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RBC: trading recommendations for EUR/USD
Analysts at RBC Capital Markets think that volatility will likely to remain elevated by the end of this trading week as the market awaits the release of ISM Manufacturing PMI and French and Spanish bond auctions later today and US non-farm payrolls figures tomorrow.
The specialists note that the single currency has so far recovered this week. In their view, it will be able to continue going up.
On the one hand, the short positions on EUR/USD has increased to the level at which traders are no more willing to sell euro. On the other hand, the European currency will remain under pressure of the concerns about indebted peripheral states.
The bank points out that the pair has been trading between $1.32 and $1.50 and advised to open shorts at the top of the range expecting euro to fall to $1.3200 and $1.3140.
Commerzbank: comments on USD/CHF
Technical analysts at Commerzbank note that the greenback didn’t manage yesterday to overcome 0.9240/50 versus Swiss franc and had to return to the lower levels due to dollar’s broad weakening provoked by the central banks’ action.
The specialists claim that USD/CHF went down getting below the 3-month upward trending support line at 0.9173. In their view, that means that US currency is poised down for further correction to 0.8950 (50% Fibonacci retracement) and 0.8730/8684 (200-day MA).
According to the bank, support is situated in the 0.8555/50 area, while resistance lies in the 0.9341/99 zone (April maximum and 50% Fibonacci retracement of the decline in 2010-2011).
WSJ on the outlook for the British currency
Analysts at Wall Street Journal note that the demand for the British government bonds is rising amid the euro zone’s debt crisis. The specialists underline that sterling is now seen as an alternative to the single currency that gives pound safe haven status.
The pair EUR/GBP lost 2.1% since the beginning of September. WSJ draws attention to the fact that yesterday when the move of the major central banks made the riskier currencies rally, pound weakened against euro as the other refuge currencies. The economists claim that sterling has become more attractive since the SNB pegged franc to euro.
At the same time, though pound strengthened versus euro, it only returned to the levels where it began this year, while against US dollar sterling is above the levels of the beginning of 2011 only by 0.6%.
UK economic problems are strongly affecting the national currency. Pound is under pressure as the Bank of England’s conducting QE. The economic outlook for Britain is dim, as the country is affected by the weak growth in Europe. Moreover, UK has to conduct its own austerity measure that will also reduce its GDP growth rate.
Analysts at Barclays Capital are bearish on GBP/USD in the short-term saying though that pound’s slide will be limited. Some experts say that the negative factors are already priced in pound’s rate, so the pair may strengthen to $1.60. According to the calculations of Societe Generale pound is undervalued by 11%, while the European currency is overvalued by 0.5%.
French and Spanish bond auctions considered successful
France has managed to sell today 1.57 billion euro of 10-year bonds. The average yield was equal to 3.18%, lower than at its last auction on November 3 (3.22%).
Spain sold 3.75 billion euro of bonds meeting the maximum target. The average yield on 5-year debt, however, was 5.544%, higher that the last time on November 3 (4.848%).
Analysts at Bank of Tokyo-Mitsubishi UFJ note that the demand for the nations’ debt was high enough adding that the market’s sentiment is still positive after the major central banks acted yesterday to facilitate access to dollar liquidity to the euro area.
EUR/USD is trading in the $1.3400 area, up from the opening level at $1.3445.
BarCap: China’s economic forecast
Analysts at Barclays Capital believe that China’s economic growth pace will decline from 9.1% in the third quarter to 8.3% in the final 3 months of the year and then slide below 8% in the first quarter of 2012.
The specialists underline that Chinese November Manufacturing PMI data was lower than expected and accounted for 49.0 versus consensus forecast of 49.8. In their view, that means that Chinese economy is suffering from the deteriorating demand for its exports.
The bank warns that the risks to Chinese economy come from the possible global recession and from the dangerous situation at Chinese property market.
This week the People’s Bank of China has unexpectedly reduced reserve requirement rate by 50 basis points. According to Barclays, the central bank will continue easing its monetary policy in case of the GDP growth slowdown and cut RRR 3 more times by the middle of the next year. The analysts say that the chances of interest rate cuts in 2012 are also high.
BarCap, BNP Paribas on central banks' action
Yesterday the Federal Reserve, the Bank of England, the Bank of Canada, the Bank of Japan, the European Central Bank and the Swiss National Bank agreed to lower interest rates on dollar liquidity swap lines from 100 to 50 basis points from December 5. In other words, it’s now cheaper for the central banks to borrow dollars from the Fed. Such step was aimed to facilitate access of the euro area to the dollar liquidity.
Analysts at Barclays Capital, however, believe that though the risk sentiment on Wednesday has significantly improved, it’s now too early to say that the situation has changed. The specialists note that the stock indexes remain range bound and longer term charts still point to weakness.
Strategists at BNP Paribas say that the central banks' joint action treats the symptoms but not the cause of the problems. In their view, the market’s attention will remain focused on the situation in the euro area and investors will keep hoping that the region’s economies will move towards fiscal integration.
Goldman Sachs: 2012 stock markets’ forecast
Economists at Goldman Sachs project that the stock markets will keep falling in the first quarter of 2012 due to the threat of recession in the developed economies, but later start advancing around the middle of the next year. In their view, the major indices will end 2012 10% above current levels. Goldman says that it’s hard to say exactly when the rebound is going to start as that will depend on the actions of the policymakers.
The specialists expect euro zone’s GDP to decline by 0.8% the next year. In their view, Germany and France will survive sharp but short-lived recession, while the peripheral economies of the region will suffer much more. However, despite the economic contraction some kind of resolution to the euro zone debt crisis will lead to a rally for stocks and a narrowing of bond spreads.
According to Goldman Sachs, currency bloc’s collapse is unlikely, but in case it happens, the consequences for the member states and the global financial markets will be terrible.
RBA once again cut interest rates
The Reserve Bank of Australian reduced today the key interest rate by 25 basis points to 4.25%. Australia’s monetary authorities claimed that such decisions were made due to the risks coming from the European debt crisis. In particular, the country’s exports and, consequently, its economy and the global economy in general will likely suffer from the declining demand in the euro area. Economic growth of China, Australian biggest trading partner, is also slowing down.
Analysts at RBC Capital Markets believe that the RBA will lower the borrowing costs once more in the first quarter of 2012. Specialists at St. George expect the central bank to cut rates in February, especially if there is no fundamental solution in Europe. Strategists at Westpac think the cuts will be conducted in February and May of the next year.
The RBA decreased rates for the second consecutive month: in November it lowered borrowing costs from 4.57% to 4.50%.
Australian dollar declined versus its US counterpart from the recent maximums in the $1.0330 area to the levels in the $1.0200 zone.
BMO recommends longs on NZD/CAD
There are many central banks’ meetings this week, including the Bank of Canada later today and the Reserve Bank of New Zealand on Thursday.
Analysts at BMO Capital compared Canada’s and New Zealand’s economic data and came to conclusion that the latter is better than the former. The specialists think that the RBNZ is likely to lift up the borrowing costs, while the BOC is seen staying on hold.
As a result, BMO believes that New Zealand’s dollar will gain versus its Canadian counterpart. The bank suggests buying NZD/CAD in the 0.7875 zone stopping below 0.7735 and targeting 0.8275.
Barclays Capital: trading recommendations
Currency strategists at Barclays Capital are slowly truing more positive on the prospects for the single currency as the region’s gradually moving to a sort of progress.
The European Central Bank meets on Thursday and the EU leaders gather on Friday. The specialists think that these meetings will be an important step forward and can help to lower the risk premium on euro. Barclays notes that as the majority of market players are currently bearish on the single currency, their sentiment may sharply change.
At the same time, the analysts advise traders to avoid euro as EUR/USD’s moves may be extremely volatile and unpredictable. In their view, the ECB’s meeting is unlikely to improve risk sentiment while posing risks to the euro zone’s interest rate advantage. If the European policymakers don’t deliver some relief, euro will get under pressure.
As a result, Barclays recommends buying USD/CHF in the 0.92 area stopping below 0.90 and targeting 0.98.