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[Jeshinta]

Australian dollar has been rapidly falling against the greenback since the beginning of the month. Today AUD/USD hit 0.9963, the minimal level since December 2011.

Analysts at ANZ claim that the attempts of the bulls to push Aussie up versus its US counterpart will be limited by resistance in the $1.0080/1.0110 zone. In their view, the downside risks for the pair will subside only if it overcomes $1.0225. If it happens, one may try returning to AUD longs.

The specialists think that on a broad scale we see consolidation of AUD/USD and recommend closely watching momentum and price action during the pair’s retracements up in order to find ideal entry levels and timings.



Chart. Daily AUD/USD

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[Jeshinta]

Weekly GBP/USD

British currency opened the week on the upside versus the greenback after 2-week decline from 2012 maximum in the $1.6300 area.

Pound was supported by the Turning line (1) which is still going up on the weekly chart and the upper border of the descending Ichimoku Cloud (3). The Standard line (2) is moving sideways and pointing at potential consolidation. Among the positive things one should note that the bearish Cloud has narrowed and may switch upwards in the near term reflecting stronger positions of the bulls.

Now everything depends on the ability of the prices to hold above the Cloud. If they manage to do it, the consolidation between the current levels and this year’s highs will likely continue. If they don’t, sterling will ease down to Senkou Span A (4).



Chart. Weekly GBP/USD


Daily GBP/USD

Pound’s currently testing support provided by Kijun-sen (1) ($1.6050). A bit lower, in the $1.6000 area, British currency will be able to count on the support line connecting the minimums of January 13, March 12 and April 16. In addition, the level mentioned above is very important from the psychological point of view.

If this support is breached and the prices head towards Ichimoku Cloud, the downside risks will increase as Kumo is rather thin in that zone. At the same time, there’s a 38.2% Fibonacci retracement level of the advance made by pound this year ($1.5890), which will increase the chances of the prices’ recoiling up (making us expect the “head and shoulders” pattern to form). Although bullish Kumo has started narrowing, it’s too early to speak about the potential reversal of the trend downwards – watch 3 support levels mentioned above.

The main resistance for sterling is provided by Tenkan-sen (2) which has recently turned down and was capping sterling during the whole last week.



Chart. Daily GBP/USD

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[Jeshinta]

Analysts at RBS recommend selling the single currency versus British pound targeting 0.7695 (2010 minimum) in the longer term and stopping at 0.8110 (May 3-4 minimums).

The specialists claim that support levels for EUR/GBP lie at 0.7999 (May 10-11 minimum) and 0.7695, while the resistance ones – at 0.8069, 0.8077 (lower border of the gap), 0.8096 (upper border of the gap), 0.8192 (April 19 maximum), 0.8222 (previous significant support) and 0.8500 (61.8% retracement from the pair’s advance after 2008 credit crunch).



Chart. Daily EUR/GBP

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[Jeshinta]

Asian session was surprisingly quite. The RBA released its last meeting minutes showing that last month 50 b.p. rate cut was caused by the easing growth and inflation.

The stalemate in Greece persists: Alexis Tsipras, the head of Syriza party which opposes the bailout and austerity, wouldn’t attend a meeting called by President Karolos Papoulias today – no doubt, bad news for risk sentiment.

Moody’s Investors Service downgraded 26 Italian banks including Unicredit SpA and Intesa Sanpaolo SpA citing weakened earnings and the country’s economic prospects.

Yesterday euro area’s industrial production came in even worse than expected contracting by 0.3% in March. Now the markets prepare to hear about the region’s falling into official recession. The forecast is for the currency union’s GDP to contract by 0.2% in the first 3 months of the year (second quarter in a row). Spain and Italy are already suffering from recession. The release is at 9:00 a.m. GMT. France has already reported 0.0% (q/q) change in line with sonsensus forecast. German economy, however, exceeded expectation adding 0.5% (q/q) versus 0.1% estimate. Italian Q1 data (-0.7% previous, -0.6% forecast) is due in 2 hours. In the medium term, the majority of forecasts for euro are bearish.

Also to watch today:

In addition, watch German May ZEW Economic Sentiment and follow the news about ECOFIN Meetings. Newly elected French President Francois Hollande meets German Chancellor Angela Merkel in Berlin. According to German government, Hollande's visit is a "strong signal" regarding the determination of both countries to continue their strong relationship. Euro zone’s leaders are expected to discuss the development of the region's monetary and fiscal policy. As is known, they have contradictory views on austerity.

US will release data for April. Economists look forward to a decline in American retail sales (both core and headline), while the CPI growth may slow down from 0.3% to 0.1%, though the core reading is seen unchanged. We will also get info on the demand for US debt: TIC Long-Term Purchases are expected to increase from 19.4B in February to 10.1B in March.

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[Jeshinta]

The Australian dollar fell below parity with the greenback for the first time this year on Monday. The uncertainty in Europe doesn’t influence the Aussie directly, but saps the global risk appetite.

According to the RBA meeting minutes, released on Tuesday, last month 50 b.p. rate cut was caused by the easing growth and inflation. Policymakers are still concerned by the weakness in the housing sector; the mining sector, however, performs strongly.

The Aussie is trading on a downside since April 30 after the RBA cut rates to 3.75%. The still-reasonable Chinese FDI data (0.7% annualized drop in April vs. 6.1% drop in March) helped lift the AUD/USD towards session highs.

However, without any positive news from Europe (and who believes in that nowadays?) AUD/USD may fall below the $0.9850, $0.9600 and $0.9400 support levels. Strong resistance lies at $1.0000. These days the pair is trading far below the daily Ichimoku Cloud.

National Australia Bank: AUD/USD may trade at $0.9800 by September instead of at a previously expected $1.0200. By the year's end the pair may trade at $0.9700 instead of at $1.0100.

Commonwealth Bank of Australia: The outlook declined to $0.9800 by June from an originally forecast $1.0800, and to $1.0500 by December instead of $1.0900.

Westpac: The pair may trade at $0.9800 by the end of the September instead of $1.0200, but is retaining $1.0400 as a year-end target. In the near term a test of $0.9900 is likely.



Chart. Daily AUD/USD

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[Jeshinta]

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: $1.2750, $1.2800, $1.2850, 41.2925, $1.2950;
GBP/USD: $1.6100;
USD/JPY: 79.50, 79.55, 79.75, 80.00;
AUD/USD: $1.0000 (large), $1.0150.



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[Jeshinta]

Technical analysts at Commerzbank claim that support for the single currency versus the greenback lies at $1.2809 (78.6% Fibonacci retracement of euro’s advance from January minimum to February maximum). In the longer term, the main downside target remains at $1.2624 (January 16 minimum, 2012 minimum).

As for resistance, the specialists name $1.2911 (May 9 minimum) and $1.2954 (61.8% Fibonacci retracement of the same move). In their view, as long as EUR/USD is trading below $1.3026/33 (minimums of early February and early April) and $1.3055 (50% Fibonacci retracement).



Chart. Daily EUR/USD

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[Jeshinta]

The single currency recovered from almost a 4-month minimum in the $1.2810 area to the daily high at $1.2869.

Germany surprised analysts posting 0.5% q/q growth in Q1 – 5 times more than the market had expected. As a result, the concerns about the euro zone’s crisis and its impact on the region’s economic growth have a bit subsided. Note that demand for US dollar is also lower due to the Fed’s April 25 meeting minutes release tomorrow – the Chairman Ben Bernanke said that day that he’s prepared to “do more” to boost the economic recovery and underlined that inflation remains close to target.

The medium-term forecasts for euro are still quite negative. As a result, it looks like a chance to sell on rallies. We see that Italian GDP figures (-0.8% q/q vs. -0.7% expected) have already made EUR/USD pull back a little lower.

Resistance for the pair is situated at $1.2870 (today’s highs) and $1.2935 (May 14 maximum), while support is at $1.2807 (January 17 maximum, $1.2733 (January 18 minimum) and $1.2700.



Chart. Daily EUR/USD

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[Jeshinta]

British pound steadily strengthens against the euro (12% growth since June 2011, new surge in April 2012) and the greenback (5.5% growth since January 2012). What are the reasons for the sterling’s strong performance versus its major peers?

Pound’s status of a “safe haven” tends to attract investors on the back of a total economic and political instability in the euro zone. What is more, speculations about a further QE started to fade after the inflation exceeded the expectations (CPI in March reached 3.5% after previous print 3.4%; annual PPI output in April exceeded estimates of 2.9 % by coming in at 3.3%). According to the BoE governor King, the inflation is still too high.

Moreover, the UK economy attracts foreign investors as the world’s the second largest market for M&A. According to most analysts, M&A inflows contribute to the sterling’s growth and increase the pounds prospects in a longer term. This year foreign investors have bought the biggest amount of the UK assets since 2008 ($32.6 billion-worth).

However, a note from Deutsche Bank warns that the strong pound is already affecting on the poor UK economy which is in a recession itself. For now sterling's crearly appreciating, though it's attactive mainly due to the problems elsewhere. The situation may change quickly enough, so use it while it's still here.



Chart. Daily EUR/GBP

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[Jeshinta]

Technical analysts at RBS claim that AUD/USD recovered enough and now one may once again go short. In their view, the pair is capped by the 5-day MA which has been limiting the bulls since the beginning of this month.

The banks recommends selling Australian dollar versus its US counterpart at the current levels targeting $0.9860 and then $0.9667 and stopping today at 1.0113 (10-day MA).

According to the specialists, support levels are situated at $0.9860 (December 15 minimum), $0.9715 (2 minimums posted in 2011) and $0.9404. Resistance levels for AUD/USD lie at $1.0095, $1.0140, $1.0436 (the inverse head and shoulders pattern would trigger further upside from here) and $1.0496/1.0509.



Chart. Daily AUD/USD

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[Jeshinta]

After sharp decline at the end of April USD/JPY consolidated during the past week between 80.50 and 79.50. US dollar is currently trading above 100-day MA in the 79.76 area which is now acting as support.

One may see on H4 chart that US currency approached resistance provided by the descending Ichimoku Cloud which has already stopped the bulls on their way up several times. On the daily chart the pair is also not far from Kumo which is hanging above it.

From the fundamental point of view, continuing risk aversion will keep capping the greenback, while the expectations of more actions of the BOJ, on the other hand, will tend to limit yen’s appreciation. It’s possible to expect that the sideways trade will be in place until the end of the week with USD/JPY moving slowly but surely to the resistance line which is going down from March maximums.

At the same time the main downtrend is still in place: although the speed of decline reduced, dollar’s slide below support at 79.67 (yesterday’s minimum) and 79.42 (May 9 minimum) would provoke the decline to 79.15 (61.8% Fibonacci retracement of the rate’s advance from February to March). The most important support lies at 78.30 (previous resistance) – the prices will likely recoil up from this level.

US currency will be able to keep rising if it manages to overcome yesterday maximums (80.18) and get above Kijun-sen on the daily chart (80.65). In this case USD/JPY will climb to the previous resistance in the 81.80 area (early March maximums, April 20 maximum). Note that the bulls won’t be able to feel at complete ease until the prices remain below or inside the daily Cloud, so the key longer-term resistance is situated in the 82.40/50 zone.



Chart. Daily USD/JPY

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[Jeshinta]

NZD/USD keeps trading on a downside since the end of April and reached a four-month low.

According to Westpac analysts, on the back of the global risk aversion NZD/USD will eventually reach $0.7600. On Monday the cross lost 0.90% on the Greek concerns, even though the Europe’s problems do not directly affect the kiwi.

On Monday statistics revealed that core retail sales in New Zealand declined in March by 2.5% against forecasted 0.3% growth and 2.3% growth in February.

The cross has breached the $0.8060 support (200-day MA), and then dropped to $0.7750. The nearest support for NZD/USD lies at $0.7740 (21-week lower Bollinger), $0.7700 (78.6% retracement from Dec.2011 - Feb.2012 growth) and $0.7620, while resistance – at $ 0.7813, $0.7825 (May 14 maximum), 0.7887 (8 May maximum).



Chart. Daily NZD/USD

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[Jeshinta]

Euro area managed to escape recession in Q1 with frat GDP reading (q/q), while the economists were looking forward to 0.2% contraction.

Germany surprised analysts posting 0.5% q/q growth in Q1 – 5 times more than the market had expected. France showed flat results, while Italian economy contracted by 0.8% in the first 3 months of the year vs. projected decline of 0.7%. Even the Netherlands regarded as strong economy experienced economic contraction of 0.2%.

Societe Generale: national GDP releases created the picture of an increasingly divergent euro area with the contrast between the northern and southern economies growing ever starker.

Capital Economics: “The region remains heavily reliant on Germany. Policymakers’ talk of growth seems unlikely to amount to anything in the foreseeable future. The danger of a euro zone break-up is as great as ever.”

ING Bank: “Our base case scenario is still for a gradual return to modestly positive euro zone growth in the second half of this year. But a further escalation of the debt crisis, let alone a Greek euro exit, could well derail the envisaged recovery.”

IHS Global Insight: “There seems a compelling case for the European Central Bank to cut interest rates from the current level of 1%. But we suspect that the bank will remain reluctant to do so.”

The European Commission expects euro zone’s GDP to decline by 0.3% in 2012 and then add 1% the next year.”



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[Jeshinta]

As many have feared, Greece political parties (New Democracy, PASOK, Democratic Left and SYRIZA) failed to form coalition government. Today Greek leaders will try to reach consensus on an interim government which will schedule new elections (around June10).

French President Francois Hollande and German Chancellor Angela Merkel promised yesterday to pool efforts to promote economic growth in the region, although they are known for differences in views on how to overcome the European crisis (Merkel insists on austerity, while Hollande – on growth). Merkel seemed to tone down the austerity rhetoric that made her extremely unpopular these days. Moreover, leaders of the euro zone's two largest economies expressed their wish for Greece to stay in the single currency union.

Risk aversion remains strong. EUR/USD tested the levels below $1.2700, commodity currencies opened in red. Yen weakened on poor machinery orders data. Asian stocks slumped by 2.3% (MSCI Asia Pacific Index). Kiwi is sold after disappointing dairy auction (important industry for New Zealand).

To watch today:

• Great Britain: A lot of important news for pound will be released. Claimant count payrolls in April may rise by 4.9K compared with 3.6K rise in March. The Governor of the Bank of England Mervyn King in his speech is expected to signal that interest rates will not rise from their record low until late 2013 at the earliest, as the UK's growth disappoints. The key inflation report may leave the door open to the possibility of more QE, either explicitly or by forecasting that inflation will probably fall below the 2% target within 2-3 years without a change in policy. According to analysts at Citi, such a forecast could prepare the ground for the MPC to resume QE (bond purchases) in coming months if activity data and the European monetary union crisis worsen, or if the inflation worries diminish.

• U.S.: The release of the important housing market data is scheduled on Wednesday. According to forecasts, annualized number of building permits may post 0.73M in April after 0.75M in March. Number of housing starts is expected to have increased from 0.65M in March to 0.69M last month. Industrial production in April may have grown by 0.6% after remaining unchanged in March. FOMC Meeting Minutes probably won’t be a game changer, though the Fed’s Chairman Ben Bernanke said that day that he’s prepared to “do more” to boost the economic recovery and underlined that inflation remains close to target.

• Euro zone: The speech of ECB President Draghi will be scrutinized by the investors, aiming to forecast the euro zone’s future. Germany holds a 10-year bond auction.

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[Jeshinta]

The single currency keeps descending versus the greenback: EUR/USD is trading now right below $1.2700. The tension level in the region remains high (new normality for the euro area): Greece drives to new elections, Spanish yields keep rising, while Italian banks have been downgraded. How do the experts estimate the current situation?

Shelter Harbor Capital: if you expect Germany to let others exit the euro zone and keep the euro, so that it becomes a closer proxy for Germany itself, then it should be trading higher. But if Germany bails out its weaker neighbors, he thinks the euro should be lower.

Wells Fargo: “For the moment, Greek headlines rule the day in the FX markets and it appears that there is scope for further near-term losses in the euro and most foreign currencies.”

Barclays Capital: “To arrest market fears, proactive measures are needed. Unfortunately, they seem nowhere in sight. This suggests that risky assets are likely to trade erratically at best, with a bias to underperform.”

Citigroup: the most likely case now involves Greece leaving the euro within the next 18 months, though “policy action in Europe will help limit the fallout.”



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