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Commerzbank: bearish view on NZD/USD
Technical analysts at Commerzbank are bearish on New Zealand’s dollar versus its US counterpart.
The specialists note that NZD/USD is now hovering above support at $0.7607 (78.6% Fibonacci retracement of the pair’s advance from November to February). In their view, this support is likely to be breached soon and kiwi will start moving down targeting $0.7168 (200-week MA) and $0.7116 (2011 minimum) in the medium term.
According to the bank, resistance for New Zealand’s currency is situated in the $0.7774/0.7792 area (January 6 minimum, 61.8% Fibonacci retracement). The pair will find itself under bearish pressure as long as it’s trading below these levels.
Chart. Daily NZD/USD
Spain: bond auction results
Spanish government has managed to sell 2.49 billion euro in bonds out of 1.5-2.5 billion euro target. Such figures may be regarded as an achievement in the current climate. The costs, however, turned out to be high enough. As you may see below, the yields increased in comparison with previous auctions.
- April 2016 bond: average yield 5.106% from previous 3.374%;
- July 2015 bond: average yield 4.876% from previous 4.037%;
- January 2015 bond: average yield 4.375% from previous 2.890%.
Photo: EPA/AP
Barclays Capital: comments on AUD/USD
According to analysts at Barclays Capital, a combination of global and domestic factors pulls AUD/USD below parity. However, in a short term the Aussie may enjoy a rally on the back of the postponed Greek elections and the softening tone of EU pro-austerity leaders.
Specialists at Barclays Capital lowered their monthly forecast for AUD/USD from $1.0400 to $0.9600. They also cut their three-, six- and twelve-month forecasts to $0.9900, $1.0100 and $1.0200 respectively. Analysts believe the cross will get a yield-support after the middle of June.
According to technical specialists, the pair may touch its 1.5-year lows in the $0.9385/0.9655 area in the medium term. The cross is still trading below the 50-,100- and 200-day MAs and below the daily Ichimoku Cloud.
Chart. Daily AUD/USD
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ECB also started seeing the risks
As the tensions in Europe strengthened, even the European Central Bank dadmitted that the situation’s becoming too dangerous.
The ECB President Mario Draghi announced yesterday that it will temporarily stop lending to some Greek banks to limit its risk. Draghi said that until the banks in question sufficiently boosted their capital, the responsibility for lending to them will be shifted to the Greek central bank (within so-called Emergency Liquidity Assistance). Earlier ECB President acknowledged for the first time that Greece could leave the monetary union.
Greece’s four biggest banks are waiting for European Union’s approval to receive 18 billion euro of bonds issued by the HFSF (Hellenic financial stability fund) for their recapitalization.
Commerzbank: “With market tensions mounting and contagion effects running their course, the ECB might however not be left with much of a choice in the end as capital flight from periphery countries could even accelerate if the probability of a “Grexit” rises. Against this background, the recent EUR/USD rebound is unlikely to be more than a short gasp for air”.
Image from brecorder.com
Analysts: outlook for GBP
Analysts at Barclays Capital expect EUR/GBP to continue the downward movement. Even though the sterling was hurt by the dovish inflation report on Wednesday, the pressure on the common currency these days is incomparably higher. Analysts at Barclays Capital and ING forecast the EUR/GBP to decline to 0.76 and 0.75 respectively in a 12-month period.
However, analysts at HSBC don’t believe the sterling is so impregnable. Even in calm market conditions most analysts expected sterling to stay firm against the euro, but to weaken against the greenback. If the risk aversion grows further, investors will turn to the greenback – the real safe haven these days. Great Britain has already slipped into recession; in case if UK data worsens (either slowdown in growth or dip in inflation), the sterling will collapse on a possibility of a further QE. Strategists at RBS forecast GBP/USD to be at $1.57 by the middle of the year.
Watch out for important UK data: public sector net borrowings and inflation letter (May 22) and the MPC meeting minutes (May 23).
Chart. Daily EUR/GBP
Chart. Daily GBP/USD
Analysts agree: AUD will suffer more
On Monday Australian dollar dived below the parity versus its US counterpart. Analysts say it will stay down there for a time being.
NAB reduced forecast for AUD/USD in September from $1.0200 to 0.9800 due to negative domestic factors. The specialists think that the Reserve bank of Australia will cut borrowing costs 2 times more by 25 bps each time and probably and possibly more if the economy keeps deteriorating. Australian federal budget, announced last week, will lower the nation’s GDP growth in the year to June 30 by a percentage point (the RBA cut benchmark rate by 50 bps to 3.75% on May 16: the nation’s economy added 2.3% last year).
CBA lowered AUD forecast from $1.0800 to $0.9800 by June and from $1.0900 to $1.0500 by December citing the same reason for the revision – fiscal contraction and interest-rate cuts. End-of-year projections were trimmed from $1.0900 to $1.0500.
ANZ underlines that without positive news from China or Europe, AUD/USD rebounds will allow for tactical shorts to be built for a series of technical targets at $0.9850, $0.9600 and $0.9400 before a long-term base develops.
UBS says that the bias for AUD/USD is clearly bearish. In their view, the pair will to trade at $0.9800 in the coming weeks.
Westpac cut AUD/USD forecast from $1.0200 to $0.9800 by September keeping the year-end at $1.0400.
Chart. Daily AUD/USD
May 18: economic background
The common currency keeps weakening amid concerns Europe’s crisis extends. On Thursday Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B- on the back of concerns that the country may exit the euro zone. As we approach the Greek elections, the risk aversion on the currency markets is likely to grow.
Spanish borrowing costs edged up at a bond auction on Thursday, raising fears that other fiscally weak nations may follow the Greek scenario. Moreover, Moody’s Investors Service cut ratings of 16 Spanish banks yesterday.
Manufacturing activity in the U.S. unexpectedly contracted in May to its weakest in eight months. US Philly Fed Manufacturing Index sank to -5.8 in May from 8.5 in April, while economists were expecting the index to increase to 10.3. Jobless claims remain unchanged at 370,000 last week, signaling the labor market is making little progress.
Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution – nothing new, so the market didn’t react. The only thing to constrain yen’s appreciation is the Bank of Japan’s meeting next week as there may be some easing.
EUR/USD once again renewed 4-month minimum sliding to $1.2654. Australian and New Zealand dollars are losing for the 6th day in a row. Asian stocks dropped by 2.4% (MSCI Asia Pacific Index), while the S&P 500 hit 4-month minimum yesterday.
Later today:
• All: US President Barack Obama will host a 2-day G8 Meetings at Camp David. G8 is a forum, where the world's leading advanced economies – Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States – meet to discuss key topics and provide solutions for global issues.
• Canada: Core CPI growth in April is expected to remain unchanged at 0.3%. CPI may grow by 0.3% after a 0.4% growth in March.
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Greece: at the political battlefront
Rating agencies are quite active these days: we have Italian and Spanish banks downgraded and Greece. Fitch Ratings cut Greece’s rating from B- to CCC due to “the heightened risk that Greece may not be able to sustain its membership of EMU”.
Fitch warned that the other euro zone nations also risk getting worse estimates: the agency pledged to put the entire zone on downgrade watch if after June 17 elections in Greece “Fitch assesses that the risk of a Greek exit from European Monetary Union is probable in the near term.”
A non-political caretaker Greek government took over on Thursday to oversee fresh national elections on June 17. The IMF said it would not resume contacts over the 130 billion euro bail-out until the new government is in power. The June vote is regarded as a referendum on the country’s membership in the euro area.
Alexis Tsipras, the leader of the Radical Left coalition (SYRIZA), claimed that he would never yield to European demands to impose “barbaric” austerity. At the same time, the latest poll showed that Greek voters are returning to the parties which stick to euro: the conservative New Democracy party may expect to have 26.1% of votes versus 23.7% for SYRIZA (first place means 50 extra seats in the 300-seat parliament). Together with the Socialist PASOK party New Democracy would have enough seats to form a pro-bailout government. However, it’s too early to breathe with relief: political experts say that voters are still far from enthusiastic with New Democracy and many things may happen in a month before elections.
Alexis Tsipras, the main inspirer of Greek radical forces, 37 years old. Photo from anphoblacht.com
RBC Capital: comments on USD/CAD
According to analysts at RBC Capital Markets, U.S. dollar is expected to strengthen further against the Canadian currency. The pair USD/CAD broke C$1.0097 and C$1.0159 resistance levels and now may rise to C$1.0319, reaching a 2012 maximum.
Analysts believe the pair must fix below C$0.9899 to reverse current bullish trend. However, it’s unlikely to happen: the risk aversion has increased this month amid concerns the sovereign-debt crisis will worsen.
Chart. Daily USD/CAD
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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: $1.2670, $1.2700 (large), $1.2900, $1.2950.
USD/JPY: 79.00, 79.75, 80.00;
EUR/GBP: 0.8000;
AUD/USD: $0.9900, $0.9950, $1.0000;
USD/CAD: 1.0100.
Photo from Reuters
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