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SNB’s euro holdings rose, but it reported profit
When we speak about the demand for euro, it’s necessary to remember about such a big player as the Swiss National Bank which has accumulated more than 300 billion Swiss francs ($309 billion) of foreign currencies over the last 3 years.
According to the data released today, the SNB recorded a profit 6.5 billion Swiss francs ($6.63 billion) in the first half of 2012 as the value of its foreign currency holdings increased. This reinforces the central bank’s ability to keep EUR/CHF above 1.20.
UBS: Today’s figures of the SNB’s reserve allocation have showed that SNB’s holdings of euro increased from 51% in Q1 to 60% in Q2. EUR/USD was declining and the negative pressure on the single currency was mounting, so the SNB had to buy big amounts of single currency. At the same time, “the rise in allocations in the ‘others’ category suggests the central bank had been an active buyer of currencies including AUD, SEK, DKK, SGD and KRW, as listed by the central bank. Although their purchases may not explain all of the outperformance in currencies such as SEK and AUD, it may have encouraged other market participants to join the rush for high-quality assets.”
Analysts at Citigroup claim that the SNB will have to diminish its euro holdings at some point as its current position is extremely risky. So, even if euro gets on recovery track, there will a seller – an what a seller!
Photo from blog.mktgeist.com
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AUD/USD: technical comments
AUD/USD strengthens for a fifth consecutive day, touching a new four-month high on Tuesday. Yesterday the bulls managed to fix above $1.0500. The pair tested the upper boundary of the upward channel existing since mid-June, but then slid down. On the daily and H4 chart the pair trades above the up-directed 200-, 100- and 50-period MAs.
In our view, a medium-term uptrend looks rather resilient: the next strong resistance lies only at $1.0750/60 (Sep. and Oct. 2011 maximums) and at $1.0855 (2012 maximum). Bulls have a clear advantage above $1.0475 (April 27 maximum, beginning of a sharp May decline). However, we concede a correction to $1.0400 (middle of the channel) and to $1.0280 (lower boundary and the 200-day MA). Exit from the upward channel will pave the ground for a further decline to $1.0176 (July 25 minimum) and to $1.0100 (July 12 minimum).
Chart. Daily AUD/USD
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QE3 is possible, but “in reserve for now”
When one thinks about the Fed these days, the most common question which comes to mind is “When?” – When will Bernanke and his colleagues finally announce QE3? It’s been already more than a year since QE2 finished and the talk about the next round has begun. The question is as pressing as it could be as the Federal Reserve announces its policy stance tomorrow. Experts answer: “Later, not tomorrow”.
Rabobank: “The fact that the Committee extended its current asset purchase program, Operation Twist, at its last meeting in June would present a substantial hurdle to launching another asset purchase program (QE3 or sterilized purchases) this week. The Committee may prefer to have some ammunition left to offset the fiscal cliff, which will present itself at the start of 2013. Therefore, we would probably have to see a further deterioration in economic data or at least a prolonged episode of the weak data that we are seeing now, before the Fed makes that decision. However, the Fed does have other options that may offer some support in the meantime.”
NAB: “With little momentum in the economy, a high level of uncertainty about the future pace of growth and both unemployment and inflation below the Fed’s view of their desirable level, additional monetary easing is extremely likely. We suspect this won’t mean an announcement of additional QE following the meeting currently underway, given ‘operation twist’, which is intended to impact on the economy in a similar way to QE, extended in the previous meeting this appears too soon. A more likely intermediate step would be to extend the Fed’s forward guidance on how long the Feds Fund Rate will remain exceptionally low from late 2014 into 2015. However, the Fed Chairman has explicitly identified further QE as one of the measures they would consider if they decided to ease policy further. Therefore, additional QE is possible, although it may be kept in reserve for now.”
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GBP/USD: technical comments
GBP/USD declines for a second consecutive day after on Friday the pair reached a five-week high. Sterling tested the upper boundary of a sideways channel aligned with the 200-day MA, but then slipped back. On the H4 chart GBP/USD trades above the up-headed 200-, 100- and 50-day MAs. The pair has been bouncing in a flat since June after trading in a bearish channel in May.
In our view, GBP/USD is likely to remain in a sideway channel in the nearest future because of the strong resistance levels concentrated in the $1.5743/80 area. A close above $1.5780 could open the way for a further rise to $1.5904. On a downside the next support for the pair out of the bounds of the sideways channel lies at $1.5392 (July 12 minimum) and at $1.5267/33 (June and 2012 minimums).
Chart. Daily GBP/USD
USD/JPY: technical & fundamental
USD/JPY has once again settled in the 78.30/00 area after on Friday it tested levels above 78.60, but didn’t manage to stay there. So, for now there’s a range trading.
Resistance: 78.30, 78.45 (July 20 minimum, 50-period MA on H4 chart), 78.80 (July 20 maximum), 79.00, 80.00.
Support: 78.00, 77.95 (July 23 minimum), 77.65 (June minimum), 77.35 (February 15 minimum, January 6 and 19 maximums).
On the fundamental front, the key factors are, of course, the Fed’s meeting and the risk of BOJ intervention. If the Fed doesn’t mention QE3, this will have a positive impact on USD/JPY. The same positive reaction of the pair will be if US non-farm payrolls are higher than consensus (+100K).
RBS: “The key factor in the JPY's recent gains appears to be unsatisfied demand for safe haven assets and the lack of viable alternatives. However it is possible the BOJ have become emboldened to defend a higher level in USD/JPY nearer 77, judging by recent rhetoric from Azumi. We continue to see a case for a much weaker JPY over the medium-term.”
Chart. Daily USD/JPY
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Roubini: 5 reasons why US growth will slow
Nouriel Roubini is ‘cheering us up’ with another article in which he prophesizes gloomy future fort the US. Well, one can’t write something optimistic after he’s officially dubbed “Dr. Doom”, can he?
Roubini gave 5 reasons why US economic growth will slow further in the second half of 2012 and be even lower in 2013:
1. US GDP growth in the second quarter has decelerated from a mediocre 1.8% in Q1 to 1.5% in Q2, as job creation – averaging 70,000 a month – fell sharply.
2. Expectations of the “fiscal cliff” – automatic tax increases and spending cuts set for the end of this year – and the presidential elections will affect spending and growth.
3. The fiscal cliff would amount to a 4.5%-of-GDP drag on growth in 2013 if all tax cuts and transfer payments were allowed to expire and draconian spending cuts were triggered. Tax increases and spending cuts will be milder, but even if the fiscal cliff turns out to be a mere 0.5% of GDP and annual growth at the end of the year is just 1.5%, as seems likely, the fiscal drag will suffice to slow the economy to stall speed: a growth rate of barely 1%.
4. Growth in disposable income has been sustained since last year by another $1.4 trillion in tax cuts and extended transfer payments. That means US is stealing some growth from the future.
5. Negative external factors: escalating euro zone crisis, an increasingly hard landing for China, a generalized slowdown of emerging-market economies and the risk of higher oil prices in 2013 as the conflict with Iran progresses.
Roubini expects more QE from the Fed, but the economist thinks it won’t be efficient as US interest rates are already extremely low. US dollar will remain strong due to the risk aversion created by Europe and amid easing in other countries. As a result, the policies won’t help and US growth will be weaker. According to Roubini, significant equity-price correction could trigger the contraction of US economy in 2013.
The review is based on Mr. Roubini’s article for Project-Syndicate, 2012
Source: The Australian
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Commerzbank: EUR/USD may rise a bit more
Technical analysts at Commerzbank claim that although the bulls didn’t manage to push EUR/USD above $1.2391 (23.6% Fib of the pair’s decline in 2012), there’s still a chance for more correction as long as euro remains above $1.2115.
The specialists warn, however, that on the upside the single currency’s ability for correction is limited $1.2546/1.2748 and the longer term prospects of EUR/USD for are bearish.
Chart. Daily EUR/USD
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BoE is likely to stay on hold
On a Thursday meeting the Bank of England is expected to leave interest rate at 0.50% and QE unchanged at 375 billion pounds despite the figures released last week showed the economy contracted by 0.7% in Q2. Most analysts expect the regulator to hold over the further policy easing at least until November when the latest 50 billion pounds QE round will have been completed. Markets wait for the BoE comments on the current economic situation: recent UK releases were negative.
UK monetary authorities have become increasingly worried by the state of the banking system, that’s why on Wednesday they launch a funding for lending scheme (FLS). The program aims to solve problems with the credit supply by offering participating banks cheap funding, but only if they use it to make loans.
According to economists at Investec Asset Management group, FLS is the beginning of a new British monetary policy. In current economic circumstances simple rate cuts or money printing aren’t reliable enough to resolve the crisis.
Specialists at RBS expect the BoE to remain on hold as the regulator will assess the impact of the lending scheme and the development of the global economic situation.
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August 1: economy and currencies
EUR/USD keeps trading on the upside in the range between $1.2250 and $1.2390 (23.6% and 38.2% Fibo retracement from 2012 decline). Spanish 10-year bond yield rose to 6.7% yesterday, while Italian – above 6%.
There is some economic data released today in Europe, but not much: Spanish and Italian July PMIs and final euro zone manufacturing PMI (the revised figures will likely confirm the lowest reading since June 2009). Germany will sell up to 4 billion euro in 5-year notes at 06:00 GMT. US session is going to be more eventful with ADP at 12:15 GMT, US ISM manufacturing PMI at 14:00 GMT and the FOMC statement at 18:15 GMT.
Demand for the greenback is broadly limited on the expectations that the pace of hiring in the US slowed (ADP private payrolls – cons.: +121K, prev.: +176K) and the Fed will signal additional stimulus.
The MSCI Asia Pacific Index of stocks declined by 0.6%, demonstrating a first drop in a week. Demand for risky assets fell after reports today indicated a manufacturing slowdown in China (Manufacturing PMI declined to 50.1 in July vs. a 50.4 forecast and a previous reading 50.2, while HSBC Final Manufacturing PMI fell to 49.3). However, Aussie, kiwi and loonie remain strong as the influence of China’s data was offset by speculation the Fed may ease monetary policy on today’s meeting. According to analysts at Westpac, the Aussie will benefit a lot if the Fed goes ahead with QE.
USD/JPY tempered morning drop with an upward movement, while GBP/USD declines for a third consecutive day.
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Analysts doubt the ECB’s resolve
When the ECB President Mario Draghi pledged to do whatever it takes to preserve euro, the market’s reactions was very positive: we saw EUR/USD rising by more than 170 pips. The week hasn’t passed since Draghi’s comments, yet many experts have become skeptical doubting that the ECB is really able and willing to do enough to help the single currency survive the crisis.
Bloomberg cites 2 unnamed central bank officials who said that Draghi’s proposal involves the EFSF buying government debt on the primary market together with ECB purchases on the secondary market, while further interest-rate cuts and long-term loans to banks are also possible.
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Westpac: "The ECB meeting this Thursday might not be the huge event it’s being built up to be. What we see on Thursday is potentially going be a little bit lukewarm and a disappointment to the market. The euro rescue maneuvers will not necessarily give investors a reason to buy the common currency: if one of those moves is a rate cut, then it's not obvious that you want to be buying the euro on that decision.”
Bank of Tokyo-Mitsubishi UFJ: “The euro could benefit momentarily if the ECB says it will buy bonds. But that will probably provide a good opportunity to sell the euro.”
Commerzbank: “There’s a very high risk for disappointment. In the foreign-exchange market there’s a lot of expectations priced in already.”
Even if the ECB acts on Thursday, many experts think the impact of its action will be temporary unless there is a sustainable economic recovery in southern Europe.
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