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Commerzbank: comments on EUR/USD
Technical analysts at Commerzbank point out that EUR/USD is trading between $1.2597/1.2600 (78.6% of the move from June and 38.2% of the move this year) and $1.2478 (61.8% Fibonacci retracement).
EUR/USD is now moving up to the upper border of this range. There’s the risk of a double top around $1.2600 as resistance may prove strong enough to stop the second attempt of the bulls to break higher.
The specialists underline that the medium term downtrend will resume only after the pair breaches support of the short-term uptrend. As for further resistance, it lies at $1.2624/26 and $1.2672.
Chart. H4 EUR/USD
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MIG Bank: trading GBP/USD
GBP/USD dipped to $1.5753 that is just above the 100-day MA earlier today before returning to the levels right under $1.5800. Sterling reached 3-month maximum at $1.5912 on August 23.
Analysts at MIG Bank underline that British pound has breached its 2-month consolidation range to the upside. In their view, the pair’s recent uptrend will hold as long as it’s trading above $1.5708. The specialists recommend trying longs at $1.5810 targeting $1.5912/1.6190/1.6302.
Chart. Daily GBP/USD
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RBC: bearish on NZD/CAD
Analysts at RBC Capital Markets recommend selling NZD/CAD. The pair is declining for the third day after it recoiled down from the 50-day MA. On its way down New Zealand’s dollar has already breached 200-day MA at 0.8050 and 100-day MA at 0.8006.
RBC explains their recommendation by the fact that New Zealand’s authorities are concerned about NZD strength. Continuing strength of the NZD is eroding any gains from the improvement in commodity prices. NZ commodity prices (in NZD terms) are at the lowest level since November 2009. Today NZ dairy giant Fonterra reduced its forecast payout for the 2012/13 season. This cut to farmers' incomes is worth ~0.2-0.3% of GDP and poses downside risk to RBNZ's GDP forecasts (from its June MPS). The Bank of Canada, on the other hand, is relatively calmer about CAD.
Chart. Daily NZD/CAD
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EUR/GBP: technical comments
EUR/GBP breached descending trend line resistance from March 28 around 0.7930. It seems that there are some buy limits above 0.7960/65 (August 6, 7 highs). Resistance for the pair lies at 0.8000 (100-day MA, psychological level).
Analysts at Commerzbank say that the medium term outlook for EUR/GBP will remain bearish as long as it stays below 0.7963. At the same time, the pair will resume its downtrend only if it slips below Tuesday’s minimum at 0.7856.
Analysts at RBS claim that increased support for euro zone sovereign bonds through some form of ECB purchases has provided some support for the EUR over the last week. However, it looks unlikely that the market will see any substantive developments ahead of the September ECB meeting. While, short term fair value for EUR/GBP is 0.8109, there is risk of some downside in the near term if Draghi disappoints on September 6.
Chart. Daily EUR/GBP
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August 29: forex news
EUR/USD returned above $1.2500 yesterday and pushed the pair higher. Today its advance has stalled below $1.2575. Italy will offer 6-month bills today and as much as 7.5 billion euro ($9.4 billion) in bonds tomorrow. Italian Prime Minister Mario Monti meets with German Chancellor Angela Merkel in Berlin today.
The ECB President Mario Draghi cancelled his attendance at this week’s Jackson Hole symposium citing his business with work. The markets interpreted this news as a sign that the ECB is preparing something big concerning the awaited bond buying plan. The ECB meets next Thursday, on September 6. Also note that the ECB reported a massive outflow of Spanish bank deposits, while Catalonia asked for 5 billion euro of aid from the Spanish central government. However, these reports didn’t disturb the markets.
In US watch for the release of US Q2 GDP q/q (cons.: +1.7%; prev.: +1.5%) at 12:30 GMT, pending home sales m/m (cons.: +1.1%; prev.: -1.4%) at 14:00 GMT and Beige Book survey of economic conditions at 18:00 GMT. Mixed economic data released yesterday failed to clear up the picture of the potential QE3 timing, so all eyes will be on Ben Bernanke on Friday, though many analysts warn that the Chairman won’t make the things clearer.
AUD was hurt as construction declined in Q2. NZD is still suffering from yesterday’s Fonterra report of reduced payouts to dairy farmers. USD/JPY was range bound inside 78.63/78.50. GBP/USD is flat above $1.5810.
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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, $1.2490, $1.2500, $1.2505, $1.2525, $1.2625;
GBP/USD: $1.5650, $1.5730, $1.5750;
USD/JPY: 78.15, 79.10, 79.15;
AUD/USD: $1.0320, $1.0400, $1.0425, $1.0460;
EUR/GBP 0.7900, 0.7975;
AUD/JPY: 82.50.
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EUR/USD is supported by the ECB expectations
EUR/USD has once again ascended close to $1.2600, but its advance was tempered by $1.2575. After it was announced that the ECB’s Mario Draghi won’t speak at Jackson Hole, the market’s mood brightened on the expectations that the details of the bond buying will be finally released soon.
Photo: Reuters
Nomura: “The only short-term option is to have the ECB buy the government debt of peripheral countries as longer-term answers to dysfunctional government bond market such as fiscal stimulus and a rule that addresses the issue of capital flight will probably take years to implement”.
Sumitomo Mitsui: “We can apparently avert a situation where the debt crisis will trigger a collapse of the euro. Markets are expecting Spain to ask for a bailout, but it will spur the ECB to undertake a measure like the Securities Markets Program.”
TD Securities: “There is a little more room for EUR gains from here, but significant resistance hovers just above, in the 1.2600 area. With a potential balance sheet expansion by the ECB as well as a rate cut, EUR should fundamentally be lower, and we think that should be the case at some point soon.”
Westpac: “Investors will buy EURUSD on any 50-pip pull back. But be careful of excessive investor jitters: downside support levels to watch in EURUSD are $1.2450 and $1.2370-80, so if the common currency moves below those levels, stand aside”.
Chart. H4 EUR/USD
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EUR/AUD: technical picture
EUR/AUD added about 500 pips in August rising from the record minimums around 1.1600 where in formed a double bottom.
Westpac: The pair EUR/AUD will climb at least to 1.2330/50 in the coming weeks. Euro will likely be supported by “unwinding of EUR shorts as the ECB plans intervention in EZ bond markets”, while Aussie – weakened by “ongoing softness in China's data.” “A test of 1.25 would probably require the Fed to not deliver QE3.”
The pair has approached resistance at $1.2145 (38.2% Fibo retracement from May maximums to August lows; February minimums). Further resistance lies at 1.2310/50 (50% retracement, 100-day MA) and 1.2480 (61.8% retracement, 200-day MA). Support lies at 1.2070, 1.2000, 1.1950 (50-day MA, 23.6% retracement). Corrections up to the latter are possible as EUR/AUD seems overbought after its advance and we see divergence at H4 MACD.
Chart. Daily EUR/AUD
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CAD is supported by oil prices
USD/CAD has tried to recover from the minimal levels since May around 0.9840, but failed around 0.9950 and once again made a spike down to 0.9840.
Canadian dollar strengthened due to advance in crude oil, the nation’s largest export. Crude inventories were forecast to drop as Hurricane Isaac approached the Louisiana coast and a fire continued to burn at Venezuela’s biggest refinery. Loonie was also against other commodity currencies as Canada is expected to benefit from US economic growth, while Australia’s and New Zealand’s economies will suffer from the Chinese economic slowdown.
National Bank of Canada: “Crude oil is still posting plus-$96. Any supply disruptions from Isaac could put a bid to the Canadian dollar. There are reasons to want to be long the Canadian dollar from a reserve diversification perspective. Month-end flows will be reasonable and will be biased for US dollar selling given the positive performance by most equity indices.”
Scotiabank: “Canadian dollar has a strong correlation with equities, confirming our view that the most important risk for the currency is the FOMC decision on QE3. That leaves the Canadian dollar particularly vulnerable to Jackson Hole.”
Also watch for Canadian June GDP release on Friday. Economists predict that Canadian economy expanded for a fourth straight quarter.
Chart. Daily USD/CAD
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August 30: forex news
The markets were going through consolidation phase in Asia. Equities remained weak as Japanese retail sales fell by 0.8% in July and investors are now in doubts that the Fed will announce further stimulus soon.
AUD keeps moving down affected by the declining iron ore price as it accounts for 20% of Aussie exports. In addition, a report showed that home-building approvals dropped by 17.3% in July from a month earlier, the largest decrease since November 2002. AUD/USD approached 200-day MA at $1.0308. NZD/USD was supported by 0.8000 and went higher.
USD/JPY is trapped in the 78.80/45 area. GBP/USD is moving sideways in the $1.5840/10 zone. USD/CHF is consolidating above 0.9550. EUR/USD was once again stopped by resistance around $1.2575, though the pair remains well supported.
In Europe all attention will be focused on Italian 10-year bond auction. Also watch for German unemployment change at 07:55 GMT. The President of the European Commission Jose Manuel Barroso speaks at 09:00 GMT. The ECB President Mario Draghi said in German weekly Die Zeit yesterday that it’s in Germany’s interest to consent to extraordinary steps to preserve the single currency. In US watch for the unemployment claims and consumer spending (cons.: +0.4%; prev.: 0.0%). The Jackson Hole symposium finally starts today.
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