Market analysis and trade recommendations by FBS

[FBS]

Morgan Stanley: short on USD/JPY

USD/JPY extends the upside, breaking above the sell orders around 102.80. Will the buyers manage to push through the 103.00 mark or the bearish correction will deepen further?

Morgan Stanley expects the pair to move even lower. They opened a sell-limit USD/JPY order at 103.00, with a stop at 104.00 and a target at 100.60. "We expect JPY to regain support as broader risk appetite is tested. Signs of Chinese growth slowing are likely to impact Asia regional risk appetite in particular, which will be JPY-supportive, in our view", analysts clarify.

 

[FBS]

FX BAZOOKA: technicals (Jan. 28)

EUR/USD

EUR/USD remained between $1.3700 and $1.3650, 50% and 38.2% Fibo of the decline from $1.3890 to $1.3507. MAs remain horizontal, so do the lines Tenkan and Kijun. MACD is in the positive area, but below the signal line and declining. The desire of the bulls to move higher is confronted by the expectations of another $10B reduction in the Fed’s QE. The pair needs some additional drivers.

Resistance: $1.3700, $1.3750, $1.3800

Support: $1.3670, $1.3640, $1.3600

Chart. H4 EUR/USD

Upcoming events

EUR - All day - ECOFIN Meetings

USD - 13:30 GMT - Core Durable Goods Orders, Durable Goods Orders

USD - 14:00 GMT - S&P/CS Composite-20 HPI

USD - 15:00 GMT - CB Consumer Confidence

 

[FBS]

GBP/USD

GBP/USD extends growth for a second day in a row, breaking above $1.6600. The pair is moving towards the recent high of $1.6670. Cable remains supported by the January rising trend line ($1.6515 as of writing). General market sentiment is bullish. MACD histogram rose above the signal line. RSI is close to the overbought zone. Watch the UK Q4 GDP today – the forecast is a little bit to the downside.

Support: $1.6600/6590, $1.6565, $1.6470

Resistance: $1.6670, $1.6740

Chart. H4 GBP/USD

Upcoming events:

GBP – 9:30 GMT – Preliminary Q4 GDP, Index of Services

 

[FBS]

USD/JPY

USD/JPY keeps consolidating below 102.80. The pair needs to rise above 102.85 to extend the recovery. The negative MACD crossed the signal line to the upside (bullish signal). On the daily chart the pair is supported by the bullish Cloud.

Support: 102.40, 102.00, 101.75, 101.60

Resistance: 102.85, 103.00, 103.60

Chart. H4 USD/JPY

 

[FBS]

USD/CHF

The pair still looks bearish as long as it holds below $0.8985. We expect the greenback to extend the downside. The negative MACD crossed the signal line to the upside (bullish signal). Ichimoku Cloud remains bearish. 55-period MA crossed the 100-period MA to the downside.

Support: $0.8900, $0.8800
Resistance: $0.8985,$0.9030, $0.9090, $0.9130

Chart. H4 USD/CHF

 

[FBS]

AUD/USD

AUD/USD recovered to the 55-period MA just below $0.8800. Aussie was supported by higher NAB business confidence. The pair’s trying to rise above the horizontal Kijun-sen. MAs are sloping down. All in all, the pair was quite oversold after hitting a multiyear low last week and it may correct a bit more within the general downtrend. The Ichimoku Cloud represents a hurdle at $0.8825. The upper Bollinger band lies here as well.

Resistance: $0.8800, $0.8825, $0.8865, $0.8890

Support: $0.8758, $0.8740, $0.8700, $0.8663

Chart. H4 AUD/USD

Upcoming events

USD - 13:30 GMT - Core Durable Goods Orders, Durable Goods Orders

USD - 14:00 GMT - S&P/CS Composite-20 HPI

USD - 15:00 GMT - CB Consumer Confidence

AUD - 23:30 GMT - MI Leading Index

 

[FBS]

USD/CAD

USD/CAD is consolidating within its medium-term upward trend. Tenkan-sen and Kijun-sen are horizontal and act as support. USD/CAD is trading around the middle Bollinger band. The pair has made a lower high at 1.1118 and the bulls have lost momentum. They might need a day to gather strength.

Resistance: 1.1118, 1.1175, 1.1230

Support: 1.1050, 1.0100, 1.0950

Chart. H4 USD/CAD

Upcoming events

USD - 13:30 GMT - Core Durable Goods Orders, Durable Goods Orders

USD - 14:00 GMT - S&P/CS Composite-20 HPI

USD - 15:00 GMT - CB Consumer Confidence

 

[FBS]

Jan. 29: Asian session

Asian markets rallied on Wednesday after Turkey raised the benchmark interest rate from 7.75% to 12%, stirring hopes the drastic action would short-circuit a vicious cycle of selling in emerging markets and revive risk appetite generally. MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 1.2% after three sessions of falls.

Nikkei rose by 2.2%. USD/JPY recovered to 103.44. Commodity currencies strengthened on the Turkish rate hike. AUD/USD extends the recovery for a third day in a row. Aussie rose to $0.8830 before retracing in the late Asia. NZD/USD also remains supported, but was unable to overcome the $.8300 handle for now. Investors wait for the RBNZ meeting at 20:00 GMT (an hour after the FOMC announcement). There is a market expectation for a rate hike or at least for a rate hike promise by the RBNZ Governor Wheeler.

EUR/USD is testing $1.3650 to the downside. GBP/USD is little changed in the $1.6575 area.

 

[FBS]

RBA won't cut rates

The recent article in Wall Street Journal argues that the Reserve Bank of Australia wouldn’t cut interest from the record low of 2.5% on Feb. 4.

Recent data showed Australia’s inflation cam at 0.8% in Q4 (forecast: 0.5%). For the full year, inflation ran at 2.7%, toward the top of the RBA’s 2%-3% target band. NAB business confidence showed that business conditions are at their best levels in close to 3 years. Housing construction and house prices also are responding to the low rates, and there’s compelling evidence that retail sales are growing quickly, says WSJ.

Surely, not everything is well. Economic growth this year is still forecast to be below its long-term average of 3.0%. The biggest problem is the slowdown in the mining sector: falling commodity prices have forced mining companies to cancel investment plans, shut mines and lay off workers. Australian payrolls contracted in Dec.

Still, even if the RBA’s still thinking about cutting the benchmark rate it wait for now and take time to plan its next move.

 

[FBS]

Commerzbank on AUD/USD

Commerzbank says AUD/USD visit $0.8870 (20-day MA) before resuming decline.

Analysts say that the pair has reached its interim target at $0.8710/.8671 (the base of the channel in 2011-2014 and the 38.2% retracement of the advance from 2001 to 2011) and is correcting higher.

After visiting $0.8870 AUD/USD will continue its descent to the next target at $.8550 (50% retracement of the move from 2008) and then to $.8068 and $0.7950/25. The outlook for Aussie will remain negative as long as it’s trading below the resistance line at $0.8957.

 

[FBS]

NZD/USD: 2 meetings ahead

NZD/USD was initially supported by the decision of the Turkish central bank to make an aggressive rate hike. However, the pair’s vulnerable to uncertainty ahead of the Fed’s decision (19:00 GMT) and the Reserve bank of New Zealand’s meeting (20:00 GMT).

There’s some speculation about a possible rate hike in New Zealand. However, consensus is that the RNBZ will keep benchmark rate at 2.50%. Note though that the regulator’s governor Graeme Wheeler may hint on plans to begin the tightening cycle in March. We’ll examine the prospects of the FOMC announcement in a different article.

Resistance is at $0.8295, $0.8345, $0.8400. Support is at $0.8245, $0.8215, $0.8178. As you may see from the chart the pair will soon have to move beyond either support or resistance.

 

[FBS]

ANZ: long-term bulls on USD/JPY

According to ANZ strategists, USD/JPY remains in a long-term rising trend. However, a close above 103.65 would be required to provide some conviction that the uptrend with a next target of 106.50 might have resumed.

"A resumption of the uptrend should allow for a push through the 105.50-106.50 area (retracement and downtrend) within a push towards the broader retracement level of 111.50 (50% of the range of the past 20 years)," ANZ projects.

 

[FBS]

USD/CAD: ahead of the new highs

USD/CAD bulls made another go at multi-year highs above 1.1170, but then were pulled back to the 1.1140 area. The pair has been rising during the recent month on the divergence between more hawking stance of the Fed and the dovish inclinations of the Bank of Canada.

If the Fed reduces QE, as expected, USD/CAD may reach the psychological mark of 1.1200. TD Securities says that intraday support in the 1.1115/20 area now and note that short-term, bullish trend momentum signals are picking up again and aligning with the still bullishly-oriented longer-term signals. The outlook will remain positive as long as the pair is above 1.1050. “The technical signals look to have the makings of another powerful leg higher in USD/CAD”, said the specialists.

 

[FBS]

BofA: USD index will rise

The US dollar Index keeps consolidating in its 3-month 81.48/79.68 range, notes Bank of America Merrill Lynch.

"Odds continue to favor an upside resolution to 82.55/82.15 but it could take some time to play out. This scenario is invalidated below 79.68," BofA projects.

 

[FBS]

Carney will discuss GBP currency union
By Kira Iukhtenko, FX BAZOOKA analyst

The BoE Governor Marc Carney will meet the Scottish First Minister Alex Salmond in Edinburgh today in order to discuss the challenges presented by a potential sterling currency union. Mr. Carney will hold a speech hold a speech today at 12:15 GMT at the Scottish Council for Development.

The issue of Scotland's independance remains on the table - there are less than 9 months left before the September 18 referendum. The voters will be asked the yes/no question: "Should Scotland be an independent country?". There will be another important question to be answered if there is a "Yes" vote: will Scotland be alowed to keep using the pound?

UK Government oficially questions whether such an arrangement will be possible. According to the Chancellor of the Exchequer George Osbourne, it is “unlikely” the rest of the UK would welcome such a currency union. The Edinburgh meeting comes a day after Mr. Salmond said Carney's predecessor as a BoE Governor Sir Mervin King told that the Treasury would adopt an "entirely different" approach to Scottish issues if there was a "Yes" vote in the referendum.

Earlier this week Mr. Carney warned of the dangers of currency unions, referring to the euro zone's example. “It’s one of the factors that affects the outlook for the UK economy, has affected us over the last five years, affects us going forward – the challenges of having a currency union without certain institutional structures.”

 

[FBS]

FOMC's expected to cut QE

The Federal Reserve’s decision will be announced today at 19:00 GMT. Many economists expect that the central bank will announce another reduction of its bond buying program by $10 billion to $65 billion a month. Nomura thinks that the problems at emerging markets won’t prevent the Fed from tapering, because the regulator will explain them by local developments.

Some specialists say that such outcome is already priced in USD. On Jan. 21 a Wall Street Journal article by widely followed Fed watcher Jon Hilsenrath has predicted that. So, the key will be the central bank’s comments on US growth as the recent data was mixed. Barclays expects the Fed to upgrade its assessment of the economy citing the strengthening of activity data since Dec. Lloyds says that USD will be in “good shape.”

Note though, that with the Fed there’s always place for surprise. In case of no QE reduction today, US will broadly fall, especially versus gold.

 

[FBS]

Feb. 3: Asian session

- Asian shares declined

- Lower liquidity, higher volatility

Asian shares declined as strains in emerging markets show little sign of abating. Chinese official Purchasing Managers’ Index (PMI) dipped from December’s 51 to 50.5 in January. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.3%. Japanese Nikkei again led the way with a loss of 1.5% and fell to November lows. Liquidity is lower than usual because of Chinese banks are closed due to the ongoing Lunar New Year holiday.

USD/JPY recovered to 102.40. AUD/USD opened with a bullish gap at $0.8770, faced resistance a bit above this level and then weakened to $0.8750. Aussie has had quite a calm session despite a bunch of statistics from Australia and the downbeat China PMI. RBA is widely expected to leave rates unchanged on the tomorrow’s meeting. NZD/USD strengthened to $0.8115. Kiwi is supported by expectations of an RBNZ rate hike in March.

EUR/USD is little changed in the $1.3480 area near the 10-week low after its fall on Thursday and Friday. GBP/USD is consolidating above $1.6400.

 

[FBS]

Feb. 3: European session

EUR/USD recovered to $1.3500. Euro zone’s final manufacturing PMI for January was revised a bit higher from 53.9 to 54.0. German final January manufacturing PMI was revised up from 56.3 to 56.6. Spanish index came better than expected, but Italian index disappointed though they both were in the positive area above 50.

GBP/USD dropped to $1.6360. UK January manufacturing PMI came below the expectations at 56.7 (forecast: 57.1, prior: revised down to 57.2). EUR/GBP rose to 0.8260.

European shares are on the downside hurt by brewing worries over emerging markets and data showing China’s economy losing momentum.

 

[FBS]

Danthine: EUR/CHF peg still needed

SNB Vice-Chairman Jean-Pierre Danthine told in an interview to a Swiss newspaper that the central bank would only consider scrapping the 1.20 EUR/CHF cap if inflation was much higher and if there was less upward pressure on the currency. He went further, saying there were no inflation risks over the next 3 years, meaning the minimum exchange rate remained the appropriate tool to guarantee price stability for the foreseeable future. Danthine's comments offer a long-term comfort to the CHF bears.

According to the late-January Bloomberg survey, 7of 20 economists predict that the 1.20 cap will be lifted in 2015 and another 7 see that happening in 2016. Only 3 forecast the ceiling being abandoned in 2014 and 3 expects a 2017 exit.

 

[FBS]

Barclays: bearish on GBP/USD

GBP/USD extends the decline on Monday, testing $1.6330.

According to analysts at Barclays, a daily close below $1.6300 will pull the cable down to $1.5850 in the coming weeks. They note that the pair has broken the July trend line to the downside. Analysts point that GBP could find some short-term support in the $1,6300/10 area.