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CAD may slide to a 2-year low
According to strategists at Scotia Capital, USD/CAD may surge if the volatility grows.
Analysts advise to look out for the Volatility Index (VIX), which is the key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. According to specialists, USD/CAD has chances to rise to C$1.0800 in a long tearm, because yesterday the VIX index closed at 24.49 (above the critical 23.5 level).
Economists have trimmed expectation of the Bank of Canada’s rate hikes this year as the nation’s economy is affected by weaker US data. The loonie fell on Thursday even despite the positive manufacturing and wholesales data releases. Watch Canadian CPI release later today: the pace of consumer prices’ growth is expected to decline.
SPX Volatility Index
Source: Yahoo finance
Commerzbank: EUR/GBP may get higher
The latest euro’s swing down versus British pound was lasting since the end of February. This week EUR/USD tried start rebounding after the Bank of England expressed concerns connected with the situation in the euro area.
Technical analysts at Commerzbank point out that euro managed to overcome an important psychological resistance at 0.8000 – a positive signal. Moreover, there’s a divergence of the daily RSI (12) confirming the idea of corrective rebound, while MACD has crossed the signal line bottom-up on the daily chart.
The specialists note that resistance lies at 0.8090 (downtrend resistance line) and 0.8221 (April 25 maximum), while support is found at 0.7950 (May 16 minimum) and 0.7795.
Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2670, $1.2700 (large), $1.2900, $1.2950.
USD/JPY: 79.00, 79.75, 80.00;
AUD/USD: $0.9900, $0.9950, $1.0000;
Photo from Reuters
RBC Capital: comments on USD/CAD
According to analysts at RBC Capital Markets, U.S. dollar is expected to strengthen further against the Canadian currency. The pair USD/CAD broke C$1.0097 and C$1.0159 resistance levels and now may rise to C$1.0319, reaching a 2012 maximum.
Analysts believe the pair must fix below C$0.9899 to reverse current bullish trend. However, it’s unlikely to happen: the risk aversion has increased this month amid concerns the sovereign-debt crisis will worsen.
Greece: at the political battlefront
Rating agencies are quite active these days: we have Italian and Spanish banks downgraded and Greece. Fitch Ratings cut Greece’s rating from B- to CCC due to “the heightened risk that Greece may not be able to sustain its membership of EMU”.
Fitch warned that the other euro zone nations also risk getting worse estimates: the agency pledged to put the entire zone on downgrade watch if after June 17 elections in Greece “Fitch assesses that the risk of a Greek exit from European Monetary Union is probable in the near term.”
A non-political caretaker Greek government took over on Thursday to oversee fresh national elections on June 17. The IMF said it would not resume contacts over the 130 billion euro bail-out until the new government is in power. The June vote is regarded as a referendum on the country’s membership in the euro area.
Alexis Tsipras, the leader of the Radical Left coalition (SYRIZA), claimed that he would never yield to European demands to impose “barbaric” austerity. At the same time, the latest poll showed that Greek voters are returning to the parties which stick to euro: the conservative New Democracy party may expect to have 26.1% of votes versus 23.7% for SYRIZA (first place means 50 extra seats in the 300-seat parliament). Together with the Socialist PASOK party New Democracy would have enough seats to form a pro-bailout government. However, it’s too early to breathe with relief: political experts say that voters are still far from enthusiastic with New Democracy and many things may happen in a month before elections.
Alexis Tsipras, the main inspirer of Greek radical forces, 37 years old. Photo from anphoblacht.com
Nomura: fx majors amid risk aversion
According to analysts at Nomura Capital, the greenback and the Japanese yen are likely to strengthen as “safe havens” if Greek elections in June take no effect and the country exits the euro zone. In the second half of the year specialists expect EUR/USD to decline to $1.15, while EUR/JPY may fall to 80.00 yen. Nomura specialists expect GBP to remain the strongest among the European currencies.
In the risk-off market mode commodity currencies will remain under unrelenting pressure. AUD/USD is expected to trade below parity in 2012. USD/CAD may climb to C$1.05 in Q3, while NZD/USD in Q2 is likely to depreciate to $0.72, according to Nomura forecasts.
ECB is likely to launch new round of QE if debt crisis extends; the key interest rate is expected to remain at 1.00%. Specialists point that the ECB policy, based on fiscal tightening, financial deleveraging and overly tight monetary policy, is gradually pushing the euro zone into recession.
Photo: The Telegraph
Commerzbank: comments on EUR/USD
The single currency keeps sliding versus US dollar. Technical analysts at Commerzbank note, however, that there are bids in the $1.2660/70 zone, so the bears have so far been unable to pull the pair much lower. The specialists think, however, that soon they’ll ultimately succeed and EUR/USD will drop to $1.2624/1.2530 (January minimum, 78.6% retracement of the pair's advance from June 2010 minimum to may 2011 maximum), then rebound to $1.2911/82 before another decline.
There was no significant bullish correction in the last 3 weeks, so selling on rallies remains the preferred strategy. The situation will become more neutral if euro manages to crawl above $1.2758 (May 16 maximum).
BarCap: USD/CAD made bullish reversal
Can’t stop wring about USD/CAD today. Technical analysts at Barclays Capital note that what we are seeing on the pair’s chart is bullish reversal. Look yourself: this week the greenback managed to overcome resistance of 1.0051 (the upper border of the trading range since the end of January), $1.0062 (200-day MA) and 1.0097 (7-month downtrend resistance line).
According to the specialists, resistance levels have shifted upwards to 1.0159 and 1.0319 (2012 maximum). Support is now provided by the former resistance levels in the 1.0090 and 1.0050 areas and at 0.9978 (April 23 maximum). Barclays Capital says that the bearish trend reversal will occur only if USD/CAD closed below 0.9899 (uptrend line support, see the chart).
May 18: economic background
The common currency keeps weakening amid concerns Europe’s crisis extends. On Thursday Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B- on the back of concerns that the country may exit the euro zone. As we approach the Greek elections, the risk aversion on the currency markets is likely to grow.
Spanish borrowing costs edged up at a bond auction on Thursday, raising fears that other fiscally weak nations may follow the Greek scenario. Moreover, Moody’s Investors Service cut ratings of 16 Spanish banks yesterday.
Manufacturing activity in the U.S. unexpectedly contracted in May to its weakest in eight months. US Philly Fed Manufacturing Index sank to -5.8 in May from 8.5 in April, while economists were expecting the index to increase to 10.3. Jobless claims remain unchanged at 370,000 last week, signaling the labor market is making little progress.
Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution – nothing new, so the market didn’t react. The only thing to constrain yen’s appreciation is the Bank of Japan’s meeting next week as there may be some easing.
EUR/USD once again renewed 4-month minimum sliding to $1.2654. Australian and New Zealand dollars are losing for the 6th day in a row. Asian stocks dropped by 2.4% (MSCI Asia Pacific Index), while the S&P 500 hit 4-month minimum yesterday.
• All: US President Barack Obama will host a 2-day G8 Meetings at Camp David. G8 is a forum, where the world's leading advanced economies – Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States – meet to discuss key topics and provide solutions for global issues.
• Canada: Core CPI growth in April is expected to remain unchanged at 0.3%. CPI may grow by 0.3% after a 0.4% growth in March.
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