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RBS: GBP/USD may break higher
British pound keeps rebounding versus the greenback from 4-1/2 month-minimum at $1.5268 hit on June 1. Today sterling opened with a gap higher following euro and other riskier currencies on relief that Spain will get external funding for its troubled banks.
Analysts at RBS note that the reliable support at $1.5300, which had been tested for several times since 2010, has managed to hold the bears. As a result, the specialists see the chance of sterling’s return to the $1.6000/50 area. In their view, the outlook for the British currency for the rest of the months has improved and GBP/USD has more chances to break higher than EUR/USD.
Resistance: $1.5602 (March 12 minimum, June 7 maximum), $1.5664 (38.2% retracement of the decline in May), $1.5786 (50% retracement).
Support: $1.5514 (23.6% retracement of the decline in May), $1.5300, $1.5233 (2012 minimum).
Chart. Daily GBP/USD
June 12: economy and currencies
EUR/USD began today’s trading day edging higher. However, the pair’s staying below the strong psychological resistance of $1.2500. On Monday the common currency has sharply declined when the initial optimism caused by the Spain’s bailout request began dissolving as investors realized that the region’s crisis is far from over. Italy’s 10-year bond yields reached 6.03% on yesterday’s auction, while Spain’s borrowing costs have already overcome the 6.50% threshold. Riskier currencies such as Australian and New Zealand’s dollar recovered from yesterday minimums, but the trade promised to be quite choppy this week, so be careful.
The Japanese yen declines against its major peers after the International Monetary fund said that the currency is overvalued and the Bank of Japan should ease the monetary policy further. In other words, the IMF justifies the potential BoJ intervention at forex market. The next BoJ policy meeting is scheduled on Friday, June 15. Note that Japanese tertiary industry activity went down by 0.3% in April (consensus-forecast was +0.4%). USD/JPY consolidated above Kijun-sen at the daily Ichimoku chart in the 79.10/80 area.
Events to watch today:
Euro zone: Greek T-bill auction.
Great Britain: A bunch of important figures is to be released: manufacturing and industrial production data and NIESR GDP estimate. According to economists, manufacturing production increased by 0.1% in April compared with a 0.9% growth in March.
U.S.: Federal budget balance is expected to show $107.2 billion deficit in May after $59.1 billion surplus in April.
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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: $1.2450, $1.2540, $1.2625;
USD/JPY: 78.00, 79.00, 79.05, 79.25, 79.30, 80.00;
EUR/JPY: 99.80;
AUD/USD: $0.9700, $0.9770, $0.9950, $1.0000;
EUR/GBP 0.8050.
Commerzbank: euro’s recovery may be over
Technical analysts at Commerzbank claim that euro’s correction versus the greenback may be over as EUR/USD didn’t manage to overcome resistance at $1.2672 (38.2% Fibonacci retracement of May decline). In addition, the specialists spotted divergence on the H4 RSI chart. As a result, the bank recommends selling the single currency. As the same time, the analysts don’t completely rule out the possibility of euro’s advance to $1.2786 (50% retracement) and even $1.2825 (May 21 maximum) if EUR/USD overcomes resistance and rises above June maximums. On the downside, below $1.2435 (June 8 minimum) euro will be vulnerable for a decline to $1.2288 (2012 minimum) and then to $1.2058 and $1.2000.
Chart. H4 EUR/USD
Wednesday, June 13: economy and currencies
Risk sentiment is affected by lack of details in a loan agreement to help Spain recapitalize its banking sector and concerns that the bailout will aggravate the country’s huge public debts. Italian yields went up to 6.3% yesterday, the highest level since end of January. Spanish borrowing costs rose to 15-year maximum of 6.83%. EUR/USD is trading below 23.6% Fibonacci retracement of its decline in May.
Demand for safe havens strengthened after Fitch Ratings predicted Spain will miss budget-deficit targets. Moreover, the agency downgraded 18 Spanish banks yesterday. US dollar strengthened versus its major peers. USD/JPY remains seated in the 79.10/80 area, above Kijun-sen at the daily Ichimoku chart.
Aussie should have gained on comments of the RBA Governor Glenn Stevens who said that the strength of the nation’s currency benefits consumers and though “a number of sectors are really struggling with the exchange rate where it is, we shouldn’t wish too quickly for a low exchange rate.” However, AUD followed euro stalling its progress against the greenback, unable to overcome the parity level.
Events to watch today:
Euro zone: Industrial production in the region is forecasted to drop by 0.9% in April after a 0.3% decline in March. Germany holds a 10-year bond auction. Italy holds a T-bill auction.
U.S.: Retail sales are expected to decrease by 0.1% while core retail sales (excluding automobiles) – to increase by the same percent. Producer price index may go down by 0.6% in May. The April disappointing results, when a 0.2% decline was recorded, reinforce the worries about the further monetary policy easing. Business inventories may increase by 0.4% April. Later in the day a 10-year bond auction will be held.
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EUR/USD: negative pressure’s again here
The single currency is consolidating versus the greenback above $1.2500, but below 23.6% Fibonacci retracement of its decline in May. Euro’s chances for rebound are limited ahead of Italian debt auctions (especially the sale of Italian debt maturing in 2015, 2019 and 2020 which will take place tomorrow) and Greek elections on Sunday.
Spain’s 10-year bond yields surged to 6.83% (the highest since 1997), after the nation became the fourth euro zone member to ask for an international bailout. On Tuesday Fitch ratings downgraded 18 Spanish banks and added that the country is likely to remain in recession until late 2013. Italian yields went up to 6.3% yesterday, the highest level since end of January.
The ECB and the European Commission propose to create a tight banking union that will supervise the biggest banks and provide a deposit guarantee scheme. German officials, however, oppose the quick establishment of the union. In their view, the current level of economic and financial integration isn’t high enough. Meanwhile, the IMF chief Cristine Lagarde underlined yesterday that the euro block has only 3 months left to solve its problems, otherwise it will become difficult to avoid a breakup. The market’s speculating that the issue with the banking union may be adressed at the G20 meeting on June 18-19.
Bank of Tokyo-Mitsubishi UFJ: “Euro is going to drift around $1.25 before the weekend. It’s also possible that even on Monday we may still know very little about who’ll be in government in Greece. That's why we have to brace ourselves for more uncertainty ahead.”
Commerzbank: bearish pressure on EUR/USD will decline only above $1.2672.
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: $1.2400, $1.2440, $1.2445, $1.2455, $1.2465, $1.2500, $1.2550, $1.2570, $1.2650.
USD/JPY: 79.55;
USD/CHF: 0.9850;
AUD/USD: $0.9800, $0.9870, $0.9950;
EUR/GBP: 0.8030, 0.8050;
GBP/USD: $1.5500, $1.5600, $1.5685.
RBNZ is unlikely to cut rates
The Reserve Bank of New Zealand is likely to leave the official cash rate at 2.5% when it meets on Thursday, June 14. Despite the increased uncertainty in the euro zone and the slowdown of the global economic rebound, further rate cuts, according to the RBNZ Governor Alan Bollard, could cause a new credit boom.
The rate cut expectations declined sharply in recent weeks: after about 80% of probability a few weeks ago, these days only 20% of economists believe in the chance of a cut.
Specialists at JPMorgan expect a rate cut to happen in the next few months, because the CB needs more information on the global economy prospects to take the right decision.
Photo: FX service
Westpac: trading AUD/NZD
Analysts at Westpac claim that one should wait until the pair AUD/NZD rises on the RBNZ rate-cut talk, and then sell the Australian dollar versus its New Zealand’s counterpart around 1.2870, targeting 1.2600 and stopping at 1.2960.
The Reserve Bank of New Zealand will be meeting Wednesday night. Westpac believes that the central bank won’t lower the borrowing costs, so trade on the market’s expectations seems like a good opportunity.
According to Westpac, the RBA will cut rates a couple more times, but the RBNZ will remain on hold for the rest of 2012.
Chart. Daily AUD/NZD
Sumitomo: EUR/JPY may slide to record low
Analysts at Sumitomo Mitsui claim that euro versus has completed a “head-and-shoulders” pattern Japanese yen at the end of May. According to the specialists, the first shoulder was formed on January 26 (102.20 yen), the head – on March 21 (111.43 yen) and the second shoulder – on May 22. The bank says EUR/JPY may drop to the new record minimum of 88.51 yen – this target is calculating by subtracting the distance between the neckline and the head from the neckline.
If we look at the daily Ichimoku Chart, we’ll see that the pair’s testing Kijun-sen (blue line) as well as the psychological resistance at 100 yen. Downward pressure on euro will strengthen if it fails at this point and slides below support of Tenkan-sen (red line) in the 98.30 zone.
Chart. Daily EUR/JPY