Comments and forex-analytics from FBS Brokerage Company

[jeshinta]

Analysts at Danske Bank note that after setting minimum at 0.7950 on May 16 European currency has shown 3 days of gains versus British pound.

However, the specialists claim that though both the UK and the euro area face hard times, the Britain’s economic prospects are better. Danske underlines that the Bank of England has stopped its bond purchases at the moment, while worsening conditions in the euro zone would prompt the ECB to ease further.

According to the bank, EUR/GBP will return below psychologically important level of 0.80. The pair will trade at 0.79 in a month and 0.78 in 3 months.



Chart. Daily GBP/USD

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[jeshinta]

The common currency resumed a bullish correction vs. the greenback on Monday. The G8 meeting, held on May 18-19, didn’t give any clear answers, but the leaders expressed hope that Greece manages to stay in the euro zone. The G8 countries also stressed that their "imperative is to promote growth and jobs", giving a hint they are turning away from austerity.

Growth is expected to be the main topic of the EU meeting on Wednesday (May 23), where French President Francois Hollande is expected to call for Eurobonds. According to analysts, focus on growth means the higher ECB involvement, “dovish” monetary policy and a weaker euro.

The uncertainty in Europe persists: investors remain concerned about the possible consequences of the so-called “Grexit” (Greece may be forced to leave the euro zone if the anti-austerity party wins the elections in June) and about the situation in Spain’s banking sector (the country is expected to ask for bailout soon, 10-year bond yields increased to 6.29%).

Bulls dominate the market on Monday; however, most analysts believe it's a short-time correction. EUR/USD still trades far below the 55-, 100- and 200-days MAs. MACD stays on the negative territory and below its signal line, giving sell-signals. The pair trades far below the daily Ichimoku Cloud.

The bullish trend may strengthen if the pair manages to fix above the strong $1.2812 resistance (today’s maximum). Further resistance lies at $1.2845, $1.2880, $1.2910, $1.2930, $1.2950, $1.2970 and $1.3010, while support – at $1.2750, $1.2710, $1.2680, $1.2665 (May 17 minimum), $1.2640 (May 18 minimum).



Chart. Daily EUR/USD

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[jeshinta]

EUR/USD shows a two-day advance ahead of the EU summit on Wednesday, which is expected to show who stands where among the European leaders. German Chancellor Angela Merkel said yesterday that good cooperation “doesn’t exclude differing positions” referring to Francois Hollande’s intention to push through the idea of Eurobonds.

US session was positive with S&P 500 rising by 1.6%. Asian stocks added 1.2% today (MSCI Asia Pacific Index). Risk sentiment managed to improve, though the markets lack momentum. Commodity currencies got slightly higher versus the greenback. Demand for the New Zealand dollar and for the Aussie was supported as Asian stocks extended a global rally.

US dollar itself gained a bit against Japanese yen and Swiss franc. On Wednesday the markets will be eyeing the Bank of Japan’s meeting. The benchmark rate is seen unchanged at 0.10% level, though the central bank may be forced to do more easing.

Events to watch:

• Great Britain: Consumer Price Index (CPI) in April is forecasted to grow by 3.1% (a decline in comparison with a 3.5% growth in March, but still much higher, than a 2% BoE target). It’s possible, however, that the rate falls to 3% (the lowest since February 2010) saving the BoE Governor Sir Mervyn King from issuing the inflation letter (the letter is only required if the inflation is below 1% or above 3% and is written to explain why inflation has overshot the target). Public sector net borrowing in April may decline to minus 5.4B vs. 15.9B in March.

• U.S.: Annualized number of existing home sales – the main gauge of housing market conditions – may increase from 4.48M in March to 4.65M in April supporting the idea of the nation’s economic rebound. The labor market is America’s weakest spot and many investors go the US nowadays only because it’s better than Europe.

• Europe: Consumer confidence in the euro area will likely remain low. Don’t wait for any surprises here. Spain will sell 3- and 6-month bills.

• The OECD (Organization of Economic Cooperation and Development) will release its global growth forecast.

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[jeshinta]

Analysts at RBS claim EUR/USD may rebound towards $1.2963 (50% Fibonacci retracement of the decline from May 1 maximum to May 18 minimum. The pair’s currently consolidating in the $1.2790 area (23.6% Fibonacci retracement).

Though these levels may be considered as a good entry for shorts, note that euro’s got some support on H4 chart (trend line started to form, MACD and RSI are positive). In addition, one may see a “bullish engulfing” candle on the daily chart. On the upside, resistance levels for the single currency lie $1.2805 (H4 55 MA), $1.2825 (yesterday’s maximum) and $1.2869 (May 15 maximum).

The general sentiment, however, remains bearish as long as EUR/USD trades below the psychological level of $1.3000, so euro’s still extremely vulnerable on the downside. Support is seen at $1.2780 and $1.2720 (H4 chart). The pair’s decline will accelerate if $1.2624 (2012 minimum) is breached with $1.1875 (June 2010 minimum) getting in focus.



Chart. H4 EUR/USD




Chart. Daily EUR/USD

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[jeshinta]

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: $1.2700, $1.2750, $1.2790, $1.2800, $1.2825 and $1.2850;
USD/JPY: 79.25, 79.50 and 80.00;
GBP/USD: $1.5800 and $1.5900;
EUR/GBP: 0.7960 and 0.8075;
AUD/USD: $0.9800, $0.9930 and $1.0000;
USD/CAD: 1.0000 and 1.0200.



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[jeshinta]

This week the Canadian dollar strengthens against its U.S. counterpart due to the slightly improved risk sentiment. On the H4 chart, however, we see USD/CAD went up today after Fitch downgraded Japan’s long term rating and yields on Spanish bills increased.

The cross has been trading in a bullish channel since early May, so the loonie’s growth is likely to be a correction. On the H4 chart USD/CAD is trading above the 55, 100 and 200 upward MAs. Strong support for the pair lies at C$1.0145 (23.6% Fibonacci retracement of the growth from April 27 minimum to May 21 maximum and the support of the upward trend line).

On the H4 chart, however, MACD indicator stays in the positive territory, but below the signal line, giving a sell-signal.

Resistance for the pair lies at C$1.0200, C$1.0225, C$1.0245 (local maximum), C$1.0275 and C$1.0300, while support – at C$1.0165, C$1.0130, C$1.0090, C$1.0050, C$1.0025 and C$1.0000.



Chart. Daily USD/CAD

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[jeshinta]

On Tuesday GBP/USD resumed a bullish trend after the Britain’s CPI data release and the IMF “dovish” comments.

Annualized April CPI fell to 3.0% compared with the previous reading 3.5% and a 3.1% forecast. According to analysts, if the inflation declines further in May, the Bank of England will get freedom to add monetary stimulus to support the economy.

According to the IMF, the Bank of England needs to inject more stimulus into the U.K. economy (through more bond purchases or interest rates cuts) as risks from the euro zone may underpin Britain’s growth.

IHS: While it will take more than one month of improved inflation data to ease the Bank of England’s recently heightened concerns over its stickiness, April’s sharp drop nevertheless facilitates further QE by the central bank if the economy continues to struggle for growth or is seriously affected by events in Greece.

Tomorrow minutes of the May 9-10 MPC meeting will be released, showing how policy makers voted. This month the bond-purchase program remained unchanged at 325 billion pounds. On Thursday Britain’s revised GDP in is expected to confirm that the economy shrank 0.2% in Q4 and, therefore, is in a technical recession.

Lackluster economic data, “dovish” BoE comments and increasing concerns on a new QE are expected to weigh on the British currency.



Chart. Great Britain's CPI
Source: Forexstreet




Chart. Daily GBP/USD

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[jeshinta]

The Bank of Japan has chosen not to deliver more monetary stimulus this month. The central bank kept benchmark rate unchanged at 0.1% and announced no additional bond purchases. The lack of easing made yen to strengthen versus all of its major peers. In addition, Japan’s trading deficit narrowed from 0.62T in March to 0.48T in April – another driver for Japanese currency.

Risk sentiment today was also hurt by the reports of former Greece Prime Minister Lucas Papademos saying that preparations for the country's exit from the euro zone are being considered. Although Papademos regards such move as unlikely, the risk, according to him, seems real.

Asian stocks lost 1.5% (MSCI Asia Pacific Index). AUD/USD hit the minimal level since 2011 sliding to 0.9741. EUR/USD is consolidating above 2012 minimum of $1.2624.

Also watch today:

• Great Britain: MPC meeting minutes. According to the forecasts, the MPC officials have voted unanimously to keep the monetary policy unchanged. Retail sales in April are forecasted to decline by 0.5% vs. a 1.8% growth in March – that would be a very bad sign indicating that the condition of the recessed UK economy aren’t improving at all.

• Europe: Leaders of the EU 27 member states assemble in Brussels for a crisis meeting. New French President François Hollande will try to push the currency union from austerity to growth promotion and make Germany agree to the euro bonds – debt issued for the euro zone as a whole. Analysts at Westpac say that the outcome of the meeting will hardly stimulate markets.

• Canada: Core retail sales in March may grow by 0.6% compared with a 0.5% increase in February. The nation’s economy for now seems stable enough.

• U.S.: New home sales are also expected to increase to 336K in April vs. 328K in March.

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If you have any questions to our analysts, you’re welcome to ask them in comments to this article!

Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

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: $1.2650, $1.2725, $1.2730, $1.2750, $1.2850 and $1.2870;
USD/JPY: 78.75, 79.00, 79.75, 79.85, 80.00 and 80.30;
EUR/GBP: 0.8040 and 0.8100;
USD/CHF: 0.9300 and 0.9400;
AUD/USD: $0.9900 and $0.9950;
USD/CAD: 1.0120 and 1.0140.



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Jeshinta
FBS Brokerage Company

[jeshinta]

According to analysts at JPMorgan Chase, the greenback is likely to strengthen versus its major counterparts as a “safe-haven” against the backdrop of possible Greek exit from the euro zone. Analysts expect the economic slump in China and in the U.S. to weaken commodity currencies as the prices will fall. Japanese yen is the only currency that is expected to appreciate against the dollar.

Specialists sharply lowered their forecasts for EUR/USD to $1.22 in Q2 and to $1.24 by the end of 2012. USD/CAD is forecasted to reach C$1.04 by mid-year AUD/USD may fall to $0.96, while NZD/USD – to $0.73. USD/JPY, however, may weaken to 78.00 yen in Q2.

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If you have any questions to our analysts, you’re welcome to ask them in comments to this article!

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Jeshinta
FBS Brokerage Company