Francesc's Weblog

UBS - This Week's Key Points: Fed tapering isn't imminent but keep favouring dollar

2013-05-26T08:00:59.000Z

UBS - "Despite the volatile moves suffered by financial markets particularly the Nikkei, we think the key trend in currency markets of a rising dollar remains intact.
(...) For now the focus of the currency markets will remain on Japan. Bank of Japan Governor Kuroda will speak on Sunday and again on Wednesday. In addition the central bank will meet investors also on Wednesday to discuss the Japanese bond and equity markets. If Kuroda and his officials succeed in lowering volatilty in JGB yields, financial markets will switch their focus back to when the Federal Reserve will start slowing down its bond purchases. That suggests the dollar will resume its uptrend against the rest of the major currencies.

This week's key points are:

- BoJ Kuroda key in the week ahead for yen
- Fed tapering isn't imminent but keep favouring dollar
- euro will remain on the sidelines as ECB waits and sees
- weaker UK data supports MPC doves, short Cable
- SNB may adjust currency floor, bearish franc
- Australia's capex report key in the week ahead"

Goldman Sachs - We Remain Bearish on the AUD

2013-05-24T17:20:58.000Z

Goldman Sachs - "One of our key FX themes for 2013 remains a bearish view on the AUD. We now expect the cross to trade at 0.97, 0.96 and 0.90 in 3, 6 and 12 months. Our view remains predicated on Australia’s deteriorating fundamentals, prospects for lower commodity prices, slower Chinese activity and the likelihood that the search for yield will decline as global growth sustainably recovers. We chose to express that view in a Top Trade recommendation vs the Norwegian Kroner, given they are both triple-A commodity producers and given that we expected a cyclical improvement in the Norwegian economy. However, AUD/USD is now in the limelight after the break through parity in recent trading. On the basis of the typical macro drivers – namely, 2-year swap rate differentials and terms of trade – we find that AUD/USD ‘should’ be trading at 0.85 and ‘could’ fall to 0.80, a long way from the current spot of 0.98. Portfolio flows have been the main reason why the AUD has disconnected from these macro drivers. However, these flows may weaken, allowing the AUD/USD to ‘catch down’ to its macro fundamentals. Timing this move is challenging given the difficulties in predicting portfolio flows. Nevertheless, we are confident that these dynamics will play out in the next one or two years, as reflected in our new 12-month forecast of AUD/USD 0.90. Our modelling work suggests that the risk lies towards more notable AUD weakness."

Danske Bank - Buy USD/CAD and sell Nymex crude

2013-05-24T13:33:37.000Z

Danske Bank - "USD/CAD - Above 1.0446 would confirm a major reversal
Strategy Summary - Stay long or buy dips for gains to 1.0854, ahead of 1.1236 and then 1.1668. Suggest placing a stop under .9815.

NYMEX Crude - A potential double top formation warns of a decline
Strategy Summary - Look to sell for a decline towards the 87.07/85.61 region. Place a stop loss above 97.17."

Rabobank - Central banks and EUR/USD

2013-05-24T12:30:00.000Z

Rabobank - "Over the past few years the ‘resilience’ of EUR/USD has surprised many investors. Even as the Eurozone crisis raged, the weakest level that EUR/USD achieved was a brief dip to 1.1877 back in June 2010. One of the most obvious explanations for this ‘resilience’ has been the weakness of the USD. In 2012 the USD was the second weakest performing G10 currency after the JPY. Insofar as the Fed stepped up QE towards the end of 2012, this is perhaps not surprising. (...), it is reasonable to assume that the introduction of QE by the Fed back in late 2008 has had a depressive effect on the USD.
Over the past few weeks the issue as to when the Fed would start paring back to quantity of its asset purchases has been a leading market topic.
(...) While it is likely to be some time before the Fed considers an outright tightening of policy, the fact that less accommodation is being considered still marks it out as different to many other central banks. (...) The question now is whether the USD can push higher or whether the market as priced-in too much good news with respect to the outlook for the real economy in the US. (...) While see risk of a dip towards the EUR/USD1.28 area on a 3 mth view long USD positions may then be vulnerable to disappointments with respect to the pace of any policy exit from the Fed. On a 6 mth view we still see risk that EUR/USD will be trading above 1.30. That said, with the end of Fed QE likely to be within the sights in this timeframe we have revised down our 6 mth to 12 mth EUR/USD forecasts moderately and see EUR/USD peaking at 1.35 on a 12 mth view below headed lower further out."

M&G Investments - Japanese investors are not buying foreign bonds, they’re selling

2013-05-24T11:17:42.000Z

M&G Investments - "One of the stories that has driven global financial markets higher for the past few months has been about how Japanese investors are piling, or will pile, into foreign assets. Surely a rational Japanese investor would dump Japanese assets in an attempt to escape the exploding yen and the ravages of domestic inflation, or at the very least seek out a bigger yield than the puny returns available on the artificially suppressed domestic government bonds?

Well, they haven’t been buying foreign bonds; actually they’ve done the opposite. There were lots of headlines earlier this month after Japanese investors were (just about) net purchasers of foreign bonds in the three weeks to May 10th. But data out overnight showed that there were ¥804.4bn worth of net sales of foreign bonds in the week to May 17th, which more than reversed the previous three weeks’ purchases.

The chart below shows the weekly net purchases of foreign bonds, where the data is based on reports from designated major investors including banks, insurance companies, asset management companies etc. The blue line in the chart below is the 3 month moving average, and it shows that Japanese redemptions of foreign bonds are running at close to the highest rate since data began in 2001.

It’s difficult to deduce too much from all the data, but it appears likely that the rally in the Nikkei, the drop in the yen and the rally in semi-core Eurozone government bonds has been down to foreign investors front running something that so far has not actually happened. Japanese investors may still flee their domestic market, but it will require (mostly foreign) investors’ already high inflation expectations to be realised (the bond market is pricing in Japanese inflation averaging +1.8%pa for the next 5 years, despite there being little evidence that QE in Japan or other countries has succeeded in either generating inflation or in weakening currencies). It probably also requires changes to the higher capital charges that major Japanese investors face when investing in overseas assets, although even with this, funding costs and hedging requirements will ensure that home bias continues.

BBH - EURUSD A weekly close above 1.3000 may help lift the technical tone

2013-05-24T11:05:15.000Z

Brown Brothers Harriman - "The dollar is mixed against the majors heading into the US holiday weekend. The euro firmed a bit after the stronger than expected German IFO confidence reading, but has been unable so far to breach the $1.30 area. The Swiss franc and the yen are up on the day as well, while the dollar bloc is underperforming and lower on the day. EM currencies are mostly firmer, but remain largely within recent ranges.
(...) The euro has bumped up against the week's high near $1.30, which is also where the 20-day moving average is to be found and the 50% retracement of the decline from the May 8 $1.3200 high. A weekly close above there may help lift the technical tone. Sterling is considerably further away from the week's high (seen Monday near $1.5280). It has not been able to recover much form the double whammy of soft inflation and ugly retail sales. Meanwhile euro-sterling is at its best level since mid-April, testing GBP0.8600. Lastly, we note the dollar bloc currencies continue to underperform, though both the Australian dollar and Canadian dollar remain within yesterday's ranges."

UBS - EURGBP A break above 0.8607 which would extend the strength to 0.8656

2013-05-24T09:00:00.000Z

UBS - "AUDUSD BEARISH There is a strong support at 0.9582. The immediate risk is for a short-term upside to unwind the overextended downside conditions. Resistance is at 0.9843.
EURCHF BULLISH The latest setback was prompted by resistance at 1.2661. While support at 1.2370 holds, the risk is for extension of the bull trend.
EURGBP NEUTRAL The recent recovery is approaching resistance at 0.8607. A break above which would extend the strength to 0.8656. Support is at 0.8516 ahead of 0.8441.
EURJPY BULLISH The latest setback was staged from just under critical resistance at 134.38. There is scope for a break above this, extending strength to major resistance at 138.49. Support is at 129.97."

BMO capital Markets - Forthcoming US data today and tomorrow to be significant for USD/JPY & equity markets

2013-05-23T11:45:07.000Z

BMO Capital Markets - "the forthcoming key US data today and tomorrow will, we think, be significant for USD/JPY and equity markets. If the data are particularly strong, we suspect that a decent portion of the moves towards a weaker USD could be unwound by the end of the week, particularly if European equities move towards the “black” and US equities strike a buoyant tone. In the event of strong US data, we might look to start fading rallies or taking profit on long USD positions in AUD/USD from around the 0.9750 [previous] short-term support area, as the path towards higher interest rates in the US should continue to impact the high-yielding currencies more so than the low-yielding ones. However, we also believe that the relative to the CAD, the NOK and the SEK, the more heavily impaired state of the AUD and the NZD in this environment will restrain gains or encourage further losses in virtually all environments until Chinese or regional data start to turn up again: both currencies should be a sell or a “fade” on rallies during “risk off” USD weakness periods, and both currencies should succumb to outright declines during periods of broa d based USD strength."

Fidelity - The rise in Japanese government bond yields starting to undermine equity sentiment

2013-05-23T10:15:30.000Z

Fidelity Worldwide Investment - "The rise in Japanese government bond yields is starting to undermine equity sentiment and especially J-REITs which have been selling off for the last month. Market volatility in Japan is such that it remains to be seen if this will be a lasting correction or just a natural pull back after many days of strong rises.
The danger I see from JGB market volatility is that a rise in yields could:
· hurt confidence via stock prices
· reduce support for the administration in July’s elections and so threaten the structural reform program
. lead some to argue wrongly that fiscal easing should be abandoned
· lead others to call for a firmer commitment to monetary tightening if inflation overshoots and that could limit the stimulus effect of easy money.

I believe the BoJ’s 2% inflation target already implies tightening later on when necessary, though the rise in Japanese breakevens suggests there would be some value in re-emphasising this. I believe fiscal ease is a critical part of the policy mix aimed at delivering stronger nominal growth and rising loan collateral values. Japan is in a balance sheet recession and it is important for that the government doesn’t attempt to shrink its own balance sheet at the expense of the private sector.
What is more important, in my view, is that the Bank of Japan establishes a communication strategy that gives the market confidence that the discount rate is likely to stay close to zero over a longer horizon than the initial two year 'QQE' window. This can be done by means of a pre-commitment to ultra-low rates subject to specific economic data thresholds being maintained as a minimum condition. There may also be some value in explaining that a 'stable' 2% inflation trend is most likely some way off even if hitting 2% CPI for the first time is possible and desirable in the shorter two year time frame the BoJ is targeting. This is all the more relevant as we all know part of the near term inflation will most likely come from a potentially damaging rise in consumption tax.
QQE will become ineffective if the market worries prematurely about tightening. The most sure means of keeping the long end of the bond market under control is to keep the short and medium end under control as the Fed has done - via rational expectations of future policy action rather than by intervention.
Governor Kuroda's indication this week that the BoJ would buy more bonds if yields rise too much seems a bit like promising to offer candy to a hyperactive child in the hope that it calms them down. The BoJ has said its bond purchases are part of the mechanism to double the monetary basis and so create inflation. More bond buying isn't the way to calm interest rate expectations.
You might say undeclared financial repression is required: a commitment to low rates despite what is likely to be a strong recovery in activity in the near term. Without this in place JGB yields will most likely continue to follow the US Treasury yield trajectory after the Fed’s QE2. This could undermine the economic recovery program, particularly if the sharp sell off in REITs causes concerns that Japanese property prices will continue their multi-decade decline.”

Societé Generale - Buy the dollar, sell EMFX and sell carry

2013-05-23T10:04:35.000Z

Societé Generale - "Good Morning. Buy the dollar, sell EMFX and sell carry. It isn't about when the Fed “tapers”, it's about too many positions on the same side of the boat and the danger of a capsize.
When the Fed will slow its Treasury purchases will be data-dependent and the Funds rate may be less important in policy-making going forwards. Those are the direct takeaways from the FOMC minutes but the market tells us something different. The prospect of low rates for a long time accompanied by even a tepid economic recovery encouraged investors and traders to buy yield and sell volatility. The rate outlook is increasingly uncertain (i.e, volatile) and a reduction in accommodation is inevitable. The carry trade will continue to be unwound over time.
(...) In FX, DXY is trending higher. There are not many currencies we don't want to sell against the US dollar. In the short term, the risk is of a position clear-out in the favourite short, which is the yen, and EUR/CHF will fall too. But short GBP/USD, short AUD/USD, long USD/CAD and short EUR/USD all look like making further progress.
EMFX is in for a very tough time overall. Normalising Fed policy in the late 1970s and in 1994 triggered big EM moves. The ZAR has been the recent whipping-boy and while it probably goes further long USD/ZAR (and long TRY/ZAR) are crowded trades. The two EM currencies most frequently cited as favourites to own at the recent Euromoney Forum were the Indian Rupee, and the Mexican peso, so both are particularly vulnerable now."

HSBC - Currency War, USD to soar. Turning bullish on the USD

2013-05-23T09:10:14.000Z

HSBC - "The USD rally has further to run. The currency war is getting bigger and more intense, drawing ever more protagonists into the fray. In part, this may be because of the success of those central banks who have already sought economic advantage through targeting their currency. The market has realised there is no point in fighting the central banks at this time, and the USD is the natural candidate to act as the offset to this desire for depreciation elsewhere. If anything, the risks are for even greater USD strength than we have pencilled into our new forecast profiles. So far, Asia ex-Japan has largely not been involved in the currency war, but were the Yen to weaken substantially further, this could change. Such an escalation of the conflict would boost the USD. In addition, our USD bullishness does not rely on an early tapering or end to US QE3, but if the Fed acted sooner than we expect then the USD would capitalise. The USD has already risen but this is just the beginning.
(...) We have revised a number of our currency forecasts both in G10 and emerging markets, (...) G10 highlights include new year-end 2013 numbers against the USD of:
EUR 1.24 (previously 1.35)
GBP 1.45 (previously 1.48)
AUD 0.90 (previously 0.95)
NZD 0.78 (previously 0.74)
CAD 1.09 (previously 0.95)"

RBS - Dollar Buyers

2013-05-22T19:00:42.000Z

Royal Bank of Scotland - "There are no major changes in our view. We still favour buying dollars. We still forecast sizeable declines in EUR and in GBP against the USD over the next 12 months. We think the dollar strengthens initially (next six months) in a world of squashed volatility globally, cross asset class and some relative US cyclical growth optimism. Your funding currencies in this ‘li quidity solutions dominate’ world are Yen, pounds, and then Euros. We think the dollar strengthens ultimately (subsequent six months) in a tail risks re-born, the world's solvency problems prevail, riskier kind of world. That is the AUD much lower against USD next one year story.
On global volatility, we have seen a string of important but isolated skirmishes already this year: at the front end of European rates markets in January; then a spike in Yen FX vol; then a spike in gold vol. But it is the recent gyrations in the Japanese government bond (JGB) market that are pot entially more contagious from a global cross asset vol perspective."

NAB - Key trade ideas: We are sellers of AUD/NZD on a bounce to 1.2140

2013-05-22T18:39:40.000Z

National Australia Bank - "We have closed our long USD/JPY from 94.40 at 102.01; a gain of 8.1%. We look to buy again on a dip to 101.80
Our short AUD, long CAD established at 1.0635 was closed at 1.0078 for a 5.2% profit in just four weeks.
We exited our long-standing EUR/CHF position at 1.2440 for a gain of 3.4% and would be keen to re-establish this at 1.2390.
The short GBP/USD position from 1.5150 was exited for minimal loss at 1.5198. We are currently neutral here.
We are sellers of AUD/NZD on a bounce to 1.2140."

ING Bank - Bernanke not convinced QE's job is done

2013-05-22T17:59:47.000Z

ING Bank - "Bernanke’s testimony to Congress on the economy did not result in many surprises. As “Chief Dove” on the FOMC, he clung to the notion that the tax rises and sequester from earlier this year would have a profoundly negative effect on the economy (which is not totally supported by recent evidence), and that the Fed needed to counteract this with easy monetary policy.
There was no change in his view that the Fed’s dual mandate of price stability and maximum employment required the current level of QE (despite recent falls in the unemployment rate), and also hinted that even when QE was halted, it would be a long time before the Fed started to tighten rates (the hint here is that this was irrespective of economic recovery, which seems extremely odd).
However, there is a hint from Bernanke that QE may not be the universal panacea it is sometimes argued to be. He did acknowledge that persistently low rates had their drawbacks as well as their benefits. Though he justified ignoring such drawbacks by saying that premature tightening of monetary policy could lead to the economy slowing, and rates falling further (yes, but only if it was premature surely?).
It is clear that Bernanke remains a recovery doubter.(...)"

UBS - EURUSD Bearish, a break below 1.2797 to expose 1.2746 ahead of the critical 1.2662

2013-05-22T14:20:07.000Z

UBS - "USDJPY BULLISH With the broader bull trend in place, the next major resistance focus is at 105.60. Support is at 101.26.
EURUSD BEARISH Any upside will be limited as bearish conditions persist. Resistance is at 1.2967 and 1.3020. Support is at 1.2797, a break below would expose 1.2746 ahead of the critical 1.2662.
The pair sold off sharply to test support at 1.5128 yesterday.
GBPUSD BEARISH There is scope for more downside in the near-term. Next support is at 1.5034 ahead of 1.4832. Resistance is at 1.5322.
USDCHF BULLISH With bullish trending indicators in place, focus is on resistance at 0.9761, a break above this would open 0.9810 and then 0.9972. Support is at 0.9637 ahead of 0.9578."

BMO Capital Markets - What to expect in EUR/USD on Bernanke

2013-05-22T14:00:00.000Z

BMO capital Markets - "Given the strength we’ve seen in EUR/USD so far this week, we suspect that the pair is roughly priced for a rather neutral outcome from Bernanke this afternoon (or even slightly dovish), with the spot level now roughly 0.70% above its recent low, printed over time in the wake of the three, consecutive lower-than-expected prints on US initial jobless claims between the weeks of April 19th and May 3rd. That would make a temporary move into the 1.2980 area today (roughly 1.10% percent above the aforementioned low) justifiable if Bernanke merely confirms this “neutrality”, but we caution that this is still a very supportive environment for the USD and that many participants are still likely to attempt to position themselves for the next round of positive US data at these levels or a bit higher. On the dovish side, our best judgement is that an outcome this afternoon from Bernanke which neither downplays the efficacy of the Fed doing additional QE nor suggests that the Fed may be seeking an additional “pricing in” of QE tapering would perhaps be the best possible environment for a 1-point move or so higher in the EUR and the GBP versus the USD. In EUR/USD, we think it would take about this much or a little bit more in rhetoric against QE tapering to force a test of the 1.3030 – 1.3040 resistance area in the pair."

Attending iFXExpo. See You in Cyprus Next Week!

2013-05-22T13:48:18.000Z

Hi everyone

I will be attending iFXExpo in Cyprus on 29th & 30th May 2013.

iFXEXPO is the largest financial B2B convention dedicated to the FX industry connecting service providers and brokers with over 1,500 senior executive attendees, over 60 exhibitors from around the world and top speakers from the industry's largest firms.

If you happen to live, stop by or visiting Cyprus next week, I will be delighted to meet you.

See you in Cyprus next week!

Westpac - Tactical trade idea: Sell USD/CAD at 1.0305, targeting 1.0150, with a stop at 1.0350

2013-05-22T10:37:04.000Z

Westpac - "Over the last month the optimal currency to have owned CAD against has been AUD. For the week ahead however we wonder whether USD/CAD may be the better pair. USD/CAD is currently hovering just below 1.03, levels where previous rallies this year have failed. The key data release in Canada this week is March retail sales. (...) On balance model signals and event risk seem to suggest a sustained break in USD/CAD above 1.03 is a bridge too far, at least for the week ahead. EUR/CAD also seems poised for some downside later in the week. The ECB’s Nowotny, Liikanen, Coeure, Noyer, Weidmann and Draghi are all scheduled to speak this Thursday and there should be no shortage of “negative deposit rate” trial balloons.We would look to sell USD/CAD at 1.0305, targeting 1.0150, with a stop at 1.0350. We would also sell EUR/CAD at 1.3335, targeting 1.3100 with a stop at 1.3405. Via options, buy a 1 week USD/CAD put, strike 1.02, premium 0.16% USD (spot ref 1.0270, indicative only)."

Deutsche Bank - What will happen to vol when and if the Fed does taper QE?

2013-05-21T16:08:27.000Z

Deutsche Bank - "After a period in the doldrums, FX has spent the last 6 months front and centre, and the relative implied vols for different asset classes bear this out. DB’s CVIX 1m implied FX vol measure as a ratio of 1m implied Bond vol (the MOVE index) is up in the 99th percentile for the last 19 years. The CVIX1m / VIX ratio is in the 93rd percentile.
There is some sense that the Fed is an important part of this vol divergence. The Fed is squashing bond vol notably at both extremes of the yield curve: anchoring front-end rates near zero, while intervening across the Treasury curve, (...) While the Fed is obviously not directly intervening in the equity market, QE is widely seen as aimed at asset prices, inclusive of equities, and it should be no surprise to see a nurtured equity bull market exhibit suppressed vol.
In contrast, the FX market has been much quicker to trade off the end of QE story. Unlike the short-end rates market, timing is much less of an issue for the currency market, which finds it easier to trade off nuanced changes in the Fed balance sheet that may not initially impact short-term rates, but signal important turning points in monetary policy.
FX is also all about relative monetary policy, and right now most of the world’s major Central Banks are trying to add to policy accommodation rather than reduce accommodation.
(...) This does beg the question as to what will happen to vol when and if the Fed does taper QE (...) Ironically Fed tapering should engender more vol precisely because it will inject a higher probability of fine-tuning at each FOMC meeting than if they stopped QE ‘cold turkey’."

FXstreet.com Most Viewed Forex Webinars for the Week of May 13th to 19th 2013: Navin Prithyani, Sam Seiden and Walter Peters

2013-05-21T15:47:25.000Z

Most Viewed Webinars Week of May 13th -19th 2013

#1 Navin Prithyani - Pivot Points Reintroduced

#2 Sam Seiden - Swing Trading Spot FX

#3 Walter Peters - Losing Trades: 7 Quick Ways to Improve Your Win Rate

M&G Investments - What is the probability of a US recession in the next 12 months?

2013-05-21T10:58:10.000Z

M&G Investments - "Knowing how poor the central banks have been at forecasting economic indicators, and having analysed the IMF’s wild forecasts, we think that it makes sense to take consensus views with a large grain of salt. However, there is a substantial body of empirical evidence that has emerged since the 1980s that suggests that the bond market is a pretty good predictor of real economic activity.
It has been proven that the slope of the yield curve has had a consistent negative relationship with economic activity in the U.S., with a lead time of around 1-1.5 years. By analysing the difference between 10-year and 3-month Treasury rates (also known as the treasury yield-curve spread), it is possible to calculate the probability of a recession in the U.S. in the coming 12 months. The theory goes that a monetary tightening will increase short-term rates, resulting in a flat (or inverted) yield curve as the economy slows and demand for credit falls. Additionally, inflation expectations may also fall at this time.
Research has shown that the yield curve has predicted essentially every U.S. recession since 1950 with only one “false” signal, which preceded the credit crunch and slowdown in production in 1967. This is shown in the chart below. There is also evidence that the predictive relationships exist in other countries, such as Germany and the United Kingdom.
Having established the predictive power of the yield curve, economists naturally wanted to assess what the yield curve was telling us about the probability of recession going forward. In 1996, economists from the Federal Reserve Bank of New York estimated the likelihood of recession based on the yield-curve spread.
Helpfully, the Federal Reserve Bank of New York updates its research on a regular basis. So what probability of recession in the next 12 months is the bond market currently pricing in? The answer is 5.38% to be precise (this is probably lower than it should be due to the Fed embarking on a record amount of quantitative easing).
Some economists swear by the predictive power of the yield curve. Others argue the yield curve has lost some of it predictive power due to other factors that are driving the longer end of the yield curve; such as quantitative easing, currency pegs to the U.S. dollar, and regulations. However, the simple rule of thumb that the difference between ten-year and three-month Treasury rates turns negative in advance of recessions is still reliable, with negative values observed before the 1990-1991, 2001 and 2008 recessions. Perhaps Alan Greenspan’s “conundrum” of low long-term interest rates wasn’t due to what Ben Bernanke termed as a “global savings glut”. Rather, the yield curve was telling us that the chances of recession were rising, and this is reflected in the increase in the probability of recession from 4.5% in January 2006 to 38% in January 2008.
The yield curve remains a great tool for investors. Its power to predict recessions cannot be ignored, so beware if it inverts again."
By Anthony Doyle, M&G Investments

BofAML - Euro bears should buy USDCHF

2013-05-21T10:24:04.000Z

Bank of America Merrill Lynch - "we continue expecting the EURUSD at 1.25 by the end of this year. Indeed, the market is now moving in this direction and our projection does not seem as out of the consensus as it seemed earlier this year. We believe that a EUR weakening beyond our projection would require a new shock from the periphery, or the ECB moving aggressively into unconventional policy territory, both of which are unlikely in the short term in our view.
(...) We prefer to express our bearish Euro view by being long USDCHF for the following reasons:
1. Our analysis of Swiss balance of payment data suggests that Switzerland’s current account is being recycled into riskier assets as investors become more risk seeking, which in turn suggests that the structural outlook for the CHF is weakening
2. Indeed, the recent increase in global risk appetite and adjustment in other safe haven assets point towards a weaker CHF.
3. Our quant models have recently flag CHF as a funding currency. Our octave model is short CHF because of rate differentials. (...) risks for a reversal in the recent upward USDCHF trend are low.
4. CFTC data suggest short but far from excessive CHF positioning. (...) the equilibrium level of the EURCHF is between 1.30 to 1.35
5. As discussed above, we see a further EURUSD weakening. In addition, we believe that USDCHF could strengthen, or at least not weaken substantially"

RBS - EUR Outlook: we see EURUSD towards its lows near 1.20 over 12 months

2013-05-21T10:11:11.000Z

Royal Bank of Scotland - "EUR has been supported by a rapidly improving current account surplus that is now at a Euro-era record. It has been supported by less ECB QE as banks have repaid some LTRO funds. It has been supported by a steady rebound in periphery assets (Spain and Italian 10 year spreads over bunds are around the lows since July 2011, and their outright yields are at lows since July 2010). However, it has been weakened by an ECB rate cut and a preparedness to discuss negative rates.
The potential for crisis remains high. The low growth and high unemployment threatens to unravel political support.
(...) A high and rising EUR will exacerbate economic weakness and decrease political cohesion across the Eurozone. As such its upside is limited and over the medium term it may need to weaken to survive.
The ECB has shifted to a more dovish stance and is more responsive to a strong EUR. They may use negative cash rates to counter strength in the EUR and deflationary trends.
(...) As such, EUR downside also looks limited in the near term, it is likely to out-perform JPY and prove relatively stable. However, a prolonged period of sub-trend growth is likely, and over the medium term we see political risks rising. Consistent with our view that the US economic recovery will gain traction, we see EUR towards its lows near 1.20 over 12 months."

UBS - AUDUSD Any upside will be correction, unwinding the overextended downside conditions

2013-05-21T09:59:13.000Z

UBS - "USDCAD BULLISH Initial resistance is at 1.0296, a break above this would open 1.0342 and then 1.0447. Support is at 1.0199.
AUDUSD BEARISH Any upside will be correction, unwinding the overextended downside conditions. Resistance is at 0.9831 ahead of 0.9918. The broader focus is for a test of major support at 0.9582.
EURCHF BULLISH With bullish trend in place, focus is on resistance at 1.2525, a break above which would open 1.2569. Support is at 1.2436 ahead of 1.2384.
EURGBP BEARISH With the MACD below its zero line, the potential is for a downside move. A breach of 0.8421 would expose 0.8389 ahead of the important 0.8587. Main resistance is at 0.8518.
EURJPY BULLISH The first resistance is at 132.77, a break above this would open 134.38 ahead of the more critical 138.49. Support is at 129.92."

UBS - This Week's Key Points: Fed exit talk too early but still favour the dollar

2013-05-20T17:28:09.000Z

UBS - "The dollar remains our favoured currency for 2013. The US economy is likely to expand more than its peers. The Federal Reserve is set to exit uncoventional monetary policy before other major central banks. Dollar diversification by central bank reserve managers and sovereign wealth funds is subdued, and America's shale energy revolution is cutting its current account deficit. Our bullish view on the greenback has become more consensus now. But if the dollar does embark on a multi-year uptrend as it last did under similar circumstances from 1995, it will prove a major prize for investors.

This week's key points for currencies are:

- Fed exit talk too early but still favour the dollar
- Japanese outflows to keep USDJPY a buy on dips
- European data to keep weighing on ECB and the euro
- Cable bears should look through BoE's better outlook
- we revise our Swiss franc forecasts lower
- RBA minutes key in the week ahead for Australia's dollar
- BoC to remove tightening bias after weak inflation data"

BBH - Technical View for the Week: EUR,JPY & GBP

2013-05-20T17:20:49.000Z

Brown Brothers Harriman - "Euro: A large head and shoulders pattern is being carved out. The neckline is seen near the late March and early April lows around $1.2740. Below there is the low from last November near $1.2660, which is just below the $1.2680 retracement objective ($1.2680) of Draghi's OMT induced rally. The measuring objective of the head and shoulders pattern would carry the single currency below $1.20, our year-end target. The euro's 50-day moving average has crossed below the 200-day (the so-called golden cross) for the first time since last October.

Yen: The pullbacks in the US dollar continue to be shallow. This is not giving the longs any pain and it gives many momentum and trend followers a sense that it is a one way bet, a mindset that often proves dangerous. Support now is seen in the JPY102.35-60 area. Although there are reports of option structures before, many have their sights set on JPY105.

Sterling: The upside correction from the mid-March low near $1.4830 has ended decisively. That correction had held an uptrend line, which sterling closed below at the start of the week near $1.5350. A convincing break now of $1.5120 area suggests a return to, and likely a break of, this year's low. Sterling has also broken below a trend line connecting the lows of the past three years. This sours the longer-term outlook and warns of a move toward $1.42."

BofAML - Expectations for central bank policies to drive the Euro. Position by buying USDCHF

2013-05-20T11:11:02.000Z

Bank of America Merrill Lynch - "We expect the Euro outlook in the next few months to be determined by ECB policies and market expectations for their direction compared with FED policies. In turn, we believe that the impact of ECB policies on the Euro will be determined by the balance between monetary policy loosening to address weakness in the core
Eurozone economies and deflation risks on the one hand, and policies to address the continued credit crunch in the periphery on the other. We believe that the balance between the two is most likely to be towards an overall ECB policy stance that will weaken the Euro, but positive surprises to help credit in the periphery should not be excluded. Moreover, the timing of the announcements of ECB policies in these two areas and whether and how the two will be combined could also affect the level and the path of the Euro.
We are EUR bearish but would prefer to position for our view by being long USDCHF. We expect the CHF to weaken further, consistent with the overall increase in global risk appetite and recent improvements in the Eurozone periphery. Moreover, buying USDCHF instead of selling EURUSD provides some protection against a scenario in which the ECB surprises by delivering even more than markets expect to help credit conditions in the periphery countries, because in this case both EURUSD and EURCHF are likely to strengthen. ·

RBS - In three words, keep buying Dollars

2013-05-20T11:02:39.000Z

Royal Bank of Scotland - "On the road seeing clients is always most enlightening, always the best way to take the market pulse. But the road can be a tricky place from which to develop detailed strategy ideas – too much distance from day-to-day detail.
So just a few bullets on broader, thematic, directional, conviction: In three words, keep buying Dollars.
(...) Yen is still your number (1) funding currency as Japanese foreign bond buying begins in semi earnest and on the critical assumption that JGB calm is restored. I am hardly meeting anyone these days who still believes in USD/JPY (yet) higher. The pain trade is no retracement to buy into.
Sterling is your next funder. I keep finding deeper pockets of UK optimism among clients and a reluctance to embrace the lower Cable trade in which they were much more willing participants earlier this year. (...) So sticking with Paul Robson's short GBP/USD trade recommendation is a confident call.
We have no argument with EUR/USD lower either and have long forecast sub 1.20 levels for this year. EUR/USD could be the low-score-bore-draw that it's been for ages, either side of 1.30, for longer ...
BUT, just as the Fed tapering chat meanders on, so markets get (rightly) get much more serious about an easier ECB: Rates strategy colleagues' bias is still for 10y US/bunds to widen; 2y Germany is rallying, back to negative yields; ECB dated EONIA traded negative Friday) for the first time this year
We anticipate being dollar buyers/accumulators all year. Initially against yen and GBP, then against EUR.
But before year end will be time for limit USD longs against Aussie and Kiwi and beyond in the commodity complex."

Forex Thought Leaders: Francesc Riverola, Founder and President FXstreet.com

2013-05-20T10:19:20.000Z

I found this nice article...talking about me!!! :)

What an honor ;)

Francesc

Forex Thought Leaders: Francesc Riverola, Founder and President FXstreet.com
by Paul Milnes
Francesc Riverola is one of the foremost thought leaders in the world of forex trading, being founder and President, former CEO of FX Street, which is without a doubt one of the most respected and popular forex sites on the web.
Riverola first got involved in the world of foreign exchange in 1997, working as a webmaster for a Forex advisory firm in Barcelona. His task was to create a Forex information site with the look and feel of a corporate site, in an effort to draw traffic and later generate clients for the firm. This was a relatively new formula at the time, and proved to be a successful one, but the company fell foul of the Spanish financial regulators CNMV and was forced to close.Instead of looking for another job, Riverola decided to devote his energies to a project he had been working on for some time while he finished his business degree. This project turned out to be FX Street, which was created with the help of his wife Miriam, who handled the design duties, and his friend Setxi, who did the coding.

Societe Generale - Views Before The Weekend

2013-05-17T15:17:31.000Z

Societe Generale - "Recession check in Europe If I have one grumble about the news in Europe, it is the tendency of policy-makers to be so positive about financial market developments and so quiet about underlying economic problems. The ECB has driven a wedge between markets (the euro and government bonds) on the one hand and the ‘real economy' on the other. That buys time for policy-makers to tackle the underlying problem of chronic unemployment, competitiveness gaps and indebtedness. But the more policy-makers declare victory on the grounds that the markets don't point a spotlight on the problems, the more I fear they won't tackle them.
This week's evidence of the underlying problems comes from the Spanish trade data - back in surplus in March for the first time since 1962 (I don't have data beyond that..). At one level this is ‘good' as it reduces imbalances at the heart of Europe. A 15% y/y fall in imports however, is a truly awful way to correct an imbalance. Spain, in any case, never needed to run a surplus on visible trade since it has historically exported invisible sunshine, and earned money from tourism.
It isn't really ‘new news' but if Europe's policy-makers don't tackle the underlying economic crisis that is no longer visible in the markets, we will see a period of calm followed by a sudden outbreak of turmoil. In the meantime, stay short EUR/USD, and receive 2yr/2yr Euros against USD. As for our other trading ideas, we like being short NZD more than AUD (short NZD/USD or long AUD/NZD), short yen, long NOK/SEK, and short PLN, and ZAR in EMFX. A straw poll of clients at a dinner this week suggested little expectation that the rise of UKIP could result in a vote on EU membership before the next election, and that may be complacent. I don't like GBP or Gilts amid this uncertainty. And I have written about CHF this week already. It's a sell."