Archive for February, 2012

February 20, 2012

Wells Fargo:Commodity and emerging currencies on the rise

Improved risk sentiment is spreading across the FX market, first after China’s PBoC decision of cutting the banks’ reserve requirement ratio by 50bp (from 21% to 20.5%), and secondly as the Eurozone debt crisis seems to be closing a chapter, with hopes of a second bailout decision by the end of the day.

“Essentially, we would expect Europe’s finance ministers to agree to further Greek financing today and leave only relatively minor technical detail to be resolved”, writes Nick Bennenbroek, head of currency strategy at Wells Fargo Bank. “That could see further gains in the commodity and emerging currencies this week, while it might also mean a neutral to slightly stronger bias for the major European currencies as well.

February 20, 2012

The Countdown To The Eurozone Finance Ministers’ Meeting

At 1530GMT/ 1030 ET Europe’s finance ministers will meet and hopefully agree that Athens’ latest austerity efforts are good enough for them to receive their second bailout from the IMF/ EU and ECB. But as we start the European session we are seeing a bit of a pullback in risk after a strong start during the Asia session.

Right now this is a very normal pullback. The US is out on holiday today and as we enter European trading hours headline risk has massively increased, so investors are booking profits where they can. This has seen EURUSD back away from 1.3240 high and AUDUSD climb down from 1.08, although uptrends remain intact. While the markets lie in wait for the Eurozone finance ministers’ meeting later this afternoon we need to take our cue from the technical signals. In EURUSD any pullback to the 1.3150 level is normal, but below there then the fundamental back drop is likely to have changed for the worse (negative headlines from Greece or the Eurozone’s finance ministers’ meeting).

The outcome of today’s meeting is likely to define the performance of risk assets for the rest of the week. Right now the markets are not priced for an outright collapse of talks between Greece and the Eurozone finance ministers, but there are still many hurdles on the road to Greece paying its EUR14.5bn bond redemption payment on March 20th. Even the chair of the Eurogroup Juncker has said that ‘much negotiation’ is still needed.

Firstly at this meeting the PSI deal is expected to be agreed, the ECB’s position regarding the debt swap is also expected to be formalised and the Eurozone authorities need to be happy that Greece will implement the harshest austerity measures yet and will stick with its bailout conditions regardless of the outcome of April’s elections.

The PSI discussions took an interesting turn at the weekend. It was announced that the ECB would participate in the bond swap with Greece, but it would not face Collective Action Clauses (CACS), unlike other holders of Greek debt. Essentially European authorities can force losses on private bond holders but not on the ECB. I wrote about this yesterday and quoted Pimco chairman Bill Gross who said that this threatened the integrity not just of Greek bonds but of bonds across the entire Eurozone. But this has fallen on deaf ears this morning and Italian bonds have opened higher this morning (yields lower). Even Portugal, which has been targeted as the most at risk Eurozone nation after Greece, has seen its bond yields fall this morning. Thus, if today’s meeting finalises the details of the PSI negotiations then the market may concentrate on the CAC/ no CAC ECB debate, which has the potential to dampen sentiment.

There is also some confusion over whether Greece will get all of its bailout funds or if funds will be withheld until after the April elections. This is the line of action being pursued by the Dutch authorities. The other option is that a portion of Greek bailout funds are placed in an escrow account so that they are used to pay bond redemptions and can’t be used to fund public spending. This would limit Greece’s sovereignty over its own budgets, but would reduce the risk of a third or fourth bailout somewhere down the line.

So the discussions this afternoon could be long and messy and we don’t know for sure if Greece will get the funds it needs. But for now the markets believe it will hence the bullish tone to markets this morning and asset classes are moving higher in unison.

The China RRR cut on Saturday helped to boost sentiment during the Asia session as yet central bank pumps liquidity back into its economy. The US is out on holiday today and US stock markets are not open, so expect the emphasis to be squarely on Greece later.

By FOREX.COM

February 20, 2012

Retail positioning

Source:oanda

February 20, 2012

FXMR:EUR/USD has higher R/R to the downside

FX Market Report believe today’s Eurogroup decision for a €130bn Greek bailout won’t be a full agreement, but a partial deal with “difficult and contentious issues unresolved until a later date”.

“Here at FXMR we remain convinced that Greece is irreparably broke and has no sustainable debt dynamic other that a default and a new beginning”, writes Gavin Grier-Rees, stating that Germany, Netherlands and Finland already voice the same opinion. “That’s why we predict ever harsher conditions will be imposed on the Greeks until they eventually are forced from the single currency. What we are seeing here is both sides trying to avoid being given the blame for ending the dream of a single currency”, he adds.

FXMR analysts believe the strong week start, high at 1.3240, was a relief move as Greece didn’t default this weekend.

“Risk‐reward must be to the downside”, with supports at 1.3110-15 and 1.3145-50. As news disappoints, last week’s lows at 1.2975 is next target.

February 20, 2012

Time For AUD/USD Longs in Risk-On Trade Mode?

Risky assets are higher today, because of cut in China’s reserve-ratio requirement over the weekend by 50BPS to 20.5%, effective from February 24th.

That means that banks are now allowed to lend more money, which of course is good for economy. That’s why we saw a gap higher on commodities, stocks and lower on USD dollar; against the majors, as usually in Risk-on situation.

Finance ministers from the Eurozone are expected to approve a rescue package for Greece today, which is also supportive for the risk trade.

In this week we still favor more strength on FX-majors against the USD since market reversed last Thursday; Euro from 1.2970, Cable from 1.5640, Swiss franc from 0.9300,…

February 20, 2012

UBS:USD to remain bullish in 2012

US economy continues its relentless recovery as shown by last week’s improved results in the labor market and the inflation data. In the same direction, the Philadelphia Fed man survey (10.3 act. vs. 7.3 prev.) and the Empire State man index (19.53 vs.13.48 prev.) both confirmed the foundations for this wave of economic growth are well placed. Why is this so important for traders and investors in the greenback? Simply, it rules out, at least in the near term, another round of quantitative easing. Reinforcing that conclusion, the FOMC minutes has unveiled that the majority of the voting members were supportive of no more relaxing in the monetary policy conditions.

According to M.Mohi-uddin, Managing Director of Foreign Exchange Strategy at UBS, this week’s reports are also expected to confirm the momentum in the economic fundamentals and to slowly get rid of the idea of more QE in the present year. “That keeps us underlying bulls on the dollar against the major European currencies and the yen”, he concluded.

February 19, 2012

USD/CAD Weekly Outlook

USD/CAD continued to engage in choppy sideway trading above 0.9926 last week. The development suggests that price actions from 0.9926 are merely consolidations. And with 1.0070 minor resistance intact, near term outlook remains bearish. Initial bias remains neutral this week and some more consolidation could be seen. But downside breakout is in favor and below 0.9926 should target 0.9891. Break there will also resume fall from 1.0656 towards 100% projection of 1.0656 to 0.9891 from 1.0522 at 0.9757. In any case, we’ll stay bearish as long as 1.0070 minor resistance holds.

In the bigger picture, a medium term bottom is in place at 0.9406 and price actions from there could either be consolidation to fall from 1.3063 or the third leg of the whole consolidation pattern from 2007 low of 0.9056. We’re favoring neither case for the moment. Firstly, we’d expect 0.9406 to hold for a while at least. Secondly, the eventual pattern of the price actions from 1.0656 would decide whether rebound from 0.9406 is going to extend higher, or USD/CAD is just gyrating in range. We’ll stay neutral first until the pattern from 1.0656 finishes.

In the longer term picture, there is no clear indication that the long term down trend from 2002 high of 1.6196 has reversed even though bullish convergence condition was seen in monthly MACD. Current development dampens the case that fall from 1.3063 is resuming the such down trend. But there is no change in the long term bearish view so far. A break of 0.9056 low is still anticipated after all the consolidative price actions complete.

February 19, 2012

GBP/JPY Weekly Outlook

GBP/JPY jumped to as high as 126.06 last week and met mentioned target of 100% projection of 117.29 to 122.04 from 119.58 at 124.33. Initial bias remains on the upside this week and further rise should be seen towards 127.30 resistance, which is close to 161.8% projection of 117.29 to 122.04 from 119.58 at 127.26. At noted before, we’re treating rebound from 117.29 as the third leg of consolidation pattern from 116.83. Hence, we’d expect upside to be limited by 50% retracement of 140.02 to 116.83 at 128.42 to finish the consolidation and bring down trend resumption. Below 124.49 minor support will turn bias neutral first. Break of 122.04 should then bring retest of 116.83 low next.

In the bigger picture, the choppy decline from 163.05 is viewed as part of the down trend from 251.09 and there is no clear sign of reversal yet. Such down trend is expected to continue after consolidation pattern from 116.83 finishes and target 110 psychological next. However, sustained break of above mentioned 128.42 will raise the odds that GBP/JPY has bottomed in medium term and will turn focus back to 140.20 resistance for confirmation.

In the longer term picture, fall from 251.09 is treated as resumption of multi decade down trend. Fall from 163.05 could be a wave five based on it’s choppy structure and lack of decisive momentum. After all, there is no sign of bottoming yet and GBP/JPY is still in favor to target 61.8% projection of 215.87 to 118.81 from 163.05 at 103.06, which is close to 100 psychological level, before the cross bottoms.

February 19, 2012

Australian dollar/US dollar Weekly Outlook

AUD/USD engaged in consolidative trading below 1.0844 last week. Note that AUD/USD is still staying inside near term rising channel, and thus, there is no sign of topping yet. Above 1.0855 will resume recent rally and target a test on 1.1079 high. However, note again that firstly, upside momentum is weak with daily MACD staying below signal line. Secondly, rise from 0.9663 could indeed be a leg of the consolidation from 1.1079. A break below 1.0628 minor support will indicate near term reversal and should flip bias to the downside for 1.0377 resistance turned support and below to extend such consolidation from 1.1079.

In the bigger picture, the up trend from 0.6008 (2008 low) is still intact. Price actions from 1.1079 are treated as consolidation in the up trend only. In any case, with 0.9387 support intact, an eventual upside break out is anticipated, for a new high above 1.1079. However, break of 0.9387 would possibly bring deeper pull back towards 0.8066 key support before the long term up trend finally resumes.

In the longer term picture, whole up trend from 0.4773 (01 low) extended to a point where it just missed 100% projection of 0.4773 to 0.9849 from 0.6008 at 1.1084. At this point, there is still prospect for a lengthier medium term consolidation. But there is no indication of long term reversal yet. We’ll stay bullish as long as 0.8066 support holds and expect an eventual break of 1.1084 to 138.2% projection at 1.3023, which is close to 1.3 psychological level, in the long term.

February 19, 2012

Euro/US dollar Weekly Outlook

Despite dipping to as long 1.2974, EUR/USD rebounded strongly and the breach of 1.3190 minor resistance dampened the immediate bearish view. Initial bias is neutral this week for some sideway trading first. On the upside, above 1.3321 will resume the rebound from 1.2625 and target 61.8% retracement of 1.4246 to 1.2625 at 1.3627. On the downside, below 1.2974 will revive the case that rebound from 1.2625 is finished and flip bias back to the downside for this support level.

In the bigger picture, price actions from 1.6039 are unfolding as a consolidation pattern in the long term and is in progress. Fall from 1.4939 is a falling leg inside the pattern. It’s hard to anticipate the length of a leg of any complex corrective pattern. Also, price actions would likely remain choppy and indecisive with misleading momentum indicator readings. But after all, overall picture still favors deeper fall to 1.1875 support before the consolidation pattern completes. Though, sustained trading above 55 weeks EMA (now at 1.3588) will pave the way for a test on 1.4939 resistance level.

In the long term picture, EUR/USD turned into a long term consolidation pattern since reaching 1.6039 in 2008. Such consolidation is still in progress and we’d expect range trading to continue for some time between 1.1639 and 1.6039.