Citi: The growth of the dollar will continue, but will be delayed

Citi's forex strategists predict that in the foreseeable future the growth of the dollar will continue, but will be considerably slower than a year ago. Various factors will exert pressure on the upward trend.

First, a soft monetary policy in Europe, Japan and China will have less influence on markets than the careful approach of the Federal Reserve in raising of the interest.

As for inflation, a strong dollar is undermining the base index of consumer prices in the developed market economies and slower growth will allow the index to increase to some extent - because commodity prices are calculated in dollars and exhibit tends to rise when the US currency weakens.

Yellen defended the tactics of caution

Federal Reserve Chairman Janet Yellen defended the decision of the institution to be cautious in tightening monetary policy, citing global risks.

"Global development increases risks to the economic outlook and financial conditions are not as favorable as in December when there were taken first raise rates in a decade." - Said Yellen in a speech in New York, but did not say when she expects the central bank to proceed with the action.

According to Yellen, the negative effects of volatility in global markets during the first seven weeks of 2016 are likely to be limited, but it is not yet certain. Separately, data, pointing to a strengthening of the base inflation in the US is still not sufficiently convincing.

Fed Chairman assured investors that the institution has the necessary tools to support the economy in the case of recession, although it couldn't lower rates significantly. There are possible however, purchases of assets or exchange of short-term versus long-term bonds.

Morgan Stanley: Deal of the Week are purchases of USD/JPY

Forex strategists at Morgan Stanley advised investors this week to consider purchases of dollars against the yen.

"We recommend long positions in USD/JPY with target 117.00 and stop to limit the losses of 110.50. We expect strong economic data from the US, if our forecasts prove accurate, we will witness an increase in the yield of US bonds, which would stimulate the flow of capital." - comment the analysts.

Meanwhile, yields on Japanese government bonds are not attractive from a historical perspective. Therefore, with the beginning of the new fiscal year in Japan, the flow of capital from the country will rise - warn the experts.

The euro retreated to 8 daily low despite weak US data

The dollar managed to hold its positions despite weak data that have been published. Durable goods orders in the US declined by 2.8% in February from 4.7% a month earlier. Economists had expected a decline of 2.5%. However, the dollar managed to hold its position against most currencies.

This week, the US currency was supported by the statements of Fed officials who said that it is possible, that the central bank will raise rates more than once.

The dollar index, which measures the performance of the dollar against six major currencies rose for a fifth consecutive day, reaching 96,133 points, and since the beginning of the week is already rising by more than one percent.

The euro fell to 8 daily low, reaching 1.1144. Since the beginning of the week the single currency lost nearly 1 percent of its value.

Goldman Sachs: If Britain leaves the EU, the pound could fall by 20%

Forex strategists of Goldman Sachs noted that the pound will likely remain vulnerable to June, when it will be hold a referendum on Britain's membership of the European Union. Analysts predict that over this period the currency may retreat with about 3% - 4% against the euro.

However, in case of Brexit, it's not excluded, that EUR/GBP would fall by 20% by June 2017 and even reach parity.

Morgan Stanley: USD/JPY may reach Y116 - Y117 in the next two weeks

Forex strategists from Morgan Stanley predict that in the next two weeks the exchange rate of the US dollar against the yen may rise to between Y116.00 - Y117.00.

According to the experts, driving the upward trend would rise in yields on US bonds. Given the changes in the tax calendar in Japan, the interest of local investors towards assets with attractive yields will increase.

Morgan Stanley's experts, however, remain generally bullish for the Japanese currency and believe that after reaching those levels, USD/JPY will again take down.

The effects of the stimulus policy

Banks fail to expand lending and stimulate the real economy in the desired pace. And there is no reason to be blamed for the low success rate of monetary policy because they should be focused on viable investment projects or lending to creditworthy population. On the contrary, artificial stimulus create the risk of inefficient and excessive lending, as happened with shale oil in the US, or the money goes to the owners of assets as financial instruments.

Shares gained a lot of quantitative easing. The indices in the US and Europe reached record levels, as price growth is related to any new initiative of the central banks. It could be argued how this relationship is only direct, but certainly the incentives of the ECB and the Fed positively influence mood of investors. The direct effect is only on the market for government bonds. Central banks were active buyers of securities and commercial banks and investors followed them because they have no significant alternatives to buying or lending.

We should not blame the banks in Europe that they are not aggressive lending, especially in the years of the European debt crisis when there was too much uncertainty in the financial system and lending to companies. The problem is that the ECB used the same logic again and again, risking further to decrease banks' profits and raise bond prices higher. Bloomberg reported that the government bonds of developed countries with negative yields exceed 7 trillion. This means that governments can spend without worrying about how they will service their debts. At the same time savings will lose their value.

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ECB stimulate financial markets, not banks

The four largest central banks held important meetings on interest rate policy within a week. The ECB and the Bank of Japan signaled that they have reached maximum levels of incentives now. Bank of England and the Federal Reserve kept interest rates unchanged as bankers in the United States risked not to disturb the delicate balance of the financial markets with withdrawal of stimulus.


What are the negative interest?

Negative Interest on commercial bank reserves at the central bank that exceed regulatory requirements amount of minimum reserves. In the US, where interest rates are not negative, commercial banks receive interest payments on reserves. In Eurozone banks must pay because behave more money than necessary. These reserves are increasing and from "quantitative easing" by buying bonds from the ECB. Banks face more interest expense along with the reduction in margins. This explains why bank stocks fell last year. The ECB create money that does not go directly lending and kill bank profits. This policy is likely to continue for a long time, judging by comments from ECB President Mario Draghi.

Nomura: The dollar may gain 7% this year

The jump in the dollar by 25% during the period from June 2014 to January 2016 was the most extreme from the 80s and force Fed to reconsider its strategy on tightening monetary policy, say analysts at Nomura.

Markets continue to expect an increase in rates, although expectations in this regard are weaker than at the end of last year and early this year. Against this background, the dollar will likely continue its growth, but with far less convincing pace.

Main engine of the upward trend will remain interest rate differential and market expectations of further tightening of monetary policy in the US, say from Nomura. It is theoretically possible dollar index to rise by 11% this year, but considering the tone of the statements of Fed is already softer, strategists believe that the likely pace of growth is around 7%.

Technical analysis of the EUR/USD for March 18

EUR/USD

Euro/dollar continued its upward momentum yesterday, topped at 1.1342. As seen on the chart, the price is now struggling around the trendline resistance, suggesting critical technical situation. A clear break above the trend line and consistent move above 1.1342 could trigger further bullish pressure to test 1.1450 - 1.1500. On the downside, 1.1240 - 1.1200 is an important support. A clear break and daily/weekly close below that area could create downward false breakout scenario next week. Overall technical outlook is neutral.

Consultation gives advantage to supporters of the Brexit

The British pound suffered major movements after a survey showed that 49 percent would vote to leave the EU.

Yesterday the British pound suffered major movements after consultation, which results showed that 49% would vote to leave the EU, while 47% intend to vote to remain in the Union. No matter how the markets interpret these results, they created even greater uncertainty about the outcome, which seems to be much more controversial than originally thought. After pressure on short positions that fired pounds from 1.3836 to 1.4437, now again took big money, which resumed its sell-off.

Consolidation for the euro before key Fed meeting

The single currency rose minimal against the dollar before today's meeting of the US Federal Reserve.
The currency pair EUR/USD climbed to 1.1105, this is the fourth consecutive session, closing at 1.11. For the year, the euro rose 2.6% against the US dollar. Investors' expectations for the Fed today are, that the institution will not take changes in interest rates in the US, despite good data on inflation and employment in the country. Although the Fed signaled in December for four raises interest rates this year, economists are of the opinion that there are more than two and that the Fed will likely wait until June or September for this step. The euro fell against the yen to 125.70, but rose against the British pound to 0.7846.

Mario Draghi caused chaos on currency markets

The European Central Bank lowered deposit rates by 10 basis points, from minus 0.3 percent to minus 0.4 percent, a decision which coincided with forecasts of analysts, although some of them predicted even more serious decline to minus 0.5%.

Separately, the monthly volume of the program for purchases of assets was increased from 60 bln 80 bln euro and the range of assets has been expanded to include non-bank corporate bonds denominated in euros. In addition, the ECB will launch a new series of long-term refinancing operations with a maturity of four years.

Minutes after posting the news the euro retreated sharply against the dollar to around 1.0821, but later turned up and closed higher at 1.1217 in highly volatile market. Technically, the price closed the day above the 200 day EMA, suggesting bullish outlook testing the trend line resistance, localized around 1.1300. Short-term expectations are upwards. The nearest support is at 1.1135. A clear break below that area could lead price to neutral trading zone testing 1.1065 support.

The forex market before the highly anticipated ECB meeting

EUR/USD

EUR/USD found support at 1.0800 area. This level coincides with the bottom line of Bollinger. Figures "hammer" and "doji" were formed, they show that the downward trend loses power and goes to a neutral state. The bullish candle from last Thursday shows that it sarts a correction of the downward movement, started from 02.11.2016. The first immediate resistance for the ongoing rise is in the zone of 1.1060. This level from support has become resistance and if the price overcomes it, next resistance level could be expected at the upper line of Bollinger and the previous peak. We must not forget that for a resistance price can serve the round levels of 1. 1100; 1.1200; 1.1300.

If the price has found resistance because it is very close to the level of 1.1060 and a decline starts, we can expect a retest of the bottom of last Thursday.

We expect Thursday full of important news, when there will be a press conference of the ECB and the decision on key interest rates. The main indicator that tracks the ECB is inflation, and it fell to minus 0.20 percent. Therefore, most market participants believe that we will see additional incentives.
It is interesting what they will be, such as extension of the terms and volume of purchase of assets and/or further reducing the deposit rate.

Here we have two options - Mario Draghi may surprise or disappoint market participants. In the first scenario we will witness more robust than expected actions of the ECB. This will lead to a decline in the currency pair.

In the second scenario Draghi will announce anticipated by market participants changes. They may not be deemed sufficient (because they are already calculated in the price), and it will disappoint participants. Last time when Draghi disappointed market participants was on 03/12/2015, and EUR/USD climbed four figures throughout the day.

Both options will lead to increased volatility. This is a prerequisite to be careful on Thursday.

EUR/USD finished the day above the psychological level of 1.1000

The single currency rose against the US Dollar on Monday after the statements of members of the Fed, which added further confusion about the timing of the next rise in interest rates.
The pair traded between 1.0939 and 1.1025, before settling at 1.1013.
The euro rose after Brainard said that the rise in interest rates by the US central bank should be postponed in time, citing that inflation is not expected to reach soon the 2% target.
Also, Stanley Fischer brought additional turmoil as delivered an adverse opinion, expressing hope that inflation rates will continue to increase, as a rise in oil prices should help to achieve the objective of the bank.
The dollar was weaker against most of its rivals during the trading session on Monday.

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USD/JPY: Daily technical forecast for March 7

USD/JPY

The dollar marked a dynamic trading against the yen on Friday. Ultimately opening price is similar to that of the closing, respectively 113.66 and 113.95. In the early hours the bearish sentiment prevailed and so the pair hit bottom for the day at 113.12. Subsequently, the direction changed and so the difference between the highest and lowest value was 113 pips. If the positive momentum continues in the future, currencies will break through resistance at 114.56.

Support: 112.13; 110.95;

Resistance: 114.56; 115.18;

Tsipras: Athens will require immediate displacement of the accumulated migrants

The Greek Prime Minister Alexis Tsipras declared that Athens will require at the EU summit immediate displacement of the accumulated migrants in the country, according to the AP. The prime minister said that he would require sanctions against EU countries that "do not carry out common decisions".
According to Tsipras, the flow of migrants is a consequence of "non-sense and imperialist" interference in the affairs of Middle Eastern countries, which resulted the collapsed state, which used to be in order.

Nordea: Oil prices hit the bottom

Oil prices have reached the bottom, assume analysts from Nordea Bank. According to their forecast, in the fourth quarter of 2016 Brent will cost about $50 per barrel, and for the full 2015 average price is $41 per barrel, reported Bloomberg. Quotations of the May futures for Brent crude on London's ICE Futures exchange increased by $1.1 (2.97%) - up to $38.17 per barrel.
Contract prices for WTI for April in electronic trading on the New York Stock Exchange (NYMEX) at this time increased by $0.95 (2.75%) - up to $35.52 per barrel.
Meanwile, Azerbaijan supported the initiative of Russia and a number of OPEC members to freeze oil production in 2016.

BTMU: USD/JPY aiming to Y115

The pair USD/JPY remained in a range in recent days as investors are uncertain about the future actions of the Bank of Japan and Federal Reserve, note forex strategists of BTMU.

The rate of the Japanese currency against the dollar is unlikely to affect especially from the meeting of the European Central Bank, scheduled for March 10, although the event may cause movements in EUR/JPY.

However, if the regulators on the continent take aggressive incentives that would reinforce expectations of their colleagues from the Land of the Rising Sun to follow suit. By BTMU does not believe that BoJ would vote changes of the monetary policy this month.

In the short term, USD/JPY will likely test the area of ​​Y115.00, provide analysts, but do not expect a move higher as the possible growth would be limited by offers made by Japanese exporters.

Deutsche Bank: When poverty reduces, the dollar climbs

Forex strategists of Deutsche Bank remain among the most prominent bears in terms of EUR/USD, and support expectations for a rate of $0.95 at the end of the year with a new argument.

When poverty decreases, the dollar rises, emphasize analysts and point out, that the index of poverty (The misery index), which measures inflation and unemployment declined to nearly 60-year low in November.

At the same time, expectations are, that today's monthly government report on the labor market in the US reveal, that unemployment remained at 4.9 percent, in the eight-year lows.

"The misery index suggests optimism." - Commented director of currency analysis at Deutsche Bank Alan Ruskin. - "The more positive situation on the labor market in the US, the more likely the Fed to continue tightening monetary policy which would support demand for dollars."

Daily technical forecasts for March 4

EUR/USD

The single currency recorded a significant increase against the US dollar on Thursday. The session started at 1.0867 and then the price went down, reaching the lowest level for the day at 1.0853. Later the pair reversed direction and ultimately the euro closed at a rate of 1.0956. Recently reached levels confirm the positive attitudes that will probably leave the bulls in a leading position.

Support: 1.0810; 1.0730;

Resistance: 1.0975; 1.1100; 1.1286;

GBP/USD

Yesterday the British pound recorded significant increase against the US dollar. After a volatile session, the pair added 97 pips at a closing price of 1.4173. Price managed to break through levels at 1.4100 and went up. If the bullish trend continues, most likely will test the first resistance at 1.4360.

Support: 1.4100; 1.3709; 1.3568;

Resistance: 1.4360; 1.4592;

USD/JPY

The pair recorded a modest increase. The session started at a price of 113.45 and after diverse trading throughout the day eventually finished at a price of 113.66. The graphics continue to evolve over moving averages, while the index of relative strength remained on neutral territory. Continuing bullish dominance test will result in levels of 114.00.

Support: 110.000;

Resistance: 114.00; 116.00; 117.19;