Comments and forex-analytics from FBS

[ryuroden]

Pound’s suffering from weak data



On Wednesday the British pound dropped versus its major peers on the backdrop of negative data coming from U.K.

According to the U.K. Office for National Statistics, seasonally-adjusted GDP shrank 0.3% during the fourth quarter versus the preliminary estimate of a 0.2% contraction. However, the current-account deficit decreased slightly to 8.5 billion pounds in the last quarter against 10.5 billion in the third. The household incomes in 2011 fell by 1.2%.

On Tuesday the Chancellor of the Exchequer George Osborne said Britain is now “in the recovery phase.” Osborne used his March 21 budget to spur businesses to invest and hire by cutting taxes for companies and high earners.

Bank of England Governor Mervyn King said that in 2012 the U.K. economy will be extremely volatile and the European crisis remains the biggest threat for U.K. economy rebound.

Today GBP/USD slipped to the $1.5941 level. Cable is likely to find support at $1.5800, Monday’s low and resistance at $1.5963, the session high. The EUR/GBP reached the 0.8372 level.

[ryuroden]

Pound’s suffering from weak data



On Wednesday the British pound dropped versus its major peers on the backdrop of negative data coming from U.K.

According to the U.K. Office for National Statistics, seasonally-adjusted GDP shrank 0.3% during the fourth quarter versus the preliminary estimate of a 0.2% contraction. However, the current-account deficit decreased slightly to 8.5 billion pounds in the last quarter against 10.5 billion in the third. The household incomes in 2011 fell by 1.2%.

On Tuesday the Chancellor of the Exchequer George Osborne said Britain is now “in the recovery phase.” Osborne used his March 21 budget to spur businesses to invest and hire by cutting taxes for companies and high earners.

Bank of England Governor Mervyn King said that in 2012 the U.K. economy will be extremely volatile and the European crisis remains the biggest threat for U.K. economy rebound.

Today GBP/USD slipped to the $1.5941 level. Cable is likely to find support at $1.5800, Monday’s low and resistance at $1.5963, the session high. The EUR/GBP reached the 0.8372 level.

[ryuroden]

RBC: forecast for USD/JPY


Analysts at RBC Capital Markets claim that US dollar made last week a reversal pattern “bearish divergence” as it fell below 82 yen.

The specialists expect USD/JPY to keep declining to 82.02 and 80.60. At the latter level the bank recommends going long on the greenback within the upward trend which began in February.

According to RBC, if US currency manages to rise above 83.63, it will be able to get higher to 84.16 and 85.53 yen.

[ryuroden]

BMO, BBH: trading recommendations for EUR/USD


Specialists at BMO Capital suggest a strategy to benefit from the dollars’ temporary slippage. They recommend going short when EUR/USD reaches $1.35 level or now at $1.33 with a stop at $1.34 and targeting at $1.30.

On Tuesday the Fed’s Chairman Ben Bernanke hinted that the third round of QE is on the cards. "The euro rose after Bernanke's comments, but it wasn't a widespread shift," BMO analysts say.

According to Brown Brothers Harriman, the common currency is unlikely to stand above $1.33 on the back of the concerns about the European banking sector and the sovereign debt problems.

[ryuroden]

Yen keeps strengthening


USD/JPY continues its decline as Japanese exporters are seen selling US dollar in large amounts as the nation’s financial year ends today and MSCI Asia Pacific Index fell by 0.8% after losing 0.5% yesterday.

Strategists at Royal Bank of Scotland say that yen is now more correlated with the stock market’s moves, so they are in favor of selling USD/JPY. If the pair closes today below 82.60 (March 27 and 28 minimums), it will likely fall to 81.87/97 (March 2 maximum, March 23 minimum). Resistance for US currency lies in the 83 area (Tenkan-sen at the daily Ichimoku chart).

However, analysts at Bank of Tokyo-Mitsubishi underline that despite the recent sell-off of the greenback and dovish Bernanke’s comments, the greenback seems resilient against yen. In their view, dollar will get more support when new toushins (currency-selective type investment trust funds) are launched and life insurers' foreign bond buying gains momentum from April.

[ryuroden]

Canada: watch the budget release


On March 30, Thursday, finance minister Jim Flaherty is expected to deliver the annual budget.

RBC Capital Markets: The finance minister will report a deficit of between C$20 billion ($20.1 billion) and C$25 billion for the fiscal year, compared with an earlier forecast of C$31 billion, and will forecast bringing the country back to budget balance by the end of the 2015-16 fiscal year, a year ahead of schedule.

Although Flaherty promised earlier this month the 2012 budget will focus on “bolstering growth in a bid to sustain the country’s recovery, rather than spending cut”, he is expected to reduce governmental spending significantly by cutting public-sector jobs across the country. At the same time, Canada’s labor market has already been going through hard times in the past five months (7,400 job cuts a month since October), regardless of the U.S. economy rebound.

Today also watch for the Raw Material Price Index release (leading Canada’s indicator of consumer inflation is expected to grow 0.4% in Feb. versus 0.1% in Jan.). Tomorrow the monthly Canadian GDP will be published (0.1% growth is forecasted in Jan. versus 0.4% in Dec.)

The pair USD/CAD has been trading sideways since the end of January in range between 0.9840 and 1.0050. Analysts at Bank of Nova Scotia note that the greenback has broken above the 50-day MA at 99.70 cents, but the pair is still not that far from the center of the 2-month range. There is strong resistance at the parity level and higher, at 1.0006 (200-day MA) and $1.0033 (March 23 maximum).

[ryuroden]

Standard Chartered: economic outlook for Asia


Analysts at Standard Chartered claim that the economic outlook for Asia for the rest of 2012 is mixed.

Among the positive factors the specialists cite data from the US, reduced tail risks from a European sovereign or banking crisis, and the turnaround in the electronics cycle. As for the negative ones, they are the ongoing correction in China's property market, moderating export growth across Asia, and growth and inflation threats from higher energy costs.

The bank expects loosening in Asia to slow going into the summer as policy makers try to balance growth and inflation concerns. As the same time, Standard Chartered makes it clear that the risks to Asian growth are to the downside this year, so the region’s authorities will likely come up with more easing.

[ryuroden]

OECD: UK is facing “double-dip” recession



The Organization for Economic Cooperation and Development said today that United Kingdom is poised for a so-called “double-dip” recession. Recession is defined as 2 quarters of negative growth in a row.

British GBP shrank by 0.3% (q/q) in the final quarter of 2011 after sliding by 0.2% in the previous 3 months. The OECD economists think that in Q1 2012 UK economy contracted by 0.4%.

[ryuroden]

Analysts’ comments ahead of Eurogroup summit


European governments are preparing to increase the ceiling on rescue aid to 940 billion euro ($1.25 trillion) for 1 year at Eurogroup meeting in Copenhagen on March 30-31 in order to constrain the debt crisis. Under the proposal, the overall capacity would return to 500 billion in July 2013, when the EFSF expires.

National Australia Bank: “We do believe the approval for the rescue package will go ahead tomorrow, and this may create more support for the euro in the interim.”

Citi: The agreement to let the EFSF and ESM run in parallel would be “mildly positive because it could have been worse or not have happened at all. Everybody knows it is not going to be big enough. But less inadequate is a good thing."

ING: “That looks like the most plausible option, although it’s still going to be hard to sell to the German parliament. It would clearly do the job as long as it was followed up by some action by the IMF and G20.” (The IMF will meet in Washington on April 20-22 and is expected to agree to increase its own crisis-fighting resources as long as Europe has taken significant action first).

WSJ: “Officials tell us that a consensus will likely be reached in Copenhagen to pay in two extra tranches in 2013 and one in 2014. Despite this, officials say, unless paid-in capital is further accelerated, the funds’ actual combined size won’t top 700 billion euro at any stage. That’s because by the time the ESM lending capacity ramps up to roughly 400 billion euro by the middle of 2013, the EFSF will have been phased out.”

Hermes: “We don't see the euro zone crisis fading in the next few years even when the ESM is operating.”

[ryuroden]

Comments about declining Aussie



During March Australian dollar has been trading within downtrend versus the greenback. The main thing that’s driving Aussie lower is concerns about Chinese economic slowdown which will surely affect Australian exports.

Westpac: bearish view on Aussie in the next 1-3 months.

ANZ: “AUD is likely to continue to underperform on most crosses.”

Wells Fargo: “We would consider establishing long Canadian and NZ dollar positions against the Australian dollar.”

Scotia bank: “AUD/USD will continue to trade on broader market sentiment ahead of the RBA meeting on April 3, where policymakers are expected to maintain policy at 4.25%.”

Do not miss China’s March Manufacturing PMI release on April 1 (forecast 50.6).