Comments and forex-analytics from FBS Brokerage Company

[FBS_official]

Bank of America: Fed has little incentive to weaken dollar

Analysts at Bank of America Merrill Lynch claim that as the correlation between import prices and US dollar’s rate seems to be low, the Federal Reserve has little incentive to weaken the greenback in order to encourage inflation increasing competitiveness of the national exports or making its debt easier to repay.

The trade-weighted dollar index lost 5.8% during the past year. It happened due to the Fed’s loose monetary policy of extremely low interest rates.

At the same time, import prices excluding automobiles didn’t change much during this period gaining in February only 1.4% after rising by 1.3% in January.

According to Bank of America, 10% decline of US currency is equal to the percentage-point increase in inflation. Consumer prices excluding food and energy showed in February 1.1% annual advance. As a result, it’s possible to say that the link from a weaker currency to higher prices for consumer goods has still been fairly weak.

[FBS_official]

Pimco advises not to invest in Treasuries

Analysts at Pacific Investment Management Co., the world’s biggest bond fund, believe that US Treasuries have little value due to the rising US debt.

According to Pimco, America owes about $75 trillion in bonds and obligations for Social Security, Medicare and Medicaid. The specialists warn that unless the country’s authorities reform entitlement programs, the United States will face inflation, currency devaluation and low or negative real interest rates.

As a result, the strategists advise investors to sell US debt. In their view, US may have an off- balance-sheet, unrecorded debt burden of close to 500% of GDP. Pimco claims that the situation in the US is even worse than in Greece and that the nation is “out-Greeking the Greeks”.

This quarter US Treasury holders lost 0.1% even after the interest payments, estimates the Bank of America Merrill Lynch. In the final quarter of 2010 the loss was equal to 2.7%. During the presidency of Barack Obama US publicly traded debt rose to the record level of $9.05 trillion.

[FBS_official]

Commerzbank: GBP/USD advance is a correction

British pound went down from last week’s maximum versus the greenback at 1.6400. The pair GBP/USD found support in the 1.5935/40 area and bounced up returning above 1.6100.

Technical analysts at Commerzbank regard sterling’s current advance as correction. In their view, pound’s growth will be limited by 1.6140/70. The specialists expect the pair to fall to the February minimum at 1.5963.

According to the bank, if GBP/USD breaks down below support at 1.5963, the top at 1.6400 will confirm in the longer term and British currency will be poised for a decline to 1.5750 and then to 1.5570.

[FBS_official]

Ireland: stress tests release

Ireland’s economy minister Richard Bruton commented yesterday on the Irish banks’ stress tests that are released today at 1530 GMT.

According to the official, investors have to be ready to the fact that the results of the tests will reveal the country’s bank need additional capital. Bruton noted that it was hard to ease Irish banks' dependence on central bank liquidity as long as they didn’t have enough capital. The minister underlined that Ireland was committed to meeting all its fiscal obligations under the EU/IMF rescue package. The policymaker also spoke against raising the corporate tax rate, saying it would affect investor confidence.

Analysts at RBC Capital Markets expect that Irish bank need EUR15-EUR25 billion. So far EUR10 billion of the EUR35 billion set aside has been used, says RBC, and an amount within these parameters would be euro neutral, any figure above the EUR35 billion total, although highly unlikely, would be significantly euro negative, while any figure below EUR15 billion would not be credible.

[FBS_official]

Barclays Capital recommends watching euro closing levels

Analysts at Barclays Capital note that the risk sentiment has improves so far.

The specialists claim that today is the important day for the market as the month and the quarter ends. In their view, it’s important to watch the closing levels of the single currency versus US dollar and British pound: for the pair EUR/USD the key level is found at 1.4185, while for the pair EUR/GBP it lies at 0.8815. If euro closes above these levels, the bulls will likely remain strong during the rest of the year.

The strategists also say that Brazilian real and the Korean won strengthened today versus their US counterpart breaking out of the established ranges. That means, according to Barclays, that dollar may stay weak in the second quarter of the year.

[FBS_official]

Commerzbank: comments on USD/CHF

Technical analysts at Commerzbank claim that as long as the greenback is trading above the support at 0.9140 it still has chances to advance versus Swiss franc.

The specialists note that to confirm its upward potential the greenback has to close above the Fibonacci resistance at 0.9205.

According to the bank, if the pair USD/CHF breaks below 0.9140, it will be poised for a decline to 0.9110 and 0.8980/70 on its way down to the minimums in the 0.8852 area.

[FBS_official]

Mizuho, BNP Paribas: forecasts for USD/JPY

Technical analysts at Mizuho Corporate Bank note that the greenback has returned to the large “triangle formation” in which it was trading versus Japanese yen during 5 months since November.

According to Mizuho, the record minimum of the pair USD/JPY at 76.31 hit on March 16 will hold at least during the second quarter of the year. The specialists expect the US currency to continue consolidating between 82.35 and 83.35.

Currency strategists at BNP Paribas note that the greenback’s advance has paused due to the month-end rebalancing. The Bank of Japan will undoubtedly keep monetary policy extremely loose and investors increasingly favor yen as a funding currency. According to the bank, American currency will appreciate to 85.00 yen.

[FBS_official]

J.P. Morgan: bullish outlook for Aussie

Australian dollar reached the maximal levels versus its US counterpart since its free float began in 1983.

Analysts at J.P. Morgan are still bullish on Aussie. According to them, Australia’s currency is stimulated by higher commodity prices. As a result, overseas investors willing to benefit from Australia’s commodities and commodity-related firms pour their money to the country both in the form of foreign direct investment or, in other words, M&A, and equity and bond inflows. According to Dealogic, the volume of Australian M&A added 59% in the first quarter of 2011 rising to $18.8 billion.

This, in its turn, improves the nation’s economic growth and boosts inflation making the central bank raising the interest rates. The Reserve Bank of Australia (RBA) has been tightening its monetary policy since October 2009. J.P. Morgan believes that the central bank will continue hiking its benchmark rate from the current level of 4.75% to 5.25% by December. Rising yields is another factor luring investors to come to Australia and buy its national currency.

However, the bank outlines some risks for Aussie. Firstly, Australia may create the new sovereign wealth fund (SWF) or stabilization fund to collect the natural resource revenues for investment in future needs like it is in Russia and Norway. In addition, the specialists claim as the bullish sentiment on Australia is very strong, so negative news could make it shift very quickly.

The specialists say that the support for the pair AUD/USD is found at 1.0200, 1.0155 and on the parity level. Resistance levels are situated at 1.04 and then 1.05/1.0560.

[FBS_official]

Ministry of Finance revealed the intervention volumes

Japan’s Ministry of Finance announced yesterday that it sold 692.5 billion yen ($8.4 billion) during the period from February 25 to March 29 to weaken the yen that hit on March 16 postwar maximum at 76.31 threatening the country’s economic recovery from the strongest earthquake in its history.

Japanese government was helped by the G7 nations which conducted the first joint intervention in more than 10 years. The coordinated actions helped to reverse the pair USD/JPY upwards. The greenback is currently trading above 83 yen level.

Analysts at Barclays Bank regard this intervention as very efficient as it managed to stop yen’s appreciation with amounts of money than those used in Japan’s unilateral intervention in September when the country sold 2.12 trillion yen when its national currency strengthened to 79.75 yen per dollar.

In addition, it’s necessary to note that Japanese central bank pumped 40 trillion yen into the banking system in successive one-day emergency cash operations from March 14 to March 22 to help financial markets restore after the March 11 disaster.

[FBS_official]

Nomura, Sumitomo: forecasts for USD/JPY

According to the Bank of Japan’s Tankan survey published today, the median forecast of large Japanese manufacturers is that the national currency will trade at 84.20 during the year through March 2012. It’s necessary to note that almost three fourths of the responses to the survey came by March 11 when the country was stricken by the magnitude-9.0 earthquake and the following tsunami.

Analysts at Nomura increased their yen forecast expecting the monetary inflows from repatriation of overseas assets owned by Japanese investors. The specialists now think that at the end of June the pair USD/JPY will be at 82.5, while in January they were looking forward to 87.5.

Strategists at Sumitomo Trust & Banking, on the other hand, say that Japanese currency may weaken as the other world’s economies are likely to show sustainable growth that will make investors’ risk sentiment improve.

[FBS_official]

Standard Life Investments: euro may retreat downwards

The European currency rose in the first quarter encouraged by the expectations that the European Central Bank will raise the interest rates. However, euro’s prospects may be not quite optimistic.

According to Reuters, technical analysis shows that the pair EUR/USD is in the middle of correction to the downside after it added 6% rising from February 14 minimum at $1.3428 to last week’s maximum at $1.4249.

Resistance is situated at $1.4249. If euro manages to break above this level, it will be able to rise to November 4 maximum at $1.4283. If the single currency falls below the key psychological support at $1.4000, it will mean that the uptrend for EUR/USD has reversed and euro will be poised down to $1.3850.

The fundamental outlook for the single currency seems more uncertain as the concerns about the indebted peripheral nations are combined with the expectations of the ECB rate hike next week.

Analysts at Standard Life Investments expect euro to weaken in the longer term as rate increases are already prices in the pair. In their view, 25 basis points lift up won’t give euro much support. The specialists think that the euro zone’s central bank will then pause to evaluate the effects of the hike.

[FBS_official]

Mizuho: EUR/USD will advance towards 1.4500

Technical analysts at Mizuho Corporate Bank note that although the single currency went down from 2011 maximum at 1.4247 reached on March 22, the pair EUR/USD remained above support at 1.4000 and closed the month at the highest level since December 2009.

According to the bank, this will have more impact on euro than the slightly discouraging fact that it formed a spike high and closed inside the “flag formation”.

The specialists believe that the bulls are now strong enough to drive euro to the important long term resistance 1.4500 in coming weeks.

Mizuho notes that in the near term EUR/USD consolidate between 1.4125 and 1.4225 moving randomly.

[FBS_official]

BNP Paribas: USD/JPY may climb to 85 yen

Analysts at BNP Paribas note that the downside correction of the pair USD/JPY has stopped already at 83.40. If the greenback gets above 83.65 versus Japanese yen, it will be able to strengthen rising towards selling offers at 83.80.

The specialists expect some consolidation after the pair’s active growth during the last several days, though they don’t think that such move will last long. In their view, momentum for the greenback is bullish and US currency may climb to 85 yen during the next few weeks.

According to the BNP Paribas, the Bank of Japan has no choice but to keep the interest rates at the record low levels to encourage investors to use yen as the funding currency for carry trades.

[FBS_official]

Pimco: yen’s repatriation will exceed market’s expectations

Analysts at Pacific Investment Management Co., the world’s biggest bond fund, claim that Japan will repatriate more funds than markets expect as the country needs to finance its reconstruction after the devastating earthquake and tsunami.

The specialists believe that Japan will also be forced to increase borrowing and monetize some part of its debt to fund the rebuilding that, according to the estimates, will require $300 billion.

The forecasts that Japan will issue a large amount of debt in coming years are mostly based on the experience of the Kobe quake in 1995, though now the country’s debt situation seems to be much more complicated, notes Pimco.

The strategists underline that the greenback, the European currency and Japanese yen are currently facing many difficulties, so they advise investors to borrow money in these currencies to invest in the better-performing emerging markets.

[FBS_official]

Barclays Capital: bearish view on USD/CAD

Technical analysts at Barclays Capital claim that the pair USD/CAD came to the target levels at 0.9680/65. In their view, this area will hold the initial bearish attack. As long as USD/CAD is trading below resistance at 0.9745, the bank has negative outlook for the greenback. If US currency falls below 0.9665, it will be poised for a decline to 0.9600

[FBS_official]

Societe Generale: technical forecast for EUR/USD

Analysts at Societe Generale claim that the pair EUR/USD may still fall to Monday’s minimum at 1.4020 and then to the support in the 1.3755/1.3720 area before bouncing to the new 2011 maximums. When the single currency overcomes resistance at 1.4250/55, it will get chance to advance to November 2009 maximum at 1.5145 breaking through resistance at 1.4580.

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Bank of America: Fed has little incentive to weaken dollar

According to Bank of America, 10% decline of US currency is equal to the percentage-point increase in inflation. Consumer prices excluding food and energy showed in February 1.1% annual advance. As a result, it’s possible to say that the link from a weaker currency to higher prices for consumer goods has still been fairly weak.

Wow, if that's how they can sleep at night good for them.

[FBS_official]

Ichimoku. Weekly forecast. GBP/USD

Weekly GBP/USD

During the past week the British currency didn’t manage to renew maximums and finished the trade lower, in the 1.6100 area.

The Ichimoku Cloud is rising (1, 2) and the Tenkan-sen and Kijun-sen still hold the “golden cross” in place moving upwards (3) At the same time it’s necessary to note that the prices have broken through the Standard line.


Daily GBP/USD
After the prices firstly surged to 1.6400 and then returned to the 1.6000 area during the period from March 17 to 25, the pair GBP/USD behaved modestly last week: the prices edged up to 1.6100.

The pound’s rate caught Kumo but closed the week above the upper border of the Ichimoku Cloud (1), while the Cloud itself narrowed – the Preceding lines are moving towards each other (3). All lines of the Indicators are directed horizontally (2). It’s necessary to note that Tenkan-sen and Kijun-sen have almost merged together.

The market is in the stated of uncertainty. The prices will likely keep crawling along the Senkou Span B.

[FBS_official]

Ichimoku. Weekly forecast. USD/JPY

Weekly USD/JPY

There are no doubts now that the currency intervention of G7 nations was successful. During the past week the bulls have worked hard: the pair USD/JPY added more than 250 pips.

The Ichimoku Cloud stopped ext6ending downwards. The Tenkan-sen went up. The lagging Chinkou Span has approached the price chart preparing to cross it bottom-up.



Daily USD/JPY


Tenkan-sen has gone sharply up (1), the narrow Ichimoku Cloud has turned upwards (2), while the Chinkou Span has broken up through the prices chart (3).

So, there are enough positive signals to suggest that the bulls will be leading this week as well.

[FBS_official]

Ichimoku. Weekly forecast. USD/CHF

Weekly USD/CHF

US dollar kept rebounding versus Swiss franc from the record minimum in the 0.8890 area. All lines of the Indicator switched to the horizontal mode (2, 3). The Kumo stopped enlarging downwards (1).

The bears are a bit used up. We don’t expect any strong moves of the market.



Daily USD/CHF


Senkou Span B keeps moving sideways, while the Senkou Span A hints at some rebound (1).

Tenkan-sen and Kijun-sen have formed the “golden cross” and the Standard line went up (2). The Lagging line has come close to the price chart (3).

The bears are beginning to lose their powers. The bulls, however, haven’t restored their powers after the decline seen so far, though the market’s risk sentiment starts improving. It’s too early to speak about the trend reversal, but the pair USD/CHF may continue correcting upwards towards the Cloud.