Wells Fargo
FX Express™ - Monthly
Market summary and commentary provided by Nick Bennenbroek and Vassili Serebriakov, Currency Strategists, Wells Fargo Bank.
In this issue:
April 2012
• R
enewed European debt strains and China’s economic slowdown have emerged as market themes recently, contributing to
foreign currency weakness early in the second quarter.
• W
e expect these market themes to – eventually – be resolved favorably, which should support commodity and emerging
currency gains in 2012.
• I n contrast, we expect the euro to weaken against the U.S. dollar, while we also see modest declines in the yen and pound.
See our FX forecasts on page 3.
Three Themes For Trading FX Markets
After most foreign currencies made a strong start to 2012,
market sentiment has been more subdued since the start of
the second quarter. Three important themes are contributing
to FX market cross currents and resulting in more uncertain
market conditions. We suspect these conflicting forces
may lead to directionless or range trading in the coming
weeks. We do expect, however, that the current uncertainty
will resolve itself favorably over time. Accordingly, we still
see a stronger overall trend for commodity and emerging
currencies for the balance of 2012.
The Good – An Orderly Chinese Slowdown
The slowdown in China’s economy has increasingly
attracted the market’s attention in early 2012 and has likely
contributed to the recent pause in the foreign currency rally.
China’s trade balance flipped to a deficit of US$31.5B in
February, while Chinese leaders agreed in March to lower
their economic growth target for 2012 to 7.5%, from their
previous long-held target of 8%. Indications of a Chinese
slowdown were capped by the downside surprise to the Q1
GDP outcome, where growth slowed to 1.8% q/q and 8.1% y/y.
The Chinese news is not all bad however, with indications
that activity had started to strengthen by the end of the
first quarter. March industrial output rose by 11.9% y/y
and retail sales rose by 15.2% y/y, both exceeding their
combined January-February growth pace. China’s PMI data
has improved, new lending jumped by some 1.01 billion
renminbi in March and China’s trade balance returned
to surplus last month as well. Moreover, we suspect that
Chinese authorities are once again moving closer to
domestic policy easing, following the cuts in the Reserve
Requirement Ratio announced in late November and midFebruary. Indeed, the central bank cut the Ratio for some
rural banks following the first quarter data, while the central
bank also widened the renmnibi’s daily trading band to
allow for increased flexibility. Looking ahead, our overall
sense is that Chinese data will be stronger rather than
weaker, and that domestic monetary policy will be easier
rather than tighter. Despite the downside Q1 GDP surprise,
we believe that the balance between Chinese economic
growth and monetary policy settings will remain generally
supportive for global sentiment and commodity and
emerging currencies through much of 2012.
The Bad – European Debt Jitters Re-emerge
On a less encouraging note, some strains have re-emerged
in the European debt markets. After falling to 5.00%
and below in early 2012, yields on Spanish ten-year
government debt have since risen back to around 6.00%
and yields on Italian ten-year debt to around 5.50%.
Spanish budget developments have been a particular
focus. Spain’s government raised its budget deficit target
© 2012 Wells Fargo Bank, N.A. Member FDIC. All rights reserved. FX-3005 (04/12)
Wells Fargo FX Express™ - Monthly for this year to 5.3% of GDP, although investors appear
to be questioning whether even this larger budget
gap can be met. Furthermore, the end to the European
Central Bank’s unlimited three-year lending operations
was also perhaps a contributing factor. Finally, markets
were recently somewhat disappointed with the relatively
moderate increase in the ceiling for Europe’s financial
aid funds. In late March, European finance ministers
agreed to a combined ceiling for the European Financial
Stability Facility/European Stability Mechanism of 700
billion euros. That outcome fell short of some of the more
ambitious estimates amounting to as much as 900 billion
to 1 trillion euros. Indeed, accounting for funds already
committed to Greece, Portugal and Ireland, the remaining
lending capacity now stands at 500 billion euros.
These renewed European concerns appear unlikely to
resolve themselves in the near-term. Specifically with
respect to the financial aid funds, the G20 finance ministers
and central bankers meet later this week, with an additional
contribution from the G20 countries to the IMF’s resources
- in part to guard against European developments – set to be
a topic of discussion. However, given the moderate increase
announced to the European aid funds ceiling, G20 countries
may struggle to reach agreement on extra IMF resources,
with a delayed decision until the June G20 Leaders’ Summit
seen as possible. The latest signals suggest the U.S. and
Canada are unlikely to make any contribution, while Japan
and China could also scale back the scope of any additional
funds. Beyond these meetings, elections scheduled in France
and in particular Greece in late April/early May have the
potential to sustain current market jitters.
At the same time, we do not expect a return to the distressed
European debt markets of late 2011 and early 2012. In our
view, policymakers and politicians remain very sensitive
to debt market tensions. Indeed, ECB President Draghi
recently said it was too early to discuss an ‘exit strategy’
from the current monetary policy stance, while some ECB
policymakers have hinted that the central bank’s bond
purchases could resume. Between the improving efforts
of European politicians to achieve fiscal prudence and the
sensitivity of monetary policymakers to financial market
stress, we suspect that a significant further rise in bond
yields can be avoided. A stable European debt backdrop
April 2012
should allow for global equities and growth sensitive
currencies to recover as the year progresses.
The Uncertain – Evolving Views On The U.S. Economy
And Monetary Policy
Another factor that has contributed to more mixed FX
trading in recent weeks has been the evolving view on
the U.S. economy and monetary policy. Using ten-year
Treasury yields as a proxy, the past month has been
something of a roller-coaster ride for market expectations.
Yields jumped in mid-March as the Federal Reserve’s
monetary policy announcement acknowledged the
improvement in the labor markets and said that global
strains had eased. That jump was partially reversed later
in March as Fed Chairman Bernanke warned that the
labor market improvement might not continue at the
current pace and that accommodative monetary policy
was still needed. Yields rose once again in early April
as the minutes from the Federal Reserve policy meeting
said that only “a couple” of policymakers thought further
easing may be necessary, indicative of reduced support
for accommodation. However, yields fell again as March
nonfarm payrolls disappointed with a gain of just 120,000,
even as the jobless rate fell to 8.2%. After following this
back-and-forth pattern, ten-year Treasury yields are now at
2.00%, little changed from where they were just prior to the
mid-March Federal Reserve announcement (2.03%).
The back-and-forward in U.S. yields has likely contributed to
a similar trading pattern in currency markets. Longer-term,
we expect the U.S. economy and U.S. monetary policy to be
a neutral overall force for foreign exchange. Our Economics
Group expects a relatively steady 2.1% GDP growth pace in
2012, and does not currently anticipate any further easing
from the Fed. Rather it will be Chinese developments
(positive) and European developments (less negative) that
could be the key FX market drivers. While it might take
some weeks for these Chinese and European developments
to unfold, we do expect that they will underpin commodity
and emerging currency gains as the year progresses.
For further questions, please contact your
Wells Fargo foreign exchange specialist.
Wells Fargo FX Express™ - Monthly April 2012
Currency Forecasts
Currency
Pair
Current Rate
3-Month
6-Month
9-Month
12-Month
15-Month
18-Month
EUR/USD
1.3121
1.3000
1.2700
1.2400
1.2200
1.2000
1.2000
USD/JPY
80.69
82.00
83.00
84.00
85.00
86.00
88.00
GBP/USD
1.5931
1.5700
1.5600
1.5600
1.5700
1.5800
1.5900
USD/CHF
0.9159
0.9300
0.9525
0.9850
1.0175
1.0500
1.0675
USD/CAD
0.9891
0.9700
0.9600
0.9500
0.9400
0.9400
0.9500
AUD/USD
1.0371
1.0400
1.0500
1.0500
1.0300
1.0200
1.0100
NZD/USD
0.8187
0.8200
0.8300
0.8400
0.8600
0.8500
0.8400
USD/NOK
5.7507
5.7700
5.8650
5.9675
6.0250
6.0825
6.0425
USD/SEK
6.7696
6.8075
6.9300
7.0575
7.1300
7.2075
7.1675
USD/CNY
6.3020
6.3000
6.2800
6.2500
6.2200
6.1900
6.1700
USD/IDR
9178
9200
9100
9000
8900
8850
8800
USD/INR
51.44
51.50
51.25
51.00
50.75
50.50
50.25
USD/KRW
1136.33
1140.00
1130.00
1120.00
1110.00
1105.00
1100.00
USD/MYR
3.0630
3.0500
3.0300
3.0100
2.9900
2.9800
2.9700
USD/PHP
42.65
42.50
42.25
42.00
41.75
41.50
41.25
USD/SGD
1.2490
1.2300
1.2100
1.2000
1.1900
1.1800
1.1800
USD/TWD
29.50
29.50
29.50
29.25
29.25
29.00
29.00
USD/THB
30.81
30.75
30.50
30.25
30.00
30.00
30.25
USD/BRL
1.8435
1.8300
1.8200
1.8100
1.8000
1.7900
1.7800
USD/CLP
486.35
480.00
475.00
470.00
465.00
460.00
455.00
USD/MXN
13.1207
13.1000
12.9000
12.7000
12.5000
12.4000
12.3000
G10
Asia
Latin America
Eastern Europe/Middle East/Africa
USD/CZK
18.87
18.75
19.00
19.25
19.75
19.75
19.75
USD/HUF
226.23
230.75
240.25
246.00
246.00
250.00
245.75
USD/PLN
3.1876
3.1925
3.2275
3.2650
3.2775
3.2925
3.2925
USD/RUB
29.59
29.50
29.25
29.00
28.75
28.50
28.50
USD/ILS
3.7594
3.7500
3.7500
3.7000
3.6500
3.6000
3.5500
USD/ZAR
7.8246
7.8500
7.8000
7.7500
7.7000
7.6500
7.6000
EUR/JPY
105.87
106.50
105.50
104.25
103.75
103.25
105.50
EUR/GBP
0.8236
0.8275
0.8150
0.7950
0.7775
0.7600
0.7550
EUR/CHF
1.2018
1.2100
1.2100
1.2200
1.2400
1.2600
1.2800
EUR/NOK
7.5450
7.5000
7.4500
7.4000
7.3500
7.3000
7.2500
EUR/SEK
8.8820
8.8500
8.8000
8.7500
8.7000
8.6500
8.6000
EUR/CZK
24.77
24.50
24.25
24.00
24.00
23.75
23.75
EUR/HUF
296.82
300.00
305.00
305.00
300.00
300.00
295.00
EUR/PLN
4.1825
4.1500
4.1000
4.0500
4.0000
3.9500
3.9500
Euro Crosses
Wells Fargo FX Express™ - Monthly April 2012
U.S. Dollar Index (USD)
Outlook
We expect modest U.S. dollar gains against the major currencies, but losses against the commodity and emerging
currencies. U.S. economic activity remains steady overall even with the recent jobs disappointment, while technicals are
favorable on balance for the greenback. Gains against the major currencies will be gradual given extended FX positioning,
while the greenback could slip against the commodity and emerging currencies as market calm returns.
Economic Watch
Technical Watch
• M
arch nonfarm payrolls rose by just 120,000, while the
jobless rate fell to 8.2%.
• The March ISM manufacturing index rose to 53.4, while
the ISM services index eased to 56.0.
• March retail sales rose by 0.8% m/m, while industrial
output was flat in March.
• The March core CPI edged to 2.3% y/y, while February
core PCE prices were steady at 1.9% y/y.
• Monetary policy signals have been mixed. Fed Chairman
Bernanke said that labor market improvement may slow
and that policy accommodation is still needed. The
FOMC minutes suggested fewer policymakers are
leaning towards further easing.
• Technicals suggest a positive bias for the U.S. dollar index
• The 20-day MA has crossed above the 50-day MA,
a bullish signal. The RSI is neutral at 50 while other
momentum indicators are mixed.
• Immediate resistance is from the recent high at 80.18.
Beyond that, expect further resistance at 80.74 (March
high) and 81.78 (January high).
• There are layers of support from prior lows at 79.21
(mid-April), 78.66 (early April) and 78.10 (late February).
There is also uptrend support near 79.00.
Positioning/Flow Watch
• S
peculative U.S. dollar longs rose to $31.1 billion in early
April, up 30% from the prior month and surpassing the
previous late 2011 record high.
Data Watch
19 Apr
Existing home sales (Mar)
24 Apr
New homes sales (Mar)
25 Apr
Durable goods orders (Mar)
27 Apr
Advance GDP (Q1), Employment cost index (Q1)
30 Apr
Personal income, spending, prices (Mar)
1 May
ISM manufacturing (Apr)
3 May
ISM services (Apr), Productivity and costs (Q1)
4 May
Employment report (Apr)
10 May
Trade balance (Mar)
11 May
PPI (Apr)
15 May
Retail sales (Apr), CPI (Apr)
16 May
FOMC minutes, Industrial output (Apr),
Housing starts (Apr)
Central Bank Watch
Current Rate: 0% to 0.25%
Next Announcement: April 25
Forecast: No change
Wells Fargo FX Express™ - Monthly April 2012
Euro (EUR)
Outlook
We expect gradual weakness in the euro. While the ECB’s policy stance has been more neutral recently, activity data remains
very subdued and debt market strains have re-emerged as a euro negative. The risk of further ECB easing persists, which
would could prompt euro slippage while avoiding a more rapid euro fall. FX positioning provides some scope for currency
weakness as well.
Economic Watch
Technical Watch
• T
he Eurozone March manufacturing PMI fell to 47.7,
while the services PMI rose to 49.2. March economic
sentiment dipped to 94.4.
• February industrial output rose by 0.5% m/m, but
January industrial orders fell 2.3% m/m.
• Germany remains a bright spot – the March IFO
confidence index rose to 109.8.
• The March CPI was steady at 2.7% y/y, while the core
CPI edged up to 1.6% y/y.
• The ECB kept its monetary policy stance steady in
April and said that it was too early to talk about exiting
its unconventional policy measures.
• Europe raised the ceiling on its financial aid funds to
E700B, while Spanish and Italian bond markets have
shown renewed strains.
• Technicals are mildly negative for the euro.
• The 20-day MA is crossing below the 50-day MA. The
RSI of 47 has room to fall further, but other momentum
indicators are inconclusive.
• There is minor support from the repeated February
through April lows, with the most significant of these at
$1.2974. Below that, expect further support at $1.2839
mid January low) and $1.2623 (also mid January low).
• Upside resistance is seen from prior highs at $1.3213
(April), $1.3386 (March), and $1.3487 (February). There
is also downtrend resistance near $1.3290.
Positioning/Flow Watch
• S
peculative euro shorts were at 138K contracts in early
April, little changed from early March but down 30% from
January’s peak short position.
Data Watch
18 Apr
Current account (Feb)
20 Apr
German IFO index (Apr)
23 Apr
Manufacturing & Services PMIs (Apr, estimate),
Government Debt/GDP (2011)
26 Apr
Economic sentiment (Apr)
27 Apr
French consumer spending (Mar)
30 Apr
CPI (Apr, estimate), M3 money supply (Mar)
2 May
Manufacturing PMI (Apr)
3 May
PPI (Mar)
4 May
Services PMI (Apr)
14 May
Industrial output (Mar)
15 May
Advance GDP (Q1)
16 May
CPI (Apr)
Central Bank Watch
Current Rate: 1.00%
Next Announcement: May 3
Forecast: No change
Wells Fargo FX Express™ - Monthly April 2012
Japanese Yen (JPY)
Outlook
With US Treasury yields reversing their March rally, the yen has recovered a large share of its 2012 losses. In the near-term,
renewed European debt tensions and sizeable short speculative positioning suggest there is limited scope for yen downside.
Longer-term however, a more sustained improvement in the US economic and monetary policy outlook should translate
into ongoing weakness in the Japanese currency.
Economic Watch
Technical Watch
• T
he Q1 Tankan survey showed the large manufacturers’
index unchanged at -4 and the large non-manufacturers’
index rising to +5, while companies’ capital spending
plans for the current fiscal year were flat.
• February industrial output fell by 1.2% m/m, while
household spending rose by 2.3% y/y. The current
account for the same month flipped to a surplus of 1.18
trillion yen.
• February machinery orders rose by 4.8% m/m, a second
solid monthly gain.
• The February CPI quickened to 0.3% y/y, while core CPI
moved into positive territory with a 0.1% y/y gain.
• The Bank of Japan kept its monetary policy stance
unchanged in early April, resisting pressure from
politicians to ease further.
• U
SD/JPY has reversed around half of its February-March
gain. However, the overall technical bias remains bullish
with the 20-day MA above the 50-day MA.
• Momentum indicators have moved from overbought to
neutral with the RSI of 40.
• Support is from the 200-day MA currently at JPY78.20,
followed by the February lows of JPY77.36 and JPY76.03.
• Resistance is from the April high of JPY83.30 followed by
the March high of JPY84.18.
Positioning/Flow Watch
Data Watch
19 Apr
Trade balance (Mar)
20 Apr
Tertiary industry index (Feb)
24 Apr
Small business confidence (Apr)
27 Apr
CPI (Mar), Tokyo CPI (Apr), Industrial output (Mar),
Employment report (Mar), Household spending
(Mar), Retail sales (Mar)
10 May
Current account (Mar), Economy watchers
survey (Apr)
16 May
Machinery orders (Mar)
Central Bank Watch
Current Rate: 0%-0.10%
Next Announcement: April 27
Forecast: No change
• S
peculative short yen positions rose to a five-year high of
around 103K contracts.
Wells Fargo FX Express™ - Monthly April 2012
UK Sterling (GBP)
Outlook
We suspect that the pound’s recent resilience is mostly due to its status of an ‘alternative’ European currency, as debt market
tensions are once again hurting the euro. At the same time, UK fundamentals have seen a mild improvement and further
Bank of England easing is probably not imminent, but still possible. Overall, we expect moderate pound weakness against
the dollar and strength against the euro.
Economic Watch
• Q
4 GDP was revised down to a non-annualized decline
of 0.3% q/q.
• February retail sales fell by 0.8% m/m while
manufacturing output fell by 1% m/m.
• The March manufacturing PMI rose to 52.1 while the
services PMI rose to 55.3.
• The March CPI rose by 3.5% y/y, while the core CPI
edged up to 2.5% y/y.
• The Bank of England made no changes to its policy
rate and asset purchase program at the April meeting.
Minutes from the March meeting showed two votes in
favor of expanding asset purchases.
• The Treasury’s 2012 budget announcement saw only
modest changes to the economic forecasts, while public
sector borrowing projections were reduced by 11B pounds
over the next five years.
Positioning/Flow Watch
Technical Watch
• G
BP/USD technicals are moderately bullish, with the pair
holding up above key technical support levels.
• The 200-day MA currently at $1.5844 and the January
bullish daily trend line should provide some initial
support. Subsequent support is from the March low of
$1.5603, while a key level is the January low of $1.5235.
• Resistance is from the April high of $1.6063, followed by
the late October high of $1.6167.
• With the EUR/GBP cross recently breaking below its
2012 low, support is now from the September 2010 low of
GBP0.8202, while resistance is at GBP0.8395.
Data Watch
18 Apr
Bank of England minutes, Labor market report (Mar)
20 Apr
Retail sales (Mar)
24 Apr
Public sector net borrowing (Mar)
25 Apr
GDP (Q1)
27 Apr
Consumer confidence (Apr)
1 May
Manufacturing PMI (Apr)
3 May
Services PMI (Apr)
10 May
Industrial output (Mar), Trade balance (Mar)
11 May
PPI (Apr)
Central Bank Watch
Current Rate: 0.50%
Next Announcement: May 10
Forecast: No change
• A
fter falling to near neutral levels in late March,
speculative positions rose to a modest net short of around
20K contracts in April.
Wells Fargo FX Express™ - Monthly April 2012
Swiss Franc (CHF)
Outlook
Renewed European debt tensions have prompted markets to test the central bank’s commitment to the 1.20 ‘floor’ for the
euro-franc exchange rate. We see few reasons to doubt the authorities’ resolve at this point – the domestic economy has
picked up only moderately and inflation is well into negative territory. With the euro-franc exchange rate relatively steady,
out expectation for euro weakness against the dollar implies franc weakness against the greenback.
Economic Watch
Technical Watch
• R
ecent data suggest some improvement in the
growth outlook, although deflationary pressures
remain persistent.
• The March KOF leading indicator rose to 0.08, while
the manufacturing PMI moved into expansionary
territory at 51.1.
• February real retail sales slowed to 0.8% y/y while the
jobless rate was steady to 3.1%.
• The decline in the March CPI quickened to 1% y/y.
• The Swiss National Bank left its policy rate unchanged,
maintained the franc ceiling at 1.20 francs per euro and
raised its 2012 GDP growth forecast to 1%.
• In recent comments central bank policymakers said
the franc remains “overvalued” and that there was
“zero tolerance” on the currency breaching the exchange
rate ceiling.
• U
SD/CHF technicals are mildly bearish with the 20-day
MA holding below the 50-day MA.
• Support is from the April low of CHF0.9002, followed
by the February low of CHF0.8931. Further support is at
CHF0.8631 (retracement level).
• Resistance is from the March high of CHF0.9335,
followed by the January high of CHF0.9596.
• EUR/CHF support is at the central bank’s ‘floor’ of
CHF1.2000, while resistance is from the March high of
CHF1.2149.
Positioning/Flow Watch
Data Watch
23 Apr
M3 Money Supply (Mar)
24 Apr
Trade balance (Mar), Monthly consumption
indicator (Mar)
27 Apr
KOF leading indicator (Apr)
2 May
Real retail sales (Mar), Manufacturing PMI (Apr)
7 May
CPI (Apr), Unemployment rate (Apr)
14 May
Producer and import prices (Apr)
Central Bank Watch
Current Rate: 0%
Next Announcement: June 14
Forecast: No change
• S
peculative short positions on the franc have been
relatively steady in recent weeks, standing at around 17K
contracts in early April.
Wells Fargo FX Express™ - Monthly April 2012
Canadian Dollar (CAD)
Outlook
Even with the global financial market backdrop turning somewhat more challenging, domestic fundamentals favor a
stronger Canadian dollar. An improvement in the US economic outlook bodes well for Canadian growth, while labor market
gains accelerated in March. The Bank of Canada offered a more optimistic assessment of the economy in April and should
be hiking rates steadily in 2013.
Economic Watch
Technical Watch
• R
ecent data suggests that after slowing in late 2011, the
economy is on a firmer footing in early 2012.
• March employment surged by 82,300 while the jobless
rate fell to 7.2%.
• January GDP rose by 0.1% m/m and 1.7% y/y.
• The February CPI quickened to 2.6% y/y at the headline
and 2.3% y/y at the core.
• The Q1 Business Outlook survey showed an improvement
in the firms’ sales outlook, while capacity pressures have
eased slightly.
• The government’s latest budget projected a return to
surplus in the 2015-16 fiscal year.
• The Bank of Canada left its policy rate steady in
April and said that the withdrawal of monetary stimulus
“may become appropriate.”
• U
SD/CAD technicals are neutral after the pair broke
above the November daily bearish trendline resistance.
• Momentum indicators are also neutral with the RSI of 44.
• Resistance is from the recent high of CAD1.0054, the
January high of CAD1.0319 and the December high of
CAD1.0424.
• The first significant support is from the 2012 low of
CAD0.9842. Further support is from CAD0.9780,
CAD0.9726 and the July 2011 multi-year low of
CAD0.9407.
Positioning/Flow Watch
Data Watch
18 Apr
Monetary Policy Report
20 Apr
CPI (Mar)
24 Apr
Retail sales (Feb)
25 Apr
House prices (Feb)
30 Apr
GDP (Feb)
4 May
Manufacturing PMI (Apr)
7 May
Building permits (Mar)
8 May
Housing starts (Apr)
10 May
Trade balance (Mar)
11 May
Employment (Apr)
Central Bank Watch
Current Rate: 1.00%
Next Announcement: June 5
Forecast: No change
• S
peculative Canadian dollar long positions have fallen
slightly to around 41K contracts in early April – less than
40% of the year-ago record high.
Wells Fargo FX Express™ - Monthly April 2012
Australian Dollar (AUD)
Outlook
We see only modest appreciation for the Australian dollar, which remains vulnerable to a downside shock. Recent data
have firmed slightly, and an improvement in global markets combined with current FX positioning would allow for
Australian dollar gains. Likely RBA rate cuts should limit any advance however, while the Aussie also has potential to
weaken over the longer term.
Economic Watch
Technical Watch
• M
arch employment rose jumped by 44,000, while the
jobless rate was steady at 5.2%.
• March business conditions rose to +4, while the forward
looking business confidence measure rose to +3.
• February retail sales edged up by 0.2% m/m, but April
consumer confidence fell by 1.6% m/m, a second
straight decline.
• The February trade deficit narrowed to A$480M, with
exports falling 2.1% m/m and imports falling by a larger
3.9% m/m.
• The Reserve Bank of Australia held its Cash Rate at 4.25%
and said it was awaiting price data before considering a
further step to ease monetary policy.
• Technicals are neutral for the Australian dollar.
• The 20-day MA has fallen below the 50-day MA, a
bearish signal. AUD/USD is also testing the 200-day MA,
currently at $1.0379.
• The RSI of 48 is still in neutral territory, while other
momentum indicators hint at possible gains.
• Expect minor resistance from the recent high of $1.0453.
There is however no major resistance until the late
February peak of $1.0857.
• Downside support is better defined at prior lows of
$1.0226 (April), $1.0145 (January), $1.0045 (late
December), $0.9861 (mid December) and $0.9664
(November).
Positioning/Flow Watch
Data Watch
• N
et speculative Australian dollar longs fell sharply to 45K
contracts in early April, and are now less the half of their
recent February peak.
23 Apr
PPI (Q1)
24 Apr
CPI (Q1)
30 Apr
Private sector credit (Mar)
1 May
Manufacturing PMI (Apr), House prices (Q1)
3 May
Services PMI (May)
4 May
RBA Statement on Monetary Policy
7 May
Monthly business confidence (Apr), Real retail
sales (Q1), Retail sales (Mar)
8 May
Trade balance (Mar)
10 May
Employment report (Apr)
16 May
Wage cost index (Q1), Monthly consumer
confidence (May)
Central Bank Watch
Current Rate: 4.25%
Next Announcement: May 1
Forecast: 25bp rate cut to 4.00%
Wells Fargo FX Express™ - Monthly April 2012
New Zealand Dollar (NZD)
Outlook
We remain generally optimistic on the NZ dollar. After ending 2011 on a moderate note, survey data point to a firmer
economy in early 2012. Even with the central bank on hold, improving global markets would help the NZ dollar, while
FX positioning indicates scope for currency gains. Altogether, the NZ dollar should be one of the best G10 currency
performers in 2012.
Economic Watch
Technical Watch
• Q
4 GDP was softer than expected, rising by 0.3% q/q and
1.8% y/y.
• Quarterly business confidence rose to +13 in Q1 from zero
in Q4. Monthly business confidence rose to +34 in March.
• March retail card spending rose by 0.3% m/m, while
March consumer confidence fell by 2.7% m/m.
• The 2011 calendar year current account deficit narrowed
slightly to 4% of GDP.
• The February trade balance flipped to a surplus of
NZ$161M. Exports fell by 6.9% y/y, while imports fell by
6.6% y/y.
• House prices firmed to 3% y/y in March.
• Technicals are mixed for the NZ dollar.
• The 20-day MA has fallen below the 50-day MA, a
bearish signal. The RSI is in neutral territory at 49, while
other momentum indicators are inconclusive.
• NZD/USD has tested - but is holding above – 200 day
MA support, currently at $0.8091.
• There is also support from the March low of $0.8059.
Beyond that, expect further support at $0.7866 (mid
January low) and $0.7653 (late December low).
• Initial resistance is at the recent high of $0.8320,
followed February high of $0.8472 and late August high
of $0.8573.
Positioning/Flow Watch
Data Watch
• N
et speculative New Zealand dollar longs were at 8.9K
contracts as of early April, down more than 50% from
their prior month level.
19 Apr
CPI (Q1)
24 Apr
Credit card spending (Mar)
30 Apr
Monthly business confidence (Apr), Trade
balance (Mar)
1 May
Labor cost index (Q1)
3 May
Employment report (Q1)
9 May
Card spending (Apr)
10 May
House prices (Apr), Monthly consumer
confidence (May)
MidMay
House sales and prices (Apr)
14 May
Real retail sales (Q1)
Central Bank Watch
Current Rate: 2.50%
Next Announcement: April 26
Forecast: No change
Wells Fargo FX Express™ - Monthly April 2012
Mexican Peso (MXN)
Outlook
We expect the Mexican peso to recover from its recent corrective weakness. European strains should eventually subside,
while the central bank may not deliver monetary easing as anticipated. With Mexican activity firming and peso longs
extended but not extreme, an improving global backdrop should support Mexican currency gains in the months ahead.
Economic Watch
Technical Watch
• M
exico’s February industrial output firmed to 5.9% y/y,
while January retail sales firmed to 4.4% y/y.
• The January global economic indicator also strengthened
to 4.4% y/y.
• The March manufacturing PMI fell to 52.7, while the
services PMI rose to 54.2.
• The February unemployment rate increased to 5.3%.
• Mexico’s March CPI slowed to 3.73% y/y, while the core
CPI also eased to 3.31% y/y.
• The Bank of Mexico held its overnight rate at 4.50% in
March, although the monetary policy minutes hinted at a
rate cut if inflation trends continue to improve.
• T
echnicals are positive for USD/MXN.
• The 20-day MA has crossed above the 50-day MA. The
RSI of 60 is not yet over-extended to the upside, while
other momentum indicators are mixed.
• USD/MXN has also broken above the 200-day MA,
currently at MXN13.03. Immediate resistance is at the
recent high of MXN13.30. The next significant resistance
is some way to the upside at MXN14.05 (December high)
and MXN14.31 (November high).
• Downside USD/MXN support is at MXN13.02 (recent
low), MXN12.55 (February low) and MXN12.24
(September low).
Positioning/Flow Watch
Data Watch
• S
peculative Mexican peso longs were at 72K contracts
as of early April, little changed from a month ago and
around half of their 2011 peak.
20 Apr
Unemployment rate (Mar)
23 Apr
Retail sales (Feb)
24 Apr
Global economic indicator (Feb)
27 Apr
Trade balance (Mar)
2 May
Manufacturing and services PMIs (Apr)
8 May
Gross fixed investment (Feb)
9 May
CPI (Apr)
14 May
Industrial output (Mar)
16 May
Bank of Mexico Inflation Report
17 May
GDP (Q1)
Central Bank Watch
Current Rate: 4.50%
Next Announcement: April 27
Forecast: No change
Wells Fargo FX Express™ - Monthly Asia
Indian Rupee (INR)
Outlook: The rupee weakened in March on the back an increase in global
risk aversion. An additional negative are rising oil prices which could delay
central bank easing needed to support economic momentum. However,
given the recent signs of a moderate global growth pick-up and with
financial market liquidity conditions still very accommodative, the rupee
should return on a path of moderate appreciation in the coming months.
Recent Events: February industrial output quickened to 4.1% y/y while
March wholesale inflation eased to 6.89% y/y. The Reserve Bank of
India cut its repo and reverse repo rates by 50bp to 8.00% and 7.00%
respectively, while leaving its Cash Reserve Ratio unchanged. The Finance
Ministry’s March budget announcement projected a decline in the 2013
fiscal year deficit to 5.1% of GDP from 5.9% in 2012.
Indonesian Rupiah (IDR)
Outlook: The rupiah is back to square one after reversing its early 2012
gains. With risks of further monetary easing diminishing, the growth
outlook resilient and the current account neutral, we see domestic
fundamentals as broadly currency supportive. As we see global market
conditions relatively constructive as well, there is scope for rupiah gains.
Recent Events: February exports slowed to 2.2% y/y while consumer
confidence slipped in March. The March CPI quickened to 3.97% y/y
at the headline but slowed to 4.25% y/y at the core. Indonesia’s central
bank left its policy rate unchanged 5.75% and said that it needed to be
“vigilant” on inflationary pressures, in part stemming from a possible
hike in fuel prices.
Philippine Peso (PHP)
Outlook: The peso is one of the strongest Asian currencies in 2012
and we see a number of domestic and global factors supporting further
gains. The current account is in surplus, supported by strong exports
and steady remittances flows, while there is relatively little risk of further
central bank easing. A dovish Federal Reserve stance is an additional
positive for the peso.
Recent Events: February exports jumped by 14.6% y/y on stronger demand
for electronics products, while February overseas remittances quickened
to 5.8% y/y. The March CPI slowed to 2.6% y/y. The central bank should
leave its policy rate unchanged at 4.00% at the April meeting. Accelerated
spending to support the economy is expected to lead to the budget deficit
widening to 2.6% of GDP in 2012, from 2.2% in 2011.
Malaysian Ringgit (MYR)
Outlook: Activity data has picked up while inflation has slowed,
suggesting there is little room for either a rate cut or a rate hike at
the moment. Meanwhile, Malaysia’s sizeable current account surplus
and elevated oil prices provide ongoing support to the currency.
Acknowledging some political risks from the upcoming elections, we
nevertheless see the ringgit maintaining its role as one of the stronger
regional performers.
Recent Events: February industrial output quickened to 7.5% y/y while
exports quickened to 14.5% y/y. The February CPI slowed to 2.2% y/y, a
fourteen-month low. The central bank last left rates unchanged at 3.00%
and recently said that GDP growth will slow to 4%-5% in 2012.
April 2012
Wells Fargo FX Express™ - Monthly Emerging Europe, Middle East & Africa
Czech Koruna (CZK)
Outlook: We see the koruna as steady versus the euro but weaker against
the greenback. Continued fiscal prudence is a positive – the government
recently agreed to savings that will reduce the budget deficit below 3% of
GDP next year. The economy is subdued however and the central bank on
hold – factors which will keep the koruna in check.
Recent Events: The central bank held interest rates at 0.75% for a fifteenth
straight meeting in March. CPI inflation quickened to 3.8% y/y in March,
boosted by a January indirect tax hike. Economic growth remains sluggish,
with Q4 GDP falling by 0.1% q/q and slowing to 0.6% y/y. February
industrial output firmed to 4.7% y/y, but retail sales eased to 1.6% y/y.
Hungarian Forint (HUF)
Outlook: We expect further weakness in the forint versus the euro and the
dollar. Talks between Hungary and the EU/IMF on financial aid have yet to
begin, with Hungary stalling on the pre-conditions needed for those talks
to start. Adding to this uncertain backdrop, a weak economic growth/high
interest rate environment is likely to be a drag on the Hungarian currency.
Recent Events: Hungary’s Q4 GDP slowed to 0.3% q/q and was steady at
1.4% y/y. The decline in February industrial output quickened to 3.4% y/y,
while January retail sales slowed to 0.6% y/y. The March CPI eased to 5.5%
y/y but, with inflation still well above target and, given concerns about
forint weakness, the central bank is likely to hold its benchmark interest rate
at 7% for some time.
Polish Zloty (PLN)
Outlook: We expect the zloty’s strength to resume following recent
corrective weakness. The economy remains resilient overall despite some
slowing in manufacturing and, with inflation still elevated, the central bank
has a bias towards tightening. A calming in the European debt crisis would
reinforce the outlook for zloty gains.
Recent Events: Economic activity remains resilient. Q4 GDP firmed
slightly to 4.3% y/y, while February retail sales eased to 13.7% y/y. February
industrial output slowed more noticeably to 4.6% y/y, while the March
manufacturing PMI fell to 50.1. The March CPI slowed to 3.9% y/y, but
remains above the central bank’s target, while the February core CPI eased
to 2.6% y/y. Poland’s central bank held rates at 4.50% in April, but warned
that rate hikes could be possible in the near future.
Latin America
Chilean Peso (CLP)
Outlook: We are positive on the peso, despite its recent setback. The
economy has firmed, while the central bank also raised its 2012 GDP
growth and CPI forecasts. A swing in market expectations from possible
rate cuts to eventual rate hikes should support the peso, while an
improvement in global sentiment would also be currency positive.
Recent Events: Q4 GDP firmed to 2% q/q and 4.5% y/y, while the February
economic activity index firmed to 6.1% y/y. February retail sales firmed
to 12.4% y/y, while manufacturing output was steady at 4.8% y/y. March
consumer prices slowed to 3.8% y/y, while the core CPI also eased to 2.6%
y/y. The central bank held its overnight rate steady at 5.00% for a second
month in March.
April 2012
Wells Fargo FX Express™ - Monthly April 2012
Disclaimer
The views and opinions expressed in this publication are those of the Currency Strategy Group and are not necessarily
consistent with those of the management of Wells Fargo Bank. Our information is based upon diverse sources that we believe
to be reliable, though the information is not guaranteed. Wells Fargo & Co. and its affiliates do not assume any liability for any
loss that may result from the reliance by any person upon the information or opinions expressed in this publication. Opinions
expressed are based on the experience and analysis of the Currency Strategy Group, and are subject to change without notice,
are for general information only and are not intended as an offer or solicitation with respect to the purchase or sale of any
security or any foreign exchange transaction, or as personalized investment advice. Wells Fargo may maintain long or short
positions in, and buy and sell, the securities and currencies mentioned in this publication.