Comments and forex-analytics from FBS Brokerage Company - page 138
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The week ahead: events to watch
Monday, April 16:
• Switzerland: Producer price index, a leading indicator of consumer inflation, is expected to increase 0.5% in March against a 0.8% growth in Feb.
• U.S.: On Monday a bunch of negative data is expected. Core retail sales (retail sales excluding automobiles) in March are expected to increase by 0.6% compared with a 0.9% increase in Feb. Retail sales growth is also forecasted to slow to 0.4% after 1.1% in Feb. Analysts expect the Empire State Manufacturing Index to stay positive, but to decline from 20.2 to 18.2. Net Long-term Securities Transactions in Feb. may drop to $41B after outstanding $101B in Jan. Business inventories are forecasted to grow 0.7% in Feb.
• Australia: Minutes of RBA’s recent board meeting release is scheduled. Sales of new motor vehicles were flat in February, there is no market forecast for March. In the year to February, new motor vehicle sales rose 1.7%.
Tuesday, April 17:
• Britain: CPI in March may grow 3.5% compared with 3.4% in Feb.
• Europe: Spanish, Greek T-bill auctions will take place. In April German ZEW economic-sentiment indicator is forecasted to decline slightly to 20.2 from 22.3.
• U.S.: Number of new residential building permits in March may slightly decrease to 0.71M from 0.72M in Feb.
• Canada: According to a consensus-forecast, Bank of Canada may leave the overnight rate unchanged at 1%. The median forecast in a Reuters poll of 40 economists shows the next interest rate hike will come in the second quarter of 2013. However, analysts at RBS believe the bank statement may be more hawkish than expected. Manufacturing sales contraction in Feb. may be down to a 0.1% decline against 0.9% in Jan.
Wednesday, April 18
• Europe: Spanish, French bond auctions. Meeting of Group of 20 deputy finance ministers (through April 22).
• Britain: April meeting minutes of the Bank of England's Monetary Policy Committee will be released. At the April MPC meeting, the committee made no further changes to policy after deciding to extend QE by a further £50 billion at its February meeting. Interest rates were also kept low at 0.5% level. The unemployment rate in February is forecasted to remain at 8.4%. Meanwhile, on the claimant count, economists are forecasting unemployment to have risen by 6.6K in March versus 7.2K in Feb.
• Canada: Bank of Canada will offer detailed forecasts in its quarterly Monetary Policy Report, followed by a press conference by Governor Mark Carney.
• Japan: March trade deficit is forecasted to expand to 0.43T from 0.31T in February.
• New Zealand: Quarterly CPI may show a 0.6% growth against a 0.3% decline in the last quarter 2011.
Thursday, April 19
• U.S.: Weekly number of unemployment claims may decline to 370K from 380K on the previous week. Home resales in March are expected to go up slightly (4.62M versus 4.59M in Feb.). Philly Fed Manufacturing Index, however, may decline to 12.1 compared with the previous 12.5.
Friday, April 20
• Europe: April German Ifo Business Climate index is forecasted to decrease to 109.6 from 109.8 in March. Also note the annual spring meeting of the International Monetary Fund/World Bank (through April 22) and the extended deadline for some Greek foreign-law bond holdouts (to tender their bonds and for second leg of debt-restructuring accord).
• Britain: March retail sales data is expected to show an appreciable 0.4% growth after suffering a sharp decline in February. Retail sales volumes fell 0.8% in February after rising 0.3% in January and 0.7% in December. “If March retail sales do see significant growth, it will significantly boost the likelihood that overall consumer spending was positive in the first quarter and helped the overall economy return to growth after GDP contracted by 0.3% quarter-on-quarter in the fourth quarter of 2011”, analysts at IHS Global Insight say.
• Canada: CPI may demonstrate a 0.3% growth in March compared with 0.4% in Feb.
Sunday, April 22
• Europe: French presidential election, first round.
Danske Bank: trading recommendations
Analysts at Danske Bank recommend:
- selling EUR/USD targeting $1.2974 and stopping at $1.3094;
- selling GBP/USD targeting $1.5737 and stopping at $1.5955;
- selling USD/JPY targeting 80.25 and stopping at 81.38.
Euro falls before Spanish bill auctions
The common currency touched a one-month low against the greenback and decreased versus its other major peers before the Spanish bill auctions on Tuesday. Investors fear the European debt crisis may continue.
Spain will sell 12-month and 18-month bills tomorrow, followed by April 19 auctions of debt due in 2014 and 2022. Yields on Spanish 10-year bonds soared to 6.07% on April 13 (highest since December 1).
Westpac Banking: The euro does look like it’s vulnerable to breaking down a lot further in the short term. If Spain’s yields continue to rise, then they’re going to get to a point where they may well need some form of assistance, as Greece did.
The euro fell 0.4% to $1.3023, after touching $1.3009 (minimum since March 15).
J.P. Morgan: trading USD/CAD
Analysts at J.P. Morgan recommend selling the greenback versus Canadian dollar at 0.9980 stopping at 1.0050 and targeting 0.9800.
The specialists try to trade on the US earning season. In their view, the market’s expectations are very low, so there may be some upside surprises. Up to this week 29 companies in the S&P 500 had reported first quarter earnings and 83% of them beat expectations.
According to J.P. Morgan, Canada will benefit from stronger US economy. In addition, the analysts think that the Bank of Canada will upgrade tomorrow their assessment of the Canadian economic prospects.
CFTC trader positioning data
The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:
• The net short euro position swelled by 32k contracts to 101.4k, a largest in about a month. A small number of longs (almost 600 contracts) capitulated, while shorts rose by 21.3k contracts.
• The net short yen position grew by 1k contracts to 66.1k. Both longs and shorts were increased (1.5k and 2.5k respectively).
• The net short pound position rose by about 10k contracts to 18.8k. Longs added 500 contracts, while the short positions grew by 10.5k contracts.
• The net short Swiss franc position was decreased to 9.9k from 14.7k. Short positions were trimmed by less than 100 contracts, while the longs fell by 4.8k 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.
Commerzbank: comments on GBP/USD
Analysts at Commerzbank claim that GBP/USD’s uptrend versus the greenback seems vulnerable as the pair didn’t manage to overcome resistance at $1.6000.
The specialists say that if sterling breaks below $1.5821 (uptrend line) it will fall to $1.5602 (March 13 minimum) and $1.5415 (January 19 minimum). There will be some support at $1.5805 (April low) and $1.5770 (March 22 minimum). As for resistance, it’s found at $1.5905 (Fibonacci retracement), $1.6037 (March maximum) and $1.6092 (November 2011 maximum).
BT: bearish view on euro and Aussie
Analysts at fund manager BT Investment Management expect Australian dollar and euro lose versus the greenback to 0.9500 and $1.25 respectively.
The specialists note that “the next leg of the European crisis is building now” and all eyes are for Spain. In their view, the ECB will have to resume bond buying.
As for Australia’s prospects, the firm says that the nation’s growth is “clearly slowing” due to the negatives from China and Treasurer Wayne Swan’s plans for record budget cuts. Economists surveyed by Bloomberg expect Australian’s GDP to add 3-3.5% in 2012, but BT Investment Management thinks this figure is lower and equals 2.5%.
BoC is unlikely to raise interest rate
The Bank of Canada meets on April 17. The analysts expect the central bank to keep the rates unchanged at 1%. Then the BOC will release full domestic and international assessment April 18.
On Thursday, April 18, Canada’s trade surplus declined to C$0.3 billion vs. C$2.2 billion expected and C$1.9 billion in February. However, many analysts believe the economy will continue demonstrating moderate growth.
The median forecast in a Reuters poll of 40 economists shows the next interest rate hike will come in the second quarter of 2013.
RBC Economics: With U.S. auto sales remaining robust during the first quarter of 2012, we expect the Canada’s automotive and energy export to return to positive growth in subsequent months. We forecast an annualized increase in GDP of 2.5%. The external risks remain sizeable, so the BOC is unlikely to raise the overnight interest rate level.
CIBC Economics: The February trade report was downbeat for estimates of Q1 growth, but the quarterly GDP is still expected to grow by 2%. The BOC is becoming less worried about Europe blowing up and more encouraged by U.S. economic performance, but a change in the policy rate soon is unlikely.
BMO Capital Markets: As long as the U.S. data remain unstable and the European debt problems unresolved, the BoC will be loathe adding negative drag to the domestic economy by tightening lending conditions.
However, some specialists warn the Bank of Canada may change its monetary policy tone to a more hawkish.
UBS: The BoC’s growing fears about household leverage and rapid house price gains have led to suggestions that it may even resort to rate hikes purely to mitigate bubble risks.
Barclay’s: short-term GBP outlook turned bearish
Analysts at Barclay’s stopped being on British pound as it fell versus the greenback below $1.5900. The specialists claim that the pair GBP/USD will now fall to $1.5800 and $1.5770 and then probably to $1.5610.
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: $1.3025, $1.3100, $1.3115, $1.3120, $1.3150;
GBP/USD: $1.5850;
EUR/CHF: $1.2000;
USD/CHF: 0.9200;
USD/JPY: 80.00;
AUD/USD: $1.0280, $1.0350;
EUR/AUD: 1.2650;
USD/CAD: 1.0000.