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AUD and NZD retreated from 6-month lows
Australian and New Zealand’s dollars which have been rapidly falling against the greenback this month due to the market’s risk aversion are recovering versus their US counterpart for the second day.
AUD/USD hit this week 6-month minimum at $0.9690 losing 6.2% in May. Support for the pair lies at $0.9663 (November minimum). Resistance for Aussie is found at $0.9814 (yesterday’s maximum) and $0.9850 (the 10-day MA).
AUD was helped by advance of commodities and stocks.
Chart. Daily AUD/USD
NZD/USD hit this week 6-month minimum at $0.7458 losing 8% in May. Support for the pair lies at $0.7460 (May 23 minimum) and $0.7369 (November minimum). Resistance for kiwi is found at $0.7574 (yesterday’s maximum).
Many analysts claim that NZD’s rising as it has been oversold so far. Another positive factor is that Moody’s Investors Service reaffirmed the nation’s AAA credit rating.
Chart. Daily NZD/USD
At the same time, note that Australian and New Zealand’s will likely remain under pressure due to the European uncertainty.
USD/JPY: technical comments
USD/JPY weakens on Friday and has already managed to offset yesterday’s growth. On Wednesday the pair tested the key 80.00 resistance, but then started sliding. After a three-month rally (Jan-March) the cross trades in a downward channel.
However, according to analysts at Commerzbank, the further USD/JPY rally can’t be ruled out. Break through the 80.00 resistance could let the pair grow to 80.60 in a near-term. Specialists at RBS recommend going long on USD/JPY at current levels with a stop at 77.90 and a target at 84.00.
As can be seen from the H4 chart, now USD/JPY stays below the downward 200, 100 and 55 MAs, indicating bearish market sentiment. Weekly close below 80.00 will extend the chances for a further downtrend.
Support:
79.33 (May 25 low);
79.20 (61.8% Fibonacci retracement from a Jan – March rally);
79.00 (May 18 low);
78.50 (200-day MA).
Resistance:
79.81 (today’s high);
80.00 (psychological);
80.13 (50% Fibonacci retracement);
80.60 (neckline of a head-and-shoulders pattern).
Chart. Daily USD/JPY.
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Danske Bank: reasons for CHF decline
EUR/CHF rocketed yesterday to 1.2075 Swiss francs after trading in a tight sideways channel since early April. What were the reasons for such an unexpected depreciation of a Swiss franc?
According to analysts at Danske Bank, the cross went up due to unconfirmed data that the SNB might introduce a tax on deposits in order to make the Swiss currency less attractive for the investors. However, some analysts believe in the likeliness of an intervention by the Swiss National bank. The SNB refused to comment the first speculation and denied the second.
On Friday the EUR/CHF cross returned to its comfort zone around 1.2015, but is still a little bit higher than it was during the last weeks. Analysts at Danske Bank believe the spike has provided some breathing room for the franc, which has been pressed up against the EUR/CHF floor at 1.20 set by the SNB. Specialists doubt that the lift of the threshold is likely to happen in the near-term.
Support for the pair lies at 1.2008, 1.2007 (21-day MA), 1.2000 (SNB Target Sep.6) and 1.1990 (Apr.5 minimum), while resistance – at 1.2075 (May 25 maximum), 1.2081 (Mar.16 maximum), 1.2100 (psychological) and 1.2108 (200-day MA).
Chart. Daily EUR/CHF
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EUR is up on Greek polls
The single currency opened with a gap up versus the greenback after setting new 2-year minimum at $1.2495 on Friday. Today EUR/USD managed to strengthen to $1.2600.
The market’s sentiment improved as the polls showed that the pro-bailout party in Greece would now be leading ahead of the second elections due on June 17. New Democracy which supports the plan negotiated by Greece’s government with international lenders was 5.7 percentage points over Syriza, the main opposition force to the bailout. In addition, there is talk of restructuring European banks.
Data from CFTC (Commodity Futures Trading Commission) showed that the number of shorts on EUR/USD reached the highest level since 1999 of 195K. As a result, shorts may be trimmed on any sign that anti-austerity parties are running out of steam.
The uncertainty, however, remains high, so the baseline scenario is still for euro to slide to $1.20.
Resistance: $1.2620 (May 24 maximum), $1.2820 (May 22 maximum).
Support: $1.2495 (May 25 minimum), $1.2483 and $1.2442.
Chart. Daily EUR/USD
BOTMUFJ: bearish on EUR/JPY
The single currency maintained last week its bearish bias versus Japanese yen bottoming at 99.35.
Analysts at Bank of Tokyo-Mitsubishi UFJ are bearish on EUR/JPY.
The specialists point out that euro breached 76.4% Fibonacci retracement of its advance from the January minimum and March maximum in 100 yen area.
In their view, the pair may slide to 97.04 (January minimum).
Chart. Daily EUR/JPY
Westpac: advises for trading NFP
May Non-Farm Payrolls release is approaching (Friday, June 1, 12:30 p.m. GMT). The report will be especially closely watched taking into account weak US economic rebound.
Consensus forecast is +150K after +115K in April.
Data from forexfactory.com
Analysts at Westpac say that if NFP exceeds 150K one should sell USD/CAD. If the readings come in around 115K or lower, the trade should be quite the opposite as the greenback will strengthen on its safe haven status.
The specialists think that the odds of the first outcome are higher. The bank underlines that manufacturing that usually precedes the payroll data will not be coming out, increasing the chances that forecasters will not be able to adjust for an upside shift. As a result, Westpac recommends selling USD/CAD at 1.0320, stopping 1.0450 and targeting 1.0075 (200-day MA). However, we would recommend you to be really careful out there as USD/CAD looks rather strong from the technical perspective.
Chart. Daily USD/CAD
Euro: is there any cope for rebound?
Bank of Tokyo-Mitsubishi UFJ insist that the fact that euro’s is now so oversold can provoke a rebound to $1.2640, $1.2680/85 and possibly to $1.2720 if the bulls manage to push EUR/USD above $1.2610. At the same time, the specialists can’t help admitting that the resolute progress is Europe is unlikely anytime soon. The recovery, if there is such, will certainly remain a correction. BOTMUFJ still see euro sliding to $1.28 by the end of Q2, to $1.25 – by the end of Q3, to $1.23 – by the year-end and to $1.18 by the end of Q1, 2013.
Nomura specialists underline that the overall economic weakness and political crisis ought to be enough to weigh on euro. The specialists warn that there’s evidence that euro zone investors are exiting themselves and buying other currencies such as US dollar. In their view, euro’s ability to rebound will be limited, so one better sell around $1.26 stopping at $1.2850 and looking for a move to $1.20.
Chart. Daily EUR/USD
May 28 - June 1: main events of the week
Monday, May 28 – Tuesday, May 29
Japan: According to analysts, Japan’s household spending in April may increase by 2.5% vs. a 3.4% growth in March. April retail sales are expected to grow by 6.2% after a 10.3% growth in March.
US: CB consumer confidence in May is forecasted to reach 69.6, indicating a general optimism. In April consumer confidence fell to 69.2 while was expected to reach 69.9. The small decrease was caused by a moderation in consumers’ short-term outlook despite improvement in current conditions assessments.
Euro zone: Italy holds a T-bill auction.
Wednesday, May 30
Australia: Seasonally adjusted retail sales growth may slow down to 0.2% in April after a 0.9% increase in March, indicating decreased consumer spending. Construction work done in Q1 is forecasted to grow by 3.1% after a 4.6% decline in Q4 (lowest since 2001).
Switzerland: KOF Economic Barometer index is forecasted to increase to 0.44 in May, indicating that the Swiss Economy is headed towards an expansion in 2012.
Euro zone: Italy holds a 10-year bond auction; the previous bond auction, which was held a couple of weeks ago, went well, but the rate reached 5.66%. Later in the day ECB
President Mario Draghi will be speaking in Brussels with the potential for a hint toward the ECB's actions in front of the following week's rate decision.
US: Pending home sales in April are expected to remain unchanged after a 4.1% surge in March. U.S. holds a T-bill auction.
Thursday, May 31
New Zealand: NBNZ business confidence for May index is released (in April index reached 35.8). Most analysts expect the economic conditions to improve in May due to a surge in retail and services sectors. However, strong national currency keeps bugging exporters.
Australia: Building approvals in April to increase by 0.7% after a 7.4% growth in March. Private capital expenditure in Q1 may surge by 4.1% after a 0.3% contraction in Q4, indicating an improved economic health.
US: A bunch of important US data will be released. ADP estimate of US non-farm payrolls in May is expected to reach 139K after 119K in April. Preliminary GDP release is expected to show a 1.9% growth in Q1 compared with a 2.2% growth in Q4, indicating that the US economy is not strong enough to drive global growth on its own. Chicago PMI in May is forecasted to increase to 56.8 vs. 56.2 in April. A small decline in unemployment claims during the last week is expected (369K vs. 370K).
Euro zone: German retail sales in April are expected to increase by 0.2% after a 1.6% surge in March; number of unemployed people in April may decline by 7K. French consumer spending in April may grow by 0.3% after a sharp decline in March. Euro Area Flash Estimate of Annual Inflation in May is expected to decline slightly to 2.5%. If the inflation rate estimate will change direction and increase, it may lower the chances of the ECB interest rate to remain low. Ireland holds a referendum on EU fiscal compact. The vote is crucial as it determines a crossroad for Ireland: the ‘Yes’ vote to the treaty could bring economic progress and financial stability together with unavoidable austerity measures. The ‘No’ vote will enhance downward pressure on the common currency.
Friday, June 1
China: Manufacturing PMI is forecasted to drop to 52.1 in May from 53.3 in April (reading above 50 indicates industry expansion).
Switzerland: Retail sales growth may slow down to 3.6% compared with a 4.2% growth in April.
Great Britain: According to forecasts, manufacturing PMI will decrease to 49.7 in May from 50.5 in April, indicating industry contraction and augmenting concerns on the U.K. economic conditions. Great Britain holds a 10-year bond auction.
Canada: GDP in March is expected to grow by 0.3% after the Canadian economy unexpectedly contracted by 0.2% in February.
US: Analysts expect the U.S. non-farm payrolls to increase by 152K. However, in April the labor market didn’t fulfill expectations rising only by 115K, far below the 172K consensus forecast. The March unemployment rate is predicted to remain unchanged at 8.1%. The unemployment declined to 8.1% in April from 8.2% in March, despite lower NFP job gains. The ISM manufacturing PMI in May is expected to drop slightly to 54.1 compared with 54.8 in April. However, the Markit index showed a slide to 53.9 in May.
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Hopes for BOJ near-term easing are dashed
The greenback declined versus Japanese yen recoiling down from the downtrend resistance line. It happened as the minutes of the Bank of Japan’s April 27 meeting (when Asset Purchase Program was increased) ruined the speculation that the central bank will boost monetary easing.
According to the minutes, the BOJ is carefully trying to tell markets that the large-scale stimulus measures in February and April were exceptional and won't be easily repeated. The central bank acted to decrease expectations of frequent easing, though as yen surged reacting at the news, so that Governor Masaaki Shirakawa had to emphasize that there was no change to the bank's powerful easing stance.
The BOJ has to buy 20 trillion yen more of government bonds by June 2013. This month, however, Japanese monetary authorities failed to meet their asset-buying targets. This means that it may be difficult for the central bank to prop up the APP as often as earlier. In addition, even though the inflation goal of 1% is still far away (consumer prices added 0.2% in March y/y), the interest rates are already extremely low, while the markets are drowned with cash, so the odds are additional easing won’t be much of a help.
Analysts at Credit Suisse claim that the BOJ actions confuse the markets: “What markets want to hear is not what Shirakawa thinks is right but the BOJ's strong determination to beat deflation.”
Chart. Daily USD/JPY
Commerzbank: comments on EUR/USD
Here’s another piece of bearish comments about EUR/USD.
Technical analysts at Commerzbank point out that the single currency closed last week at below the 78.6% Fibonacci retracement of its move from June 2010 minimum to 2011 May maximum. The specialists also note that one may spot some divergence of the daily RSI. All this means that that there will be a decline after a slight rebound.
Resistance for EUR/USD is found at $1.2681 and $1.2796/1.2825 (interim maximum and Fibonacci retracement of advance from January minimums to February maximums). Support lies at $1.2490 and $1.2067 (55-month MA). In the longer term euro could target $1.1876 (2010 minimum) and $1.1641 (2005 minimum).
Chart. Daily EUR/USD