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Commerzbank: EUR/USD technical levels
Technical analysts at Commerzbank claim that support for the single currency versus the greenback lies at $1.2809 (78.6% Fibonacci retracement of euro’s advance from January minimum to February maximum). In the longer term, the main downside target remains at $1.2624 (January 16 minimum, 2012 minimum).
As for resistance, the specialists name $1.2911 (May 9 minimum) and $1.2954 (61.8% Fibonacci retracement of the same move). In their view, as long as EUR/USD is trading below $1.3026/33 (minimums of early February and early April) and $1.3055 (50% Fibonacci retracement).
Chart. Daily EUR/USD
Sell EUR/USD on the recovery
The single currency recovered from almost a 4-month minimum in the $1.2810 area to the daily high at $1.2869.
Germany surprised analysts posting 0.5% q/q growth in Q1 – 5 times more than the market had expected. As a result, the concerns about the euro zone’s crisis and its impact on the region’s economic growth have a bit subsided. Note that demand for US dollar is also lower due to the Fed’s April 25 meeting minutes release tomorrow – the Chairman Ben Bernanke said that day that he’s prepared to “do more” to boost the economic recovery and underlined that inflation remains close to target.
The medium-term forecasts for euro are still quite negative. As a result, it looks like a chance to sell on rallies. We see that Italian GDP figures (-0.8% q/q vs. -0.7% expected) have already made EUR/USD pull back a little lower.
Resistance for the pair is situated at $1.2870 (today’s highs) and $1.2935 (May 14 maximum), while support is at $1.2807 (January 17 maximum, $1.2733 (January 18 minimum) and $1.2700.
Chart. Daily EUR/USD
GBP enjoys demand vs. EUR and USD
British pound steadily strengthens against the euro (12% growth since June 2011, new surge in April 2012) and the greenback (5.5% growth since January 2012). What are the reasons for the sterling’s strong performance versus its major peers?
Pound’s status of a “safe haven” tends to attract investors on the back of a total economic and political instability in the euro zone. What is more, speculations about a further QE started to fade after the inflation exceeded the expectations (CPI in March reached 3.5% after previous print 3.4%; annual PPI output in April exceeded estimates of 2.9 % by coming in at 3.3%). According to the BoE governor King, the inflation is still too high.
Moreover, the UK economy attracts foreign investors as the world’s the second largest market for M&A. According to most analysts, M&A inflows contribute to the sterling’s growth and increase the pounds prospects in a longer term. This year foreign investors have bought the biggest amount of the UK assets since 2008 ($32.6 billion-worth).
However, a note from Deutsche Bank warns that the strong pound is already affecting on the poor UK economy which is in a recession itself. For now sterling's crearly appreciating, though it's attactive mainly due to the problems elsewhere. The situation may change quickly enough, so use it while it's still here.
Chart. Daily EUR/GBP
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RBS: recommendations for AUD/USD
Technical analysts at RBS claim that AUD/USD recovered enough and now one may once again go short. In their view, the pair is capped by the 5-day MA which has been limiting the bulls since the beginning of this month.
The banks recommends selling Australian dollar versus its US counterpart at the current levels targeting $0.9860 and then $0.9667 and stopping today at 1.0113 (10-day MA).
According to the specialists, support levels are situated at $0.9860 (December 15 minimum), $0.9715 (2 minimums posted in 2011) and $0.9404. Resistance levels for AUD/USD lie at $1.0095, $1.0140, $1.0436 (the inverse head and shoulders pattern would trigger further upside from here) and $1.0496/1.0509.
Chart. Daily AUD/USD
USD/JPY: technical analysis
After sharp decline at the end of April USD/JPY consolidated during the past week between 80.50 and 79.50. US dollar is currently trading above 100-day MA in the 79.76 area which is now acting as support.
One may see on H4 chart that US currency approached resistance provided by the descending Ichimoku Cloud which has already stopped the bulls on their way up several times. On the daily chart the pair is also not far from Kumo which is hanging above it.
From the fundamental point of view, continuing risk aversion will keep capping the greenback, while the expectations of more actions of the BOJ, on the other hand, will tend to limit yen’s appreciation. It’s possible to expect that the sideways trade will be in place until the end of the week with USD/JPY moving slowly but surely to the resistance line which is going down from March maximums.
At the same time the main downtrend is still in place: although the speed of decline reduced, dollar’s slide below support at 79.67 (yesterday’s minimum) and 79.42 (May 9 minimum) would provoke the decline to 79.15 (61.8% Fibonacci retracement of the rate’s advance from February to March). The most important support lies at 78.30 (previous resistance) – the prices will likely recoil up from this level.
US currency will be able to keep rising if it manages to overcome yesterday maximums (80.18) and get above Kijun-sen on the daily chart (80.65). In this case USD/JPY will climb to the previous resistance in the 81.80 area (early March maximums, April 20 maximum). Note that the bulls won’t be able to feel at complete ease until the prices remain below or inside the daily Cloud, so the key longer-term resistance is situated in the 82.40/50 zone.
Chart. Daily USD/JPY
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NZD/USD: technical comments
NZD/USD keeps trading on a downside since the end of April and reached a four-month low.
According to Westpac analysts, on the back of the global risk aversion NZD/USD will eventually reach $0.7600. On Monday the cross lost 0.90% on the Greek concerns, even though the Europe’s problems do not directly affect the kiwi.
On Monday statistics revealed that core retail sales in New Zealand declined in March by 2.5% against forecasted 0.3% growth and 2.3% growth in February.
The cross has breached the $0.8060 support (200-day MA), and then dropped to $0.7750. The nearest support for NZD/USD lies at $0.7740 (21-week lower Bollinger), $0.7700 (78.6% retracement from Dec.2011 - Feb.2012 growth) and $0.7620, while resistance – at $ 0.7813, $0.7825 (May 14 maximum), 0.7887 (8 May maximum).
Chart. Daily NZD/USD
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Euro zone avoided recession… for now
Euro area managed to escape recession in Q1 with frat GDP reading (q/q), while the economists were looking forward to 0.2% contraction.
Germany surprised analysts posting 0.5% q/q growth in Q1 – 5 times more than the market had expected. France showed flat results, while Italian economy contracted by 0.8% in the first 3 months of the year vs. projected decline of 0.7%. Even the Netherlands regarded as strong economy experienced economic contraction of 0.2%.
Societe Generale: national GDP releases created the picture of an increasingly divergent euro area with the contrast between the northern and southern economies growing ever starker.
Capital Economics: “The region remains heavily reliant on Germany. Policymakers’ talk of growth seems unlikely to amount to anything in the foreseeable future. The danger of a euro zone break-up is as great as ever.”
ING Bank: “Our base case scenario is still for a gradual return to modestly positive euro zone growth in the second half of this year. But a further escalation of the debt crisis, let alone a Greek euro exit, could well derail the envisaged recovery.”
IHS Global Insight: “There seems a compelling case for the European Central Bank to cut interest rates from the current level of 1%. But we suspect that the bank will remain reluctant to do so.”
The European Commission expects euro zone’s GDP to decline by 0.3% in 2012 and then add 1% the next year.”
Photo by EPA/BGNES
May 16: economic background
As many have feared, Greece political parties (New Democracy, PASOK, Democratic Left and SYRIZA) failed to form coalition government. Today Greek leaders will try to reach consensus on an interim government which will schedule new elections (around June10).
French President Francois Hollande and German Chancellor Angela Merkel promised yesterday to pool efforts to promote economic growth in the region, although they are known for differences in views on how to overcome the European crisis (Merkel insists on austerity, while Hollande – on growth). Merkel seemed to tone down the austerity rhetoric that made her extremely unpopular these days. Moreover, leaders of the euro zone's two largest economies expressed their wish for Greece to stay in the single currency union.
Risk aversion remains strong. EUR/USD tested the levels below $1.2700, commodity currencies opened in red. Yen weakened on poor machinery orders data. Asian stocks slumped by 2.3% (MSCI Asia Pacific Index). Kiwi is sold after disappointing dairy auction (important industry for New Zealand).
To watch today:
• Great Britain: A lot of important news for pound will be released. Claimant count payrolls in April may rise by 4.9K compared with 3.6K rise in March. The Governor of the Bank of England Mervyn King in his speech is expected to signal that interest rates will not rise from their record low until late 2013 at the earliest, as the UK's growth disappoints. The key inflation report may leave the door open to the possibility of more QE, either explicitly or by forecasting that inflation will probably fall below the 2% target within 2-3 years without a change in policy. According to analysts at Citi, such a forecast could prepare the ground for the MPC to resume QE (bond purchases) in coming months if activity data and the European monetary union crisis worsen, or if the inflation worries diminish.
• U.S.: The release of the important housing market data is scheduled on Wednesday. According to forecasts, annualized number of building permits may post 0.73M in April after 0.75M in March. Number of housing starts is expected to have increased from 0.65M in March to 0.69M last month. Industrial production in April may have grown by 0.6% after remaining unchanged in March. FOMC Meeting Minutes probably won’t be a game changer, though the Fed’s Chairman Ben Bernanke said that day that he’s prepared to “do more” to boost the economic recovery and underlined that inflation remains close to target.
• Euro zone: The speech of ECB President Draghi will be scrutinized by the investors, aiming to forecast the euro zone’s future. Germany holds a 10-year bond auction.
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Analysts about EUR: food for thought
The single currency keeps descending versus the greenback: EUR/USD is trading now right below $1.2700. The tension level in the region remains high (new normality for the euro area): Greece drives to new elections, Spanish yields keep rising, while Italian banks have been downgraded. How do the experts estimate the current situation?
Shelter Harbor Capital: if you expect Germany to let others exit the euro zone and keep the euro, so that it becomes a closer proxy for Germany itself, then it should be trading higher. But if Germany bails out its weaker neighbors, he thinks the euro should be lower.
Wells Fargo: “For the moment, Greek headlines rule the day in the FX markets and it appears that there is scope for further near-term losses in the euro and most foreign currencies.”
Barclays Capital: “To arrest market fears, proactive measures are needed. Unfortunately, they seem nowhere in sight. This suggests that risky assets are likely to trade erratically at best, with a bias to underperform.”
Citigroup: the most likely case now involves Greece leaving the euro within the next 18 months, though “policy action in Europe will help limit the fallout.”
Image from praguepost.com
Trading alert: German and French auctions
09:30 GMT – Germany will offer 5 billion euro of benchmark 10-year bonds (1.75%, July 2022).
09:00 GMT – France will offer 7-8 billion euro of 2-year papers (0.75%, September 2014), 5-year bonds (1.75%, February 2017), 3-year (3.50%, April 2015) and 4-year (3.25%, April 2016) OAT.
09:50 GMT – France will offer 800 million - 1.2 billion euro of euro zone inflation-indexed bonds (1.10% July 2022 OATei, 2.10% July 2023 OATei and 1.85% July 2027 OATei).
Photo by Simon Dawson/Bloomberg