --- 8.3% 0.2%
BNP Paribas 210 --- 8.3% 0.1%
BofA Merrill Lynch Resear 220 225 8.3% 0.2%
Briefing.com 230 250 8.2% 0.1%
Capital Economics 200 --- 8.3% 0.1%
CIBC World Markets 200 --- 8.3% 0.2%
Citi 185 --- 8.3% 0.1%
ClearView Economics 190 205 8.4% 0.2%
Comerica Inc 200 --- 8.2% 0.1%
Commerzbank AG 220 --- 8.3% 0.2%
Credit Agricole CIB 210 --- 8.3% 0.2%
Credit Suisse 235 --- 8.2% 0.2%
Daiwa Securities America 200 --- 8.3% ---
Desjardins Group 210 --- 8.3% 0.2%
Deutsche Bank Securities 250 250 8.2% 0.1%
Deutsche Postbank AG 230 --- 8.2% ---
Fact & Opinion Economics 240 250 8.2% ---
First Trust Advisors 210 223 8.1% 0.2%
FTN Financial 200 220 8.3% 0.1%
Goldman, Sachs & Co. 200 --- 8.2% 0.1%
HSBC Markets 180 189 8.3% ---
Hugh Johnson Advisors 180 185 8.3% 0.2%
IDEAglobal 210 220 8.3% 0.2%
IHS Global Insight 210 --- 8.2% 0.2%
Informa Global Markets 200 --- 8.3% 0.2%
ING Financial Markets 220 230 8.1% 0.2%
Insight Economics 235 --- 8.2% 0.2%
Intesa Sanpaulo 190 --- 8.3% 0.2%
Iur Capital Llc 195 --- 8.2% ---
J.P. Morgan Chase 215 220 8.3% 0.2%
Janney Montgomery Scott L 201 221 8.3% ---
Jefferies & Co. 195 210 8.2% 0.1%
JH Cohn 225 --- --- ---
Laurentian Bank Securitie 180 185 8.3% 0.1%
LCA Consultores 225 --- --- ---
Maria Fiorini Ramirez Inc 215 225 --- ---
Market Securities 219 --- 8.2% ---
MET Capital Advisors 222 --- 8.2% ---
Mizuho Securities 175 --- 8.3% ---
Moody’s Analytics 200 205 8.3% 0.1%
Morgan Stanley & Co. 175 --- 8.3% 0.2%
National Bank Financial 190 --- 8.3% ---
Natixis 205 --- 8.2% 0.2%
Newedge 205 215 8.3% ---
Nomura Securities Intl. 225 235 8.2% 0.2%
Nord/LB 175 --- 8.3% 0.2%
OSK Group/DMG 192 --- 8.2% ---
O’Sullivan 195 205 8.3% 0.1%
Paragon Research 242 --- 8.2% ---
Parthenon Group 206 224 8.2% 0.2%
Pierpont Securities LLC 235 245 8.2% ---
PineBridge Investments 245 265 8.2% 0.1%
PNC Bank 200 210 8.3% 0.2%
Prestige Economics 200 205 8.3% ---
Raiffeisenbank Internatio 240 245 8.2% ---
RBC Capital Markets 200 205 8.3% ---
RBS Securities Inc. 220 225 8.2% ---
Scotia Capital 220 --- 8.3% ---
SMBC Nikko Securities 250 250 8.3% 0.2%
Societe Generale 190 195 8.1% 0.2%
Standard & Poor’s 225 230 --- 0.2%
Standard Chartered 205 215 8.3% 0.1%
Stone & McCarthy Research 200 210 8.2% 0.2%
TD Securities 175 185 8.4% ---
UBS 200 210 8.2% 0.1%
University of Maryland 200 205 8.3% 0.2%
Wells Fargo & Co. 226 --- 8.2% ---
WestLB AG 220 --- 8.3% 0.1%
Westpac Banking Co. 180 --- 8.3% ---
Wrightson ICAP 230 235 8.2% 0.1%
================================================================
RBS is extremely bullish on GBP
Analysts at RBS expect the British pound in April to be on a rise against the euro, yen and Swiss franc. However, the sterling looks less likely to do well against the Australian and the New Zealand dollar.
According to specialists, in April sterling has traditionally been strong against a range of currencies. Moreover, higher than expected construction, manufacturing and services PMIs (56.7, 52.1 and 55.3 respectively) bring bullish sentiment to the market.
At the current run rate, previously announced asset purchases wouldn’t run off until early May. The further expansion of monetary easing is unlikely taking into account the improvement of UK economy.
USD/JPY: analysts’ forecasts
The pair USD/JPY was trading sideways this week opening and closing in the 82/83 yen area.
Today the main event for all dollar crosses is the Non-Farm Payrolls release at 12:30 GMT.
Bank of Tokyo-Mitsubishi UFJ: USD/JPY may rise to 84 yen if NFP data exceed expectations.
JP Morgan: USD/JPY will likely trade next week between 81 and 83 yen.
Analysts at Brown Brothers Harriman claim that unless the Bank of Japan announce some aggressive easing measures on Tuesday, April 10, yen’s dynamics will be determined by external factors. The specialists underline that the LTROs in Europe may have already given all positive effect they could and that political and economic headline risk in the weeks ahead are on the downside. As a result, BBH believes that safe-haven demand for yen will increase and USD/JPY may decline to 80-81 yen, while EUR/JPY may slide to 104-106 yen.
The week ahead: events to watch
Monday:
• New Zealand, Australia, Germany, France, Switzerland, Italy and Great Britain: Bank holidays (Easter).
• Ben Bernanke speaks (11:15 p.m. GMT) in Stone Mountain. The Fed’s Chairman will likely mention the unexpectedly weak NFP (payrolls added only 120K in March vs. the expected increase of 207K).
Tuesday:
• Japan: The release of monetary policy statement and overnight call rate is scheduled. At a policy-setting meeting the BOJ is supposed to refrain from further quantitative easing steps due to weak yen and signs of improving economic conditions, although policymakers could take action at the following meeting on April 27. With interest rate expected to stay near zero, the BOJ doesn’t possess a remarkable liberty of action.
• China: Trade balance in March is likely to be less terrifying than in February: analysts forecast the trade deficit to decline from 31.5 billion to 3.0 billion. Investors have become increasingly nervous about China's depressed economy in recent sessions.
• Greek T-bill auction.
Wednesday:
• Italian T-bill auction.
Thursday:
• Australia: Labor market data should be widely watched. The unemployment rate in March is forecasted to increase slightly from 5.2% to 5.3%. Number of employed people may increase by 6,700 versus February’s 15,400 contraction. Weak February figures may mean that strong Aussie burdens the Australian economy and that the RBA may decide to cut rates in the coming months.
• U.S.: PPI growth accelerated from 0.1% in January to 0.4% in February. In March American producer prices are seen gaining 0.3%. The PPI is climbing more than the Fed anticipated, though the central bank claims that the rise in energy prices is only temporary. Higher prices diminish the chances for additional QE. Trade deficit in March may contract from $52.6 billion to $51.9 billion. However, according to TD Economics, rising energy prices will continue to widen the trade deficit in February; analysts expect the deficit to rise to $53 billion, the maximum since October 2008. A slight decrease in a weekly number of unemployment claims is forecasted (355,000 versus previous 357,000 – a 4-year minimum posted last week). However, broader outlook on the U.S. labor market in 2012 remains cloudy.
• Italian bond (BTP) auction.
Friday:
• China: Economy is expected to contract in the first quarter: GDP may decline to 8.4% from 8.9% in the last quarter 2011. Strategists at Barclays Capital warn that the Aussie and other commodity currencies could be weighed down until it is clear the China’s slowdown has bottomed out.
• U.S.: Consumer Price Index is forecasted to rise to 0.2% in March versus 0.1% in February. TD Economics analysts expect the downward trajectory in annual CPI (drop to 2.5% y/y from 2.9% y/y in February) regardless of the surge in energy prices.
• Ben Bernanke speaks (5:00 p.m. GMT). There may be a surge of volatility on the Chairman’s comments.
Mizuho: short-term bearish on USD/JPY
Analysts at Mizuho Corporate Bank believe that the greenback may drift lower versus Japanese yen sliding to 80.00 in the next 2 weeks.
“When we look at the amount of short positions in the yen, we see that they really have not decreased. Their volume is large. At some point, these positions will be closed, leading to an increase in the yen. Employment data can serve as an impetus for this,” say the specialists.
Ifr Markets: option expiration for today
Analysts at Ifr Markets, key analytical data provider, claim that today the following options expire:
EUR/USD: $1.3400, $1.3225, $1.3300, $1.3500, $1.3315.
USD/JPY: 82.25, 84.00 83.15, 83.00.
EUR/JPY: 108.00.
AUD/JPY: 83.75.
AUD/USD: $1.0200, $1.0300.
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).
CFTC trader positioning data
Monday, April 9, 2012 - 08:00
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• The net short euro position dropped to 79.5k contracts, the smallest such net position since late November 2011. Long positions increased 5.8k contracts, while shorts shrank by 3.8k contracts.
• The net short yen position declined to 65.1k contracts from 67.6k. Longs rose by 3.7k, whereas shorts rose by 1.1k contracts.
• The net short pound position went down to 8.8k contracts from 11.1k. Both longs and shorts increased (2.7k and 380 contracts respectively).
• Swiss franc net shorts decreased to 14.7k from 15.1k contracts. Longs grew by 322 contracts and shorts were pared by almost 100 contracts.
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.
USD/JPY down on U.S. jobs figures
The greenback touched a one-month low versus the yen on Monday on the back of last week's lower-than-expected U.S. labor market figures. Investors are worried that the Fed may need more monetary stimulus to support the economy.
In March non-farm payrolls rose by 120K versus 240K in February and far lower-than-forecasted 207K, demonstrating the smallest increase since October. The unemployment rate decreased slightly to 8.2% from 8.3%.
Commonwealth Foreign Exchange: The question for the dollar is whether this is as viewed as an outlier in an otherwise improving trend in labor markets, or if it's viewed as enough to revive talk of another round of QE. At the very least it will keep the door open to additional policy easing, more so than before the number was released.
Japan, however, showed the first current account surplus in two months in February (1.178 trillion yen, down 30.7% from a year earlier, but stronger, than forecasted). Exports stopped contracting thanks to robust demand in the U.S. and Southeast Asia.
Early Monday the USD/JPY dropped as low as 81.19 yen on its lowest level since the beginning of March. The support for the dollar lies at 81.07 yen (a 38.2% retracement of its rally in Feb.-March), 80.59 yen (March 6 minimum), 80.25 yen (Feb.29 minimum) and 80.01 yen (Feb.28 minimum). The resistance levels for the pair are 82.56 yen (Apr.6 maximum), 82.88 yen (21-day MA) and the 82.99 (Apr.3 maximum).
Saxo Bank: comments on euro, yen and franc
Analysts at Saxo Bank in London note that as the market’s focus shifts to Spain, the European Central Bank will face a lot of difficulties in the coming months.
The specialists claim that for now the ECB did well to contain spikes in peripheral sovereign yields through its long-term refinancing operations (LTROs) in December 2011 and February this year. However, Saxo Bank warns that if the concerns about Spain keep mounting, it will be very hard for the ECB to calm the market alone: more political co-ordination will be needed.
According to Saxo, French elections and new leadership will drive EUR/USD up, though the pair won’t be able to rise above $1.35/1.36, so a reversal downwards in this area’s expected.
As for Japanese yen, the analysts say that yen’s decline “in the next few months, this yen move will be overshot, and we will see a bit of a consolidation in these carry trades, which will mean the yen consolidates robustly against several of these currencies.”
Speaking about Swiss franc’s prospects, the economists say that the Swiss National bank is unlikely to raise EUR/CHF floor from 1.20 until the third quarter or even later.