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Ichimoku. Weekly forecast. GBP/USD
Weekly GBP/USD
Last week sterling experienced a big slump versus its US counterpart. The pair GBP/USD tested the levels below weekly Ichimoku Cloud, but then ultimately closed the week right at Senkou Span A. The new trading week was opened with a gap lower – the bulls are trying to close it, but the bearish Cloud is acting as resistance.
The prices breached support of the Turning line (2), so they are currently helped by the Standard line (1). Kijun-sen is moving horizontally and pointing at sideways trend – note that it may be in a rather broad range with the recent developments hinting at the fact that it may take place below the Cloud. Kumo is thin (3), so neither bulls, nor bears are really sure in themselves. All in all, the technical picture looks more negative than positive (GBP/USD returned below 200-week MA) and British currency is vulnerable for another leg lower in case Kijun-sen is breached.
Chart. Weekly GBP/USD
Daily GBP/USD
On the daily chart pound also breached important support levels – Kijun-sen (1), the support line connecting the minimums of January 13, March 12 and April 16 and the Ichimoku Cloud to consolidate below the latter. Kumo significantly narrowed in comparison to what we saw a week ago (3). The Turning line (2) dived below the Standard one (1) forming weak, but “dead cross”.
We don’t think that pound will be able to return above psychological level of $1.6000 in the coming weeks as it seems that the pair has topped on April 30. We expect sterling to trade this week between $1.5780 and $1.5950/6000 showing a kind of consolidative recovery ahead of further declines.
Chart. Daily GBP/USD
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Fidelity: likely scenario for euro
According to analysts at Fidelity Worldwide Investment, Greece is certain to leave the euro zone, but its exit is unlikely to collapse the whole system.
Specialists forecast Spain to ask for assistance in the recapitalisation of its banks from both the ECB and the IMF in the coming months, but then the situation is expected to improve. In their view, Spain and Italy have all the chances to avoid expulsion, despite the fact that the austerity programs in these countries have been losing support over the last few months.
The Greece’s cautionary example may illustrate the importance of the austerity measures and the probable consequences of non-cooperation with the EU. Analysts are convinced that Europe will never find a way out from crisis without a tight collaboration and political stability.
Analysts recommend investors to focus on capital preservation. The best strategy is not to put priority on income, but to invest in low volatility instruments.
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Spain: struggle with deficit and recession
The Finance Ministry reported on Friday the Spain’s 2011 budget deficit could be revised to 8.9% of GDP from initial 8.5% after four of its 17 regions overshot their expected budgets. However, the Ministry still expects to meet the target of 5.3% for 2012 budget deficit. Spain’s authorities forecast the Spanish GDP to shrink by 0.3% in Q2 2012. Recession in Spain, therefore, continues for the third consecutive quarter (in Q4 and Q1 economy also contracted by 0.3%).
These days the country is on a thin ice: the indebtedness is growing aggressively and the GDP is slowing down, leaving the euro zone’s economy under the threat. All eyes on the EU leaders: will they manage to balance austerity with growth?
French President Francois Hollande said on Saturday he would make proposals for Eurobonds at an upcoming European summit in Brussels on May 23. German Chancellor Angela Merkel is opposed to euro zone bonds in a short-term prospect. Hollande, however, is determined to persuade Berlin to lift its veto on issuing common bonds in order to get instruments to stimulate growth in the region.
Photo: AP
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Danske Bank: bearish view on EUR/GBP
Analysts at Danske Bank note that after setting minimum at 0.7950 on May 16 European currency has shown 3 days of gains versus British pound.
However, the specialists claim that though both the UK and the euro area face hard times, the Britain’s economic prospects are better. Danske underlines that the Bank of England has stopped its bond purchases at the moment, while worsening conditions in the euro zone would prompt the ECB to ease further.
According to the bank, EUR/GBP will return below psychologically important level of 0.80. The pair will trade at 0.79 in a month and 0.78 in 3 months.
Chart. Daily GBP/USD
EUR/USD: bulls vs. bears
The common currency resumed a bullish correction vs. the greenback on Monday. The G8 meeting, held on May 18-19, didn’t give any clear answers, but the leaders expressed hope that Greece manages to stay in the euro zone. The G8 countries also stressed that their "imperative is to promote growth and jobs", giving a hint they are turning away from austerity.
Growth is expected to be the main topic of the EU meeting on Wednesday (May 23), where French President Francois Hollande is expected to call for Eurobonds. According to analysts, focus on growth means the higher ECB involvement, “dovish” monetary policy and a weaker euro.
The uncertainty in Europe persists: investors remain concerned about the possible consequences of the so-called “Grexit” (Greece may be forced to leave the euro zone if the anti-austerity party wins the elections in June) and about the situation in Spain’s banking sector (the country is expected to ask for bailout soon, 10-year bond yields increased to 6.29%).
Bulls dominate the market on Monday; however, most analysts believe it's a short-time correction. EUR/USD still trades far below the 55-, 100- and 200-days MAs. MACD stays on the negative territory and below its signal line, giving sell-signals. The pair trades far below the daily Ichimoku Cloud.
The bullish trend may strengthen if the pair manages to fix above the strong $1.2812 resistance (today’s maximum). Further resistance lies at $1.2845, $1.2880, $1.2910, $1.2930, $1.2950, $1.2970 and $1.3010, while support – at $1.2750, $1.2710, $1.2680, $1.2665 (May 17 minimum), $1.2640 (May 18 minimum).
Chart. Daily EUR/USD
May 22: economic background
EUR/USD shows a two-day advance ahead of the EU summit on Wednesday, which is expected to show who stands where among the European leaders. German Chancellor Angela Merkel said yesterday that good cooperation “doesn’t exclude differing positions” referring to Francois Hollande’s intention to push through the idea of Eurobonds.
US session was positive with S&P 500 rising by 1.6%. Asian stocks added 1.2% today (MSCI Asia Pacific Index). Risk sentiment managed to improve, though the markets lack momentum. Commodity currencies got slightly higher versus the greenback. Demand for the New Zealand dollar and for the Aussie was supported as Asian stocks extended a global rally.
US dollar itself gained a bit against Japanese yen and Swiss franc. On Wednesday the markets will be eyeing the Bank of Japan’s meeting. The benchmark rate is seen unchanged at 0.10% level, though the central bank may be forced to do more easing.
Events to watch:
• Great Britain: Consumer Price Index (CPI) in April is forecasted to grow by 3.1% (a decline in comparison with a 3.5% growth in March, but still much higher, than a 2% BoE target). It’s possible, however, that the rate falls to 3% (the lowest since February 2010) saving the BoE Governor Sir Mervyn King from issuing the inflation letter (the letter is only required if the inflation is below 1% or above 3% and is written to explain why inflation has overshot the target). Public sector net borrowing in April may decline to minus 5.4B vs. 15.9B in March.
• U.S.: Annualized number of existing home sales – the main gauge of housing market conditions – may increase from 4.48M in March to 4.65M in April supporting the idea of the nation’s economic rebound. The labor market is America’s weakest spot and many investors go the US nowadays only because it’s better than Europe.
• Europe: Consumer confidence in the euro area will likely remain low. Don’t wait for any surprises here. Spain will sell 3- and 6-month bills.
• The OECD (Organization of Economic Cooperation and Development) will release its global growth forecast.
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EUR/USD: technical comments
Analysts at RBS claim EUR/USD may rebound towards $1.2963 (50% Fibonacci retracement of the decline from May 1 maximum to May 18 minimum. The pair’s currently consolidating in the $1.2790 area (23.6% Fibonacci retracement).
Though these levels may be considered as a good entry for shorts, note that euro’s got some support on H4 chart (trend line started to form, MACD and RSI are positive). In addition, one may see a “bullish engulfing” candle on the daily chart. On the upside, resistance levels for the single currency lie $1.2805 (H4 55 MA), $1.2825 (yesterday’s maximum) and $1.2869 (May 15 maximum).
The general sentiment, however, remains bearish as long as EUR/USD trades below the psychological level of $1.3000, so euro’s still extremely vulnerable on the downside. Support is seen at $1.2780 and $1.2720 (H4 chart). The pair’s decline will accelerate if $1.2624 (2012 minimum) is breached with $1.1875 (June 2010 minimum) getting in focus.
Chart. H4 EUR/USD
Chart. Daily EUR/USD
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: $1.2700, $1.2750, $1.2790, $1.2800, $1.2825 and $1.2850;
USD/JPY: 79.25, 79.50 and 80.00;
GBP/USD: $1.5800 and $1.5900;
EUR/GBP: 0.7960 and 0.8075;
AUD/USD: $0.9800, $0.9930 and $1.0000;
USD/CAD: 1.0000 and 1.0200.
Image from yourmoneydictionary.com
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USD/CAD: technical comments
This week the Canadian dollar strengthens against its U.S. counterpart due to the slightly improved risk sentiment. On the H4 chart, however, we see USD/CAD went up today after Fitch downgraded Japan’s long term rating and yields on Spanish bills increased.
The cross has been trading in a bullish channel since early May, so the loonie’s growth is likely to be a correction. On the H4 chart USD/CAD is trading above the 55, 100 and 200 upward MAs. Strong support for the pair lies at C$1.0145 (23.6% Fibonacci retracement of the growth from April 27 minimum to May 21 maximum and the support of the upward trend line).
On the H4 chart, however, MACD indicator stays in the positive territory, but below the signal line, giving a sell-signal.
Resistance for the pair lies at C$1.0200, C$1.0225, C$1.0245 (local maximum), C$1.0275 and C$1.0300, while support – at C$1.0165, C$1.0130, C$1.0090, C$1.0050, C$1.0025 and C$1.0000.
Chart. Daily USD/CAD
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GBP/USD: bearish outlook
On Tuesday GBP/USD resumed a bullish trend after the Britain’s CPI data release and the IMF “dovish” comments.
Annualized April CPI fell to 3.0% compared with the previous reading 3.5% and a 3.1% forecast. According to analysts, if the inflation declines further in May, the Bank of England will get freedom to add monetary stimulus to support the economy.
According to the IMF, the Bank of England needs to inject more stimulus into the U.K. economy (through more bond purchases or interest rates cuts) as risks from the euro zone may underpin Britain’s growth.
IHS: While it will take more than one month of improved inflation data to ease the Bank of England’s recently heightened concerns over its stickiness, April’s sharp drop nevertheless facilitates further QE by the central bank if the economy continues to struggle for growth or is seriously affected by events in Greece.
Tomorrow minutes of the May 9-10 MPC meeting will be released, showing how policy makers voted. This month the bond-purchase program remained unchanged at 325 billion pounds. On Thursday Britain’s revised GDP in is expected to confirm that the economy shrank 0.2% in Q4 and, therefore, is in a technical recession.
Lackluster economic data, “dovish” BoE comments and increasing concerns on a new QE are expected to weigh on the British currency.
Chart. Great Britain's CPI
Source: Forexstreet
Chart. Daily GBP/USD
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