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[Jeshinta]

Fundamental news: Spain sold 1.63 billion euro of 3-month bills and 1.42 billion euro of 6-month bills – that’s just over 3-billion target. The yields were slightly higher. Euro zone flash PMIs for July were softer than expected. The region’s manufacturing PMI fell to the lowest level since June 2009.

Support: $1.2065 (yesterday’s minimum), $1.2045 (June 11, 2010, minimum), $1.2028 (April 3, 2006, minimum), $1.2008 (June 8, 2010, maximum), $1.1972/91 (trend line support connecting the November 2005 minimum at $1.1635 and June 2010 minimum at $1.1876) and $1.1876 (June 7, 2010, minimum).

Resistance: $1.2144 (Friday’s minimum), $1.2162 (July 13 minimum), $1.2175 (July 16 minimum), $1.2250 (down channel), $1.2325 (last week’s maximum).

Commerzbank: EUR/USD will slide to $1.2053 (200-month moving average) and consolidate there for some time before sliding to $1.1934 (downside measured target from the symmetrical triangle).



Chart. H1 EUR/USD

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[Jeshinta]

Analysts at Standard Chartered claim that the outlook for the single currency remains bearish. As the same time, while euro will continue gradually depreciating versus the greenback, its slide in the recent weeks versus Australian dollar, Japanese yen and Canadian dollar has been much bigger, so there’s a risk of near-term short squeeze if case of positive surprises on the economic or sovereign debt fronts in the coming days. As a result, investors with shorter time horizons should look to position for, or hedge against, the risk that the EUR could see a short but sharp clearing-out of short positions, while maintaining the general negative view on the currency.



Chart. Daily EUR/JPY

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[Jeshinta]

On Tuesday GBP/USD consolidates at $1.5500 level after an intense drop on Friday and Monday. As can be seen from the daily chart, the pair has been moving sideways since June after trading in a bearish channel in May. The pair trades close to 23.6% Fibonacci retracement from a May decline and far below the 55-, 100- and 200-day MAs. On the H4 chart MAs met at $1.5584, creating a strong resistance.

Support: $1.5486 (July 23 minimum); $1.5460 (July 6 minimum); $1.5400 (July minimums); $1.5392 (July 12 minimum); $1.5320 (June 5 minimum); $1.5267 (June 1 minimum); $1.5233 (2012 minimum).

Resistance: $1.5584 (MAs on the H4 chart); $1.5596 (50-day MA); $1.5626 (July 23 maximum); $1.5661 (38.2% Fib. retracement); $1.5736 (July 19 maximum), $1.5747 (200-day MA), $1.5777/88 (June 20 maximum, 50% Fib. retracement and a 100-day MA).

In our view, a close below $1.5392 (July 12 minimum) could trigger a drop to $1.5267/33 (June and 2012 minimums). If the pair manages to overcome a strong resistance at $1.5584 (MAs on the H4 chart), an increase to $1.5746/88 resistance area will become possible.



Chart. Daily GBP/USD

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[Jeshinta]

Economists argue that the Bank of Japan might want to avoid USD/JPY returning to the range of 76-78 yen within which it was trading in the second half of 2011. Japanese officials have made a lot of comments speaking about their readiness to act counter volatile moves in the national currency. Yet, as it always is with Japan, it’s very difficult to judge the real intentions of the policymakers. Here’s what the analysts think.

Barclays Capital: “We see the increased chance of JPY selling intervention by the Japanese authorities, or at least verbal intervention with a tougher tone below 78 yen.”

MIG Bank: The BOJ may intervene if USD/JPY slides below 77.65.

Citibank: The market has become very used to such threats of “decisive steps”. Our basis view is that intervention may not come until the dollar falls below 75 yen.



Chart. Daily USD/JPY

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Photo: Reuters


On Wednesday UK will release preliminary Q2 GDP figures. Data are expected to confirm the fears that the UK still remains in recession: according to consensus forecast, British economy may have fallen by 0.2% (q/q). This would be the third successive quarterly fall, and would mean that GDP is lower now than it was in the third quarter of 2010 and 3.9% below its pre-recession peak.



Chart. UK GPP (2001-2012)
Source: Forex Factory


According to analysts at Commerzbank, the figures have already been priced in, so the market is not likely to move dramatically. Strategists expect GBP/USD to test $1.53 in the next 2-3 weeks.

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[Jeshinta]

EUR/USD consolidates around $1.2070 before data may show German business confidence in July is the weakest since 2010, raising concern the debt crisis is hurting the region’s economy (consensus: 104.8; previous: 105.3). According to analysts, the negative data will keep the euro weak as the strongest economy in the euro zone is losing steam. The yield on Spain’s 10-year bonds yesterday climbed to a euro-era record of 7.636%, while on Italy’s - to 6.598% (highest since Jan. 17). Moody’s rating agency lowered the outlook for the EFSF’s Aaa rating because it had done the same to three of the facility’s guarantors - Germany, the Netherlands and Luxembourg - earlier this week. On Tuesday officials representing Greece’s troika of international creditors arrived in Athens to assess the current situation. However, for most analysts the Greek exit already seems inevitable. The greenback’s gains are limited despite the gloomy outlook for Europe before US data this week may show the economy is slowing, adding to concern the Fed will ease policy.

The MSCI Asia Pacific Index (MXAP) of stocks declined 0.7%. Declines in Asian stocks and concern Europe’s debt crisis is worsening weigh on risk appetite, increasing demand for safe currencies: Aussie and kiwi trade near the lowest in more than three weeks against the yen. NZD/USD declines on low risk appetite even after a report showed New Zealand’s annual trade deficit unexpectedly narrowed in the year through June; USD/CAD reached a two-week high on Tuesday. AUD/USD moves up after data showed CPI rose by 0.5% q/q after a previous increase by 0.1%. USD/JPY gravitates above 78.00 yen, set for further downtrend. Japan unexpectedly posted a trade surplus of $789 million in June, the Ministry of Finance said today. GBP/USD hovers around $1.5500 ahead of the UK GPD data release.

Events to watch today:

Germany: Ifo Business Climate

UK: - Preliminary GDP (Q2). The figures are expected to confirm the fears that the UK is still in recession: British economy may have fallen by 0.2% (q/q). This would be the third successive quarterly fall, and would mean that GDP is lower now than it was in the third quarter of 2010, and 3.9% below its pre-recession peak.
- CBI Industrial Order Expectations. The index improved in June coming better than expected. If this data are confirmed, hopes will rise that the UK will recover in Q3.

US: New home sales will likely continue to improve, though from a very low base.

New Zealand: The RBNZ meeting. Currency markets will be waiting for the Reserve Bank of New Zealand rate decision. According to Credit Suisse data, traders appear to be anticipating a 95% chance of no change to the current benchmark lending rate. Annual inflation is holding at the lower end of the RBNZ's annual target band of 1-3%, increasing the chances that the bank will keep the cash rate at a record low 2.50 % level until summer 2013. The rate was last lowered in March 2011.

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[Jeshinta]

AUD/USD regained $1.0200 after hitting $1.0176 (below the 100-day MA) early Wednesday. As can be seen from the daily chart, today the pair trades below the lower boundary of an upward channel existing since June. Yesterday the bulls didn’t manage to fix above an important 200-day MA. On the H4 chart the pair trades close above the 200-period MA, while 200-, 100- and 50-period MAs are heading up.

Resistance: $1.0262 (100-period MA on the H4 chart); $1.0279/85 (200-day MA and July 11); $1.0295 (50-period MA on the H4 chart); $1.0300; $1.0320/28 (July 4-5 maximums); $1.0400; $1.0443 (July 19 maximum); $1.0450 (April 12-13 double top); $1.0473 (April maximum); $1.0500; $1.0557 (March 27 maximum).

Support: $1.0200 (psychological and a 100-day MA); $1.0155 (200-peiod MA on the H4 chart); $1.0100 (July 12 minimum); $1.0047 (50-day MA); $0.9968 (June 22 minimum); $0.9579 (June 1 minimum)

In our view, if the pair manages to fix below $1.0200 (a 100-day MA), a further fall to $1.0100 (July 12 minimum) will become possible. However, a medium-term uptrend looks resilient: further advance of the Aussie will lead AUD/USD to $1.0443 (July maximum) and $1.0473 (April maximum). Strategists at Danske Bank remain bullish for the pair in a long-term and recommend buying AUD/USD on dips.



Chart. Daily AUD/USD

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[Jeshinta]

Analysts at Bank of America expect AUD/USD to fall below parity before the end of 2012 on the back of the weaker domestic growth and external risks coming from Europe and China.

According to specialists, support for the Australian currency from carry traders and central banks becomes weaker. The Asian central banks, which in recent years were adding Aussie to their reserves, are slowing their overall reserve expansion. What is more, if the market volatility picks up on the back of euro crisis concerns, the demand for carry trade operations will drop because of the surging risks.



Photo: shutterstock.com

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[Jeshinta]

The single currency is consolidating around $1.2060 versus the greenback after it renewed yesterday 2-year minimum hitting $1.2041. The market’s sentiment took a blow due to sell-off in global stocks and escalating concerns about Spain’s future.

The majority of the analysts agree that EUR/USD targets $1.1875 (June 2010 minimum). Yet there are those who even now recommend buying euro.



For example, BNP Paribas thinks that the Fed is moving closer to easing its policy and expects “a reversal of the USD's recent rally.” The specialists say that, according to on their fair-value models, after its broad decline euro is substantially undervalued versus its counterparts. So, BNP Paribas proposes going long on EUR/USD stopping at $1.1870 (slightly below June 2010 minimum) and targeting $1.2420 (fair value).

Bank of Tokyo-Mitsubishi UFJ points out that the number of euro shorts is so big these days that there’s a chance of a short-covering. After all, the market did know that Spain was in trouble long ago, so there’s nothing surprising in what’s happening now.



Chart. Daily EUR/USD

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[Jeshinta]

Australian CPI rose by 0.5% q/q in Q2 compared with a 0.1% q/q rise in Q1 and by 1.2% y/y compared with a 1.6% y/y rise in Q1. The data are slightly weaker than the median forecast (a 0.6% q/q rise and a 1.3% y/y rise).

Most analysts agree the times of low inflation in Australia are coming to an end and the CPI data are not weak enough to push the Reserve bank of Australia to cut rates immediately.

Nomura: The inflation rate is not weak enough to justify any imminent rate cut by the RBA and Q2 may become the bottom for inflation. Recent comments by RBA Governor Stevens also point that the current state of the Australian economy is appropriate. However, in conditions of deteriorating global environment the RBA is likely to cut rates by 25bp before the end of 2012.

NAB: The downtrend in inflation we have seen in recent years has run its course as downward pressure on prices from the higher Aussie and cheap imports is waning, with inflation looking set to drift higher in the quarters ahead. The RBA still has plenty of room for monetary stimulus if the economy needs it, but the CPI data alone are not low enough to put another rate cut seriously on the agenda for the August meeting.



Photo: Reuters

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[Jeshinta]

UK economy contracted for the third quarter in a row losing 0.7% in Q2 – that’s a more than 3 times bigger decline the analysts were expecting (consensus: -0.2% q/q; previous: -0.3% in Q1).



Chart from Forex Factory


RBS: Construction which fell 5.2% in Q2 after losing 4.9% in Q1 has significantly contributed to the GDP decline. “Looking through the statistical noise, the underlying picture looks weaker than expected. This increases the chances of further monetary policy easing, but we do not expect any action prior to November (when the current QE purchases are concluded).”

EUR/GBP jumped by about 50 pips on the release to 200-hour MA at 0.7830. GBP/USD spiked up and down but then settled back in the daily range, at the levels around $1.5500.



Chart. H1 EUR/GBP

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[Jeshinta]

Let’s sum up the latest talk about the odds that Spain will ask for a full sovereign bailout after a 100-billion-euro loan to Spanish banks was approved last week. Spanish 10-year rose to 7.57% – at this point Greece, Ireland and Portugal have already cried for help. Spain has further debt obligations in 2012 and needs to sell a further 36 billion euro of bonds this year

Although the case may seem obvious while looking at these grim figures, opinions differ.

The plea for bailout is coming

Société Générale: “The drumbeat of the market for a full bailout is getting louder.”

JPMorgan: “If yields stay at these levels then Spain will find it very difficult to fund itself. There’s no such thing as a partial bailout, and it has become increasingly clear in recent weeks that Spain will need a full sovereign bail-out.”

Spain will live to see 2013 on its own

HSBC: “Spain's debt dynamics are different from other countries; every country is unique in its own way and in many ways Spain is already 70% funded for this year. It can issue bills to get through the summer and probably last through the fourth quarter without any problems. And by then you might get the intervention from the ECB or the ESM”.

Note though, that yields on 2-year and 10-year Spanish debt have significantly leveled up – a bad sign. One of the reasons that the country has been able to survive without further assistance when its 10-year borrowing costs have been so high for several months is the lower yields it has had on shorter term bonds.



Image from koreatimes.co.k

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[Jeshinta]

NZD/USD strengthens after hitting $0.7810 early Wednesday. The pair had been declining for three consecutive days since Friday. The pair trades sideways after an uptrend early June. As can be seen from the daily chart, the pair tested a neckline support of head-and-shoulders pattern that lies close to a 50% Fib. retracement from a May downtrend ($0.7840). NZD/USD trades below the 200- and 100-day MAs. On the H4 chart the 200-, 100- and 50-period MAs are heading to converge and to create a strong resistance area.

Resistance: 0.7960/83 (100- and 200-day MAs and July 23 maximum); $0.8000; $0.8014 (June 21 maximum); $0.8053 (July 19 maximum); $0.8075 (July 5 maximum); $0.8100; $0.8200; $0.8231/33 (April 27 and 30 maximums)

Support: $0.7810 (50-day MA and July 25 minimum); $0.7748 (38.2% Fib. retracement); $0.7700; $0.7638 (23.6% Fib. retracement); $0.7600; $0.7500; $0.7454 (2012 minimum)

In our view, today’s upward movement may turn out to be a short-term correction. A head-and-shoulders figure will confirm if the bears manage to keep NZD/USD below the 50-day MA. When this occurs, we expect the pair to drop to the $0.7650 area.



Chart. Daily NZD/USD

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RBC: RBNZ is expected to leave the official cash rate unchanged at a record low 2.50%, but we expect a dovish accompanying statement. It seems that inflation is too low for the actual GDP to reach the potential one at the beginning of 2013 as the RBNZ is aiming. The regulator is likely to keep the OCR at current level until 2014.

Standard Chartered: Rates are expected to be kept at 2.50% for the rest of 2012. Worries about external headwinds, including a slowing China and the lingering European sovereign debt crisis, mean the RBNZ will likely refrain from hiking rates soon.

It is to be recalled that Q2 CPI inflation came in at 1.0% y/y - not only lower than what the market expected, but also at the bottom of the RBNZ‟s 1-3% target range.



Photo: shutterstock.com

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[Jeshinta]

Analysts at IG Markets Securities claim that the greenback will slide to 5-month minimum versus Japanese yen at 77.30 (lower end of the weekly Cloud).

The specialists cite the following USD-bearish signals from USD/JPY daily Ichimoku chart:

-the conversion line (1) has fallen below the baseline (2);
-the spot rate is below the Cloud (3);
-the lagging line (4) is also beneath the spot rate.



Daily USD/JPY

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[Jeshinta]

Technical analysts at Commerzbank believe that the greenback will manage to overcome 2-month resistance against its Canadian counterpart at $1.0276. If USD/CAD closes above this level, the pair will be able to rise to $1.0362 (June maximum), $1.0523 (November maximum) and probably to $1.0575 (200-week MA). The specialists recommend buying US currency on the dips in the $1.0111/1.0079 zone (200-day MA and 100-day MA, short term uptrend line).



Chart. Daily USD/CAD

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[Jeshinta]

The greenback remains under pressure versus Japanese yen – we see a downtrend on USD/JPY H4 chart. Analysts at RBC Capital Markets note that support for USD/JPY lies at 78.00 and 77.64. Despite the negative picture, there’s the risk of the BOJ intervention below 78.00, so we wouldn’t recommend going short at this point. Resistance for the pair lies at 78.30, 78.64 and 78.80, 80.00 and 80.60. If the pair gets above the latter, it will become able to rise to 84.00.

RBS: Investors try to satisfy their demand for safe haven buying yen. In the near term, yen will likely remain the market’s refuge. However, the underlying fundamentals for JPY have sufficiently deteriorated. This fact may encourage Japanese policymakers in their efforts to weaken the national currency and justify such action on their part. The nation’s policymakers have to convince markets that they are prepared do what it takes to prevent excessive JPY gains. “We continue to hold a medium term long USD/JPY trade recommendation.”

Note: don’t forget about the major risk event – US GDP release on Friday.



Chart. H4 USD/JPY

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[Jeshinta]

The single currency rose from the daily/weekly/2-year minimum versus the greenback around $1.2050 to the levels above $1.2100 snapping 5-day decline. The yields on Spanish 10-year bonds went down by 14 bps to 7.48%.

Euro got support after the ECB council member Ewald Nowotny claimed that there were arguments in favor of giving the European Stability Mechanism a banking license. In this case the ESM would get access to ECB lending. Such option eases concerns that 500 billion-euro ($608 billion) fund won’t be enough to cover funding needs of Spain or Italy.

The market is too short on euro, so the positive news provoked some short squeeze. Analysts at UBS don’t believe that the ESM may get banking license as the ECB President Mario Draghi has repeatedly rejected the idea. The specialists view Nowotny’s comments as “being slightly taken out of context" and think that "any such move seems unlikely.”

Analysts at Commerzbank “see temporary corrections of up to $1.2250 in EUR/USD at best, which offer better selling opportunities” expecting $1.2000 to be tested very soon.



Chart. H4 EUR/USD

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[Jeshinta]

EUR/USD is consolidating in the $1.2120/65 area after yesterday’s jerk up as the ECB’s Nowotny suggested the ESM might get a banking license. The market’s attention will be focused on Mario Draghi’s speech in a panel discussion in London along with the Bank of England’s governor King – investors will look for Draghi’s reaction on Nowotny’s comments. Germany Gfk сonsumer сonfidence slightly rose from 5.8 in June to 5.9 in July, while the nation’s import prices declined in June by1.5% (vs. –o.6% expected).

The MSCI Asia Pacific Index (MXAP) of stocks advanced 0.4%, capping four days of decline. The high-yielding currencies strengthen on the back of the improved risk appetite and as the U.S. data on Friday may show growth slowed in the world’s largest economy. NZD/USD rose after the RBNZ Governor Alan Bollard left benchmark interest rates on hold at 2.50% and said the economy should grow “modestly.” AUD/USD strengthens for a second consecutive days and trades above $1.3000, while USD/JPY demonstrates a modest growth after the safe Japanese currency strengthened for 6 consecutive days.

There are plenty of data released today: EU M3 and Italian retail sales at 08:00 GMT, US core durable goods and unemployment claims at 12:30 GMT, and US pending home sales at 14:00 GMT.

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[Jeshinta]

EUR/USD is consolidating in the $1.2130/65 area after yesterday it gained about 80 pips on the ECB’s Nowonty comments about the possibility of giving a banking license to the ESM. Spanish 10-year government bond yields declined from the record highs around 7.75% to the levels near 7.38%.

Analysts at Credit Agricole think that any bounce of the single currency will be short-lived. “The ECB is still quite divided on the issue of giving the ESM a banking license”, say the specialists. At the same time, the bank underlines that the single currency will be supported ahead of the Fed’s meeting next week (August 1) on the talk that US central bank may take some easing steps. Speculation about the possibility of such action will strengthen if weak US Q2 GDP is released on Friday. Don’t forget, however, that the central bank extended Operation Twist in June to the end of 2012.

Support: $1.2130 (today’s minimums, Monday’s highs, 100-hour MA), $1.2065 (Monday’s minimum), $1.2040 (2-year minimum hit on Tuesday).

Resistance: $1.2165 (yesterday’s maximums/July 12/23 minimums), $1.2180/90 (July 16, 17 minimums).



Chart. H1 EUR/USD

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