Comments and forex-analytics from FBS Brokerage Company

[jeshinta]

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that:

• Euro shorts declined for the second consecutive weak. Net shorts account for around 141K contracts, down from the previous week’s total of 158K.
• British pound shorts increased from 26K contracts on January 31 to 33K contracts on February 7 after 2 weeks of improvement.
• Japanese yen net longs declined from 57K contracts reported on January 31 to 55K as the data on February 7 showed. Yen speculative positions are still just below their maximum in over a year which was reached on January 10 when contracts surpassed the August 2 level of 59K.
• Swiss franc net shorts declined from 11K net short contracts on January 31 to 9.7K contracts on February 7. The shorts decrease for the third consecutive week.
• US dollar long positions were reduced from a total long position of $14.22 billion on January 31 to $10.63 billion on February 7.

It’s necessary to note that the figures cited above are always a week old at the time of their release. Never the less, CFTC data gives a good oversight into how the market is positioned and if/how these positions are being unwound.


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

Analysts at UBS note that the greenback has posted its biggest weekly advance versus Japanese yen since the Bank of Japan’s record intervention at the end of October 2011.

USD/JPY rose from the 76.50 area on Monday to Friday’s peak at 77.80 yen. The pair went up due to the general strengthening of US dollar as well as on the speculation of potential intervention of Japan’s monetary authorities.

Never the less, the specialists claim that USD/JPY may find itself under pressure in the upcoming weeks. According to UBS, the outlook for the pair is mixed: on the one hand, the economists expect inflows into yen from semi-annual coupon payments of US T-bonds holders and some kind of repatriation due to the Japanese financial year-end; on the other, the Bank of Japan may further ease its monetary policy.

The bank thinks that USD/JPY isn’t likely to rise above 80 yen unless US Treasury yields can break significantly higher.



Chart. Daily USD/JPY


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

The Confederation of British Industry (CBI) lowered its 2012 forecast for the UK economy from the 1.2% (November 2011 estimate) to 0.9%.

Although Britain’s GDP contracted by 0.2% in the final 3 months of last year, the specialists think that the nation will manage to avoid technical recession or, in other words, 2 consecutive quarters of negative growth.

According to the CBI, British growth will accelerate to 2.0% in 2013. The economists say that in the quarterly basis growth will remain fragile in the first two quarters of this year (0.2%, 0.2%), improving modestly in the second half of the year (0.6%, 0.5%), as inflationary pressures ease.

The latest forecasts show inflation falling back towards target levels (2.2%) in the fourth quarter of 2012 and then remaining close to the BOE’s 2.0% target throughout 2013. The growth will be driven by trade and business investment. Household consumption, however, will be under pressure from modest wage growth and continuing high unemployment.

Later this week in the UK

On Wednesday the Bank of England will publish its latest quarterly Inflation Report with update forecasts for growth and inflation. The BoE Governor Mervyn King will give press conference the same morning. As the Monetary Policy Committee (MPC) increased asset purchases by 50 billion pounds to 325 billion pounds on Thursday, the forecasts might continue showing lower inflation in the medium term.

On Tuesday the Office for national Statistics will release January inflation data. The CPI growth is expected to slow from 4.2% (y/y) to 3.6%. King will have to write a letter to the Chancellor, explaining why inflation is more than one percentage point above the 2% target.



Chart. Daily GBP/USD


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

To get insight about the Federal Reserve’s stance toward further quantitative easing one has to watch the Fed's January meeting minutes released on Wednesday.

The minutes will show how the opinions of the central bank’s officials are divided: some FOMC members may have seen the need for additional monetary easing.

This time the central bank for the first time will provide "qualitative" details on officials' views on the Fed's near-record $2.9 trillion balance sheet.

Last month the Fed revealed its intentions of keeping the rates near zero until the end of 2014 but gave no details on how it should handle its asset holdings.

The argument against QE3 is improved labor market situation (in January unemployment rate declined to 8.3%). However, some experts think that US economy won’t gain enough growth pace to satisfy the Fed.


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

UniCredit: if Greece leaves the euro area, it would be a disaster for Greek society, while for the rest of Europe it won’t matter much in the longer term. However, the majority underestimates the risks of Greek default to the global financial markets in general and other European nations in particular.

Bank of Nova Scotia: as Greek parliament approved austerity measures the pressure on euro may ease in the short term.

Societe Generale: speculative positioning data shows that short euro positions are being reduced, but not enough to spark a substantial risk rally. EUR/USD will struggle to break last week's maximum at $1.3330.

Morgan Stanley: EUR/USD correlation with the market’s risk sentiment will break down this year. The single currency will remain under pressure with the ECB’s accommodative increase of euro’s supply, recessionary growth and political uncertainty. Sell euro at $1.3250, stopping at $1.3300 and targeting $1.2390.

Credit Agricole: so much good news is already reflected in the value of the single currency, so even if there is some form of debt deal and second bailout package for Greece EUR/USD’s advance will be limited.



Chart. Daily EUR/USD


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

Analysts at JPMorgan recommend buying the single currency versus Swiss franc. In their view, the pair EUR/CHF will rise to 1.23 in the medium term.

The specialists point out that in Switzerland deflationary forces are mounting, while the economy is close to recession. The bank reminds investors of weak January manufacturing PMI (the indicator declined from 49.1 to 47.3) and high unemployment rate.

According to JPMorgan, the SNB will defend the 1.20 floor or possibly to raise it.



Chart. Daily EUR/CHF


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

The single currency declined versus the greenback for the third day. Euro fell after Moody’s Investors Service downgraded several European nations. US dollar, on the other hand, strengthened versus all of its major counterparts as the market’s risk sentiment deteriorated.

Moody’s cut Spain’s rating from A1 to A3, Italy’s – from A2 to A3 and Portugal’s one – from Ba2 to Ba3 with negative outlooks. The ratings of Slovakia, Slovenia and Malta were also lowered with negative outlooks. In addition, the agency said it may strip France, Austria and the UK of their top Aaa ratings. The rating of EFSF (European Financial Stability Facility) was retained with stable forecast.

According to the Moody’s economists, the downgrade was motivated by the uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework and the resources that will be made available to deal with the crisis.

The euro zone’s finance ministers meet tomorrow to discuss a second 130 billion-euro ($171 billion) aid package for Greece which managed to reach parliamentary approval of austerity measures.

Analysts at Mizuho claim that “the ratings agencies behind the curve as the risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren't new and the downgrade should have minimal impact on market sentiment.”

Investors’ attention will be also focused on Italian bond auction today (bonds due in 2014, 2015 and 2017) and debt auctions of Spain, Belgium and Greece (bills) and the Netherlands (bonds maturing in 2017).

The pair EUR/USD fell from last week’s maximums above $1.3300 to the levels in the $1.3135 area.



Chart. Daily EUR/USD


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

Japanese yen declined against US dollar as the Bank of Japan increased its asset-purchase program by 10 trillion yen ($128 billion) to 65 trillion yen and set near-term inflation target at 1%. The move was generally unexpected. The BOJ left its benchmark rate at 0.1% (in line with forecasts).

According to the BOJ statement, the central bank’s goals are to “clarify its monetary policy stance and to further enhance monetary easing” to “overcome deflation and achieve sustainable growth with price stability.” Some experts, however, criticize the BOJ for yielding to political pressure. The increase in the asset-purchase facility will be used to fund purchases of more government bonds.

Japanese central bank decided to support national economy which contracted in the final quarter of 2011 by 2.3% (y/y), data released yesterday showed. The BOJ also signaled its resolve to take further action to beat deflation. Nationwide core CPI fell by 0.1% (y/y) in December, the third straight month of decline. Prices haven't risen by at least 1% for any year since 1997.

It’s also necessary to point out that as US Federal Reserve last month set an inflation target and extended its commitment to near zero rates. As a result, pressure on the BOJ strengthened encouraging it to make a move.

Analysts at Sumitomo Mitsui think that the impact on yen’s long-term uptrend will be limited. Specialists at Mitsubishi UFJ Morgan Stanley Securities claim that the BOJ still has further easing options left, such as increasing the amount of assets it buys and buying JGBs with longer maturities.

Economists at Credit Agricole think that the BOJ's decision will help to keep JGB yields low and make yen weaken in the short term. However, the specialists aren’t sure that the impact will be sustained. There needs to be probably more to be done, the buying of JGBs would need to be more intense, says Credit Agricole.

The pair USD/JPY rose above 78 yen mark. Resistance for the greenback lies at 78.29 yen (maximums of the late November and January 25). Above this level the upside momentum will increase.



Chart. Daily USD/JPY


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

Analysts at UBS raised 1-month forecast for euro from $1.2000 to $1.3000 and increased the 3-month projection from $1.1500 to $1.2500.

The specialists also lifted up their 3-month forecast of USD/JPY’s rate from 75.00 to 77.00.

According to UBS, short-term risks diminished: the situation in the euro zone’s banking sector will improve due to ECB’s Long-term liquidity operations (LTLO) operations, while the threat of a disorderly Greek default for now subsided.



Chart. Daily EUR/USD


Kind Regards,
Jeshinta
FBS Brokerage Company

[jeshinta]

The single currency went up versus the greenback and reached 2-month maximums against Japanese yen as the People’s Bank of China announced that the nation will take part in resolving the euro zone’s debt crisis.

The PBOC Governor Zhou Xiaochuan said that China can provide help through the central bank, China Investment Corp., the nation’s sovereign wealth fund, and banks including the China Development Bank, Export-Import Bank and other institutions.

Analysts at Royal Bank of Canada claim that we’ll see some growth on the short covering, but the advance won’t be long.

On the upside, euro’s moves are limited ahead of the European finance minister’s teleconference on the second bailout for Greece (the meeting initially scheduled for today was put off to Monday, February 20). European authorities are waiting for written commitments of Greek parties on the implementation of the austerity program. According to Greece’s government, the necessary assurances will be provided today.

The pair EUR/USD rose from yesterday’s minimum at $1.3079 to the levels around $1.3180. There may be some further consolidation between 100- and 55-day MAs.



Chart. Daily EUR/USD


Kind Regards,
Jeshinta
FBS Brokerage Company