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USD/JPY: technical levels
The USD/JPY cross strengthens for a third consecutive day after a trade in a downward channel since March until early June. This week the Japanese yen is one of the worst performers among the other key currencies. The reason for the current weakness of the JPY is that the BoJ is expected to expand the asset purchase program at the next policy meeting (July 12).
According to analysts at Credit Suisse, USD/JPY targets growth after a break through a strong 80.00 resistance on Thursday even despite the strongly negative Philly Fed index. Specialists expect the cross to consolidate at current levels for some time, but then to continue upward movement to the 84.00 area. However, if the pair falls below the 78.79 support, a decline to 77.65 will become likely.
Specialists at Societe Generale, however, doubt that the investors, bullish on the yen, will give ground quickly without any weighty reasons (for example, German yields growth or Spain’s yields decline). Today we witness a fierce fight between bulls and bears.
80.56 (May 16 maximum);
80.61 (May 2 maximum);
80.44 (100-day MA);
81.00 (psychological level);
81.07 (38.2% Fibonacci retracement from Jan.-March rally);
81.45 (April 27 maximum).
80.00 (June 22 minimum);
80.10 (50% Fibonacci retracement);
79.82 (50-day MA);
79.16 (61.8% Fibonacci retracement);
78.79 (200-day MA);
77.65 (June 1 minimum).
SocGen: NZD/JPY may rally
Analysts at Societe Generale propose buying New Zealand versus Japanese yen.
The specialists point out that New Zealand’s fundamentals seem really good: first quarter GDP growth was surprisingly high (+1.1% q/q), May jobs advertisements figures were also quite encouraging. In their view, this is not enough to ensure sustainable kiwi’s growth, but able to make it more attractive than Aussie.
As for Japan, yen has weakened since the Fed’s decision to expand the Operation Twist program which brought shorter-term Treasury yields higher. Remember that USD/JPY is correlated with spread between 2-year American and Japanese debt.
Danske Bank: sell EUR/GBP
Analysts at Danske Bank note that the pair EUR/GBP has stabilized today after yesterday’s slide of both euro and pound versus the greenback in the 0.8040 area. The bank says that euro and pound will likely remain under pressure against USD in the coming days.
The specialists recommend selling the single currency versus the greenback on recovery to 0.8112 in the targeting levels in the 0.7989 zone and placing very tight stops.
According to Danske Bank, resistance for EUR/GBP lies at 0.8058, 0.8090, 0.8100 and 0.8112, while support is found at 0.8023, 0.8012, 0.7989 and 0.7971.
JPMorgan: SNB’s very exposed to European crisis
Analysts at JPMorgan Chase claim that the euro zone debt crisis may deepen. In their view, this poses risks for EUR/CHF floor set by the Swiss National Bank.
The SNB revealed today that its foreign-exchange reserves rose to 70% of GDP. When the central bank abandoned its previous currency-intervention policy in May 2010, the reserves accounted for 56% of GDP.
This means that the SNB is now extremely vulnerable to euro’s depreciation versus the greenback. “The merits of accruing so much exposure to the euro will look increasingly suspect if the sovereign crisis intensifies and euro-dollar collapses in a high-volatility fashion, thus anchoring Swiss monetary policy to an imploding asset,” says JPMorgan Chase.
SNB’s Danthine said today that franc’s ceiling is “absolutely necessary” and cap could be maintained for a “rather long-time”.
EUR/CHF keeps its monotonous crawling just above 1.2000.
Aspen Trading: recommendations for EUR/USD
Aspen Trading Group, one of the leading providers of actionable analysis and trading strategies in the currency markets, recommends going short on EUR/USD at 1.2600 level, targeting at 1.2300 and with a stop at 1.2700.
According to specialists, selling the euro on a pullback is the most appropriate strategy these days, because the seeming improvement of the situation is superficial. Today the newly formed Greek government announced it needs two more years to meet the budget target. The US dollar, on the contrary, is likely to strengthen in the nearest future due to the extension of the Operation Twist.
EUR/USD breached trend line support of $1.2600 yesterday. For now the bears got constrained by 23.6% Fibonacci retracement of euro’s decline in May.
Spain: looming risk of ‘total’ bailout
Photo: AFP/File - Philippe Huguen
As many analysts have foreseen, the situation in Spain is really becoming more and more heated. There has been a lot of talk about the problems of Spanish banking sector contaminated with toxic loans and assets from the collapse of the country’s property market in 2008.
It turned out that the suspicions haven’t been groundless: independent auditors hired by Spanish government claimed that the nation’s banks could need 62 billion euro ($78.6 billion) in new capital to protect themselves from economic shocks in the worst-case scenario.
Of course, this sum isn’t striking as European authorizes agreed to lend 100 billion euro to Spanish banks this month, so the financing needs may be fully covered. However, the figure proves that Spanish banks are in trouble. Spain will apply to EU for a bank bailout loan on the basis of the auditors’ report no later than Monday, said the head of Eurogroup Jean-Claude Juncker.
What worries the markets is that Spain’s debt burned will keep mounting. Spanish 2-year bond yields jumped to 4.7% from 2.1% in March. The nation’s 10-year yields reached record 7.285% this week getting above the critical 7% level – other indebted euro zone nations have asked for help at this point. So, the risk that Spain will join Greece, Ireland and Portugal in seeking a rescue loan for not just the banks but the whole country seems high.
The risk sentiment has turned sour on the news and EUR/USD breached trend line support of $1.2600 yesterday. For now the bears got constrained by 23.6% Fibonacci retracement of euro’s decline in May.
RBC: AUD in short and longer terms
Analysts at RBC Capital Markets claim that Australian dollar has a number of safe haven features in the long term. There are reasons for such assumption:
- Australia has the top credit rating;
- Australia is reach with commodities;
- Australia is strongly connected to the Chinese economy, known for its fastest growth in the world.
However, the specialists warn investors about being too eager on AUD/USD in the short term. Australian dollar is extremely vulnerable to shifts in the risk sentiment moving in line with stock markets since 2008. In addition, daily turnover in Aussie is much lower than in US dollar, euro, or yen and Australian bond market seems small in comparison with the US, European and Japanese one.
The conclusion is: now it’s especially important to be very attentive to the time horizons while developing a trading strategy.
Friday, June 22: economy and currencies
EUR/USD moves down on Friday after yesterday’s sharp fall on the back of the FOMC decision and the Spanish news. However, the demand for the single currency remains limited: according to the IMF today’s report, the euro zone’s crisis reached a critical stage; economists, therefore, believe that the Eurobonds are the only effective solution to revive the currency block. Moody’s rating agency downgraded 15 international banking giants today. Later the day the German business confidence is forecasted to decline, raising demand for the safe currencies. The US dollar for now is weaker in comparison to yesterday growth.
The MSCI Asia Pacific Index dropped by 1.1% today. The Japanese yen weakens for the third consecutive day as the market participants expect the BoJ to ease monetary policy in the nearest future. The Australian, the New Zealand and the Canadian dollar are up today on the speculation that the Fed will take additional measures to support the US economy.
Events to watch today:
• Euro zone: German Ifo business climate, ECOFIN meetings, Belgium NBB business climate
• Canada: CPI
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