Comments and forex-analytics from FBS Brokerage Company - page 178
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
How will EUR react to ECB's decision?
Analysts at Standard Chartered claim that as short positions on euro are extremely large, any ECB rate cut will be initially positive for the currency as the markets will be delighted that the region’s economy gets monetary support. At the same time, the specialists warn that such a surge is possible only in the very short term. The overall medium-term outlook for the single currency is bearish.
At the same time, the markets are hoping for the ECB to act and, if it doesn’t, the disappointment could pull EUR/USD down aiming for June 28 minimum around $1.2407. However, Standard Chartered expect the central bank to “do its bit” i.e., cut rates to support activity and boost confidence, especially as rate cut was discussed at the June meeting.
The ECB finds itself under pressure to ease monetary policy and help the euro area overcome its economic slowdown amid fiscal tightening and austerity. Near-term inflation pressures have declined making the central bank a scope for a rate cut.
Standard Chartered is looking for a 25bps cut of the refi rate (in line with the consensus forecast). In their view, another round of 3-year LTRO (Long-term liquidity operations) is unlikely, though the central bank may offer a shorter liquidity facility due to still-high bank funding stress in some countries.
Chart. H1 EUR/USD
Citi: threats to risk sentiment
Last week’s EU summit did bring relief to the financial markets: risk currencies strengthened, European credit default swap spreads narrowed, and stocks rallied.
Amid the risk sentiment recovery, analysts at Citi came up with 5 threats which may shoot at any moment making the market slump.
The threats are:
1. Finland and the Netherlands obstruct the bailout.
2. More euro zone’s nations need external financing due to increasing borrowing costs.
3. The IMF says it won’t negotiate or renegotiate with Greece.
4. The ECB will fail to make the region’s economic growth pick up and the situation at debt markets stabilize (“In practice these would amount to little more than showing the flag – were the euro zone’s sovereign debt issues solvable via policy rate cuts, those would have been put in place long ago,” says Citigroup).
5. A gap is growing between bad economic data and more or less optimistic markets.
Indeed, there’s much to be aware of. Citi’s economist Steven Englander cited Calvin Coolidge, the 30th President of the United States: “If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.” However, the President didn’t give any advice on what to do about the tenth trouble.
Image from Официалният сайт на евродепутата Илиана Иванова: Начало
EUR/USD: technical and fundamental
On Wednesday EUR/USD has been moving down. The current dynamics of the pair resembles consolidation in the uneven range: euro’s attempt to recover from June 1 minimum of $1.2288 met resistance around 38.2%/50% Fibo retracement of the May decline in the $1.2670/1.2750 range. The pair remains supported at $1.2523 (23.6% Fibonacci retracement of May decline).
Analysts at Commerzbank expect EUR/USD to slip to the $1.2520/1.2460 area. The next support lies at $1.2407 (June 28 minimum) and at $1.2288 (June 1 minimum). However, if the pair trades above this area, it will have chance to test important resistance at $1.2698 (July 3 maximum), $1.2746 (38.2% Fibonacci retracement of this year’s decline and a 55-day MA) and $1.2825 (May 21 maximum).
It’s obvious that the situation in the euro area remains highly unstable these days making the technical analysis less reliable – there are many events ahead which will surely have strong impact on the market. It’s necessary to note that there are no releases from the US because of the bank holiday. Markets stand still ahead of the important news to come out on Thursday (Spain’s 10-year bond auction and the ECB statement – many analysts forecast the regulator to cut rates to 0.75%).
Chart. Daily EUR/USD
GBP/USD down ahead of the BoE
GBP/USD has been trading on a downside for the third day. On Wednesday a PMI report showed UK services growth fell below the expectations (a decline to 51.3 in June from 53.3 in May), what increases the chances that BoE will add stimulus tomorrow.
According to the median estimate of analysts, surveyed by Bloomberg, the regulator is to raise its target for bond purchases by 50 billion pounds to 375 billion pounds. The sterling, therefore, is likely to weaken further. Specialists at Bank of Tokyo-Mitsubishi UFJ expect GBP/USD to depreciate to $1.50 (a two-year low) over the next three months. Analysts at RBS also expect sterling to weaken in the weeks ahead, as the currency catches up with a continued easing in monetary conditions in the UK.
Support:
1.5616 (50- and 100-day MA’s crossing);
1.5600 (June 7 maximum);
1.5538 (Jun.25 maximum);
1.5510 (23.6% Fibonacci retracement of an April-June decline).
Resistance:
1.5660 (38.2% Fibonacci retracement);
1.5723 (July 2 maximum);
1.5783 (50.0% Fibonacci retracement).
Chart. Daily GBP/USD
July 5: economy and currencies
AUD/USD fell from a 2-month high as the demand for risky assets is down. Asian stocks dropped amid signs of a global economic slowdown: the MSCI Asia Pacific Index (MXAP) of shares lost 0.5%. Moreover, a report showed today that the Australia’s trade deficit increased to 0.29B in May from 0.03B in April, but came out below forecasts.
EUR/USD is crawling in the $1.2525 area, 23.6% Fibonacci retracement from May decline. Italian Prime Minister Mario Monti told yesterday after a joint press conference with German Chancellor Angela Merkel that Italy’s deficit would rise from 1.3% predicted to 2% of GDP. German finance ministry revised German deficit forecast down from 1% to 0.5% “thanks to the favorable overall economic development”. Francois Hollande, the French president, announced tax increases of 7.2 billion euro in order to ease upward pressure on the country’s large debt burden. French government is counting only on 0.3% growth in 2012 compared with previous estimates of 0.7%.
USD/JPY rose to the highest level in more than a week before sliding below the day’s opening level as Asian shares declined.
Events to watch today:
Euro zone: Markets stand still ahead of the important news to come out. German factory orders are expected to increase by 0.1% in May after a 1.9% contraction. Spain and France holds a 10-year bond auction on Thursday, while the ECB is to announce its rate decision. Many analysts forecast the regulator to cut rates to 0.75% today. Yet, risk rally has tempered as traders feared Mario Draghi, president of the ECB, would again resist the pressure to act. Later in the day the ECB press conference will take place.
Great Britain: The house price index is to decline by 0.3% in June after a 0.5% growth. The BoE meeting is an important event of the day: will the regulator add stimulus? Markets expect the expansion of the asset purchase program to 375B. The official bank rate is to remain unchanged at 0.50%.
US: ADP non-farm employment may improve by 103K in June compared with a 133K change in May. The number of unemployment claims is to increase to 385K, what means that the labor market remains weak. ISM non-manufacturing PMI is expected to contract to 53.1 in June from 53.7.
Have a profitable trading day with FBS!
If you have any questions to our analysts, you're welcome to ask or comments for this article!
European agenda this month
On Monday, June 9, there’s a scheduled Eurogroup meeting within which Troika officials will conduct the first discussion on the mission’s ongoing inspection to Greece and try to develop an approach for the negotiation of the updated bailout agreement. According to the sources from Luxembourg, until the revised bailout agreement is signed, there will be no further disbursements from the ESM to Greece beyond the 1 billion euro that had been withheld from the May tranche.
In addition, the European Commission, the ECB and the IMF will discuss Greece’s bond maturity on August 20 which the nation won’t be able to pay unless it gets ESM funds. A month’s extension could be granted, although several European governments will likely object. Another item on the agenda will be Spanish and Cyprus requests for entry into the ESM.
Moreover, the Eurogroup may call an extraordinary meeting on July 20 to talk over the ongoing situations in Greece and Spain, reports say. That is when the Troika will receive its political instructions regarding its negotiating mandate and signal what kind of concessions European governments are ready to make. The new round of talks with the Greek side will begin on July 24.
Photo from thefinancepages.co.uk
Nomura: bearish on EUR/GBP
Analysts at Nomura are bearish on EUR/GBP ahead of the ECB and BoE meetings. They recommend selling the pair at current levels, targeting at 0.7700 and with a stop at 0.8170.
According to specialists, both banks are likely to ease monetary policy on Thursday. In their view, the downside risk for GBP is rather limited as the British currency is no longer being sold off on QE announcements. The ECB meeting, on the contrary, is expected to be euro-negative: a larger-than-expected rate cut would be good for the currency at least in a short-term, but it is not likely. Moreover, Mario Draghi on a press-conference is not expected to hint on the new unconventional measures.
Chart. Daily EUR/GBP
Have a profitable trading day with FBS!
If you have any questions to our analysts, you're welcome to ask or comments for this article!
Commerzbank: technical levels for GBP/USD
The fundamental picture for GBP/USD seems negative as the market’s awaiting the Bank of England’s decision to announce additional asset purchased today.
However, technical analysts at Commerzbank think that sterling still has chance to retest resistance in the $1.5752/1.5786 area (200-day MA and 50% Fibo retracement) as long as the pair holds above support at $1.5544. Other support levels lie at $1.5408 (June 5 maximum) and $1.5269/33 (2012 minimums).
Chart. Daily GBP/USD
RBC: technical comments for USD/CAD
Technical analysts at RBC underline that the greenback failed to overcome resistance at 1.0353 after last week’s EU summit revived the market's risk sentiment making loonie strengthen.
The specialists claim that all attention is fixed on 1.0119 (uptrend pivot, 200-day MA). If USD/CAD closes the week below this level, bearish trend will return and the pair will get vulnerable for a slide to 1.0050 (100-day MA) and 0.9955 (May 11 minimum). For the uptrend to continue US currency has to overcome 1.0341/62 (late June maximums) and 1.0425 (June 5, December 14 maximums).
Chart. Daily USD/CAD
Spanish bond auction results
Spanish government managed to raise 3.001 billion euro in auctions out of the 2.5-3.5 billion euro target amount. Cover ratios were lower. Average yield on 10-year bonds rose to 6.430% from 6.044% during the previous auction, while shorter-term maturities have posted lower yields.
France also sold 10-year bonds with yields up from 2.46% to 2.53% and cover ratio down from 2.0 to 1.9.
EUR/USD is trading down by about 20 pips from the opening level. More volatile moves are expected later today with the ECB meeting and press conference on the agenda.
Photo Reuters