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Pound is hurt by the news flow
British pound is slapped by very poor retail sales data: the index contracted in April by 2.3% (the biggest decline since 2008) after adding 2% in March.
Also note that the MPC released its May meeting minutes. The essentials are:
-BoE is prepared for another round of QE, but doesn’t want to hurry as inflation will remain above the target 2% level in the medium term.
-David Miles dissented from the majority opinion and voted for more QE (25-billion-pound increase).
-Decision to keep rates unchanged at 0.50%, as expected, was unanimous.
-The MPC would continue to monitor the outlook each month and further monetary stimulus could be added if the outlook warranted it.
GBP/USD hit $1.5673, the minimal level since the mid-March after breaching 200-day MA yesterday. Technical analysts at Commerzbank claim that the next target for sterling on the downside lies at $1.5599 (March minimum).
EUR renewed 2012 minimum
Today EUR/USD slid to $1.2614 renewing the year's minimum. Then euro managed to recover to $1.2650 helped by option buyers. Experts say that there is a barrier at $1.2600 with likely stops just beneath ahead of more sell stops through $1.2580.
Commerzbank notes that if we see a sustainable bearish breakthrough below $1.2624 (previous 2012 minimum), EUR/USD will head to support at $1.2530 and $1.2066. Resistance lies at $1.2750 (May 17 maximum). In the longer term the outlook for EUR/USD will remain bearish as long as it’s trading below $1.2875/1.3000.
On the fundamental part, Morgan Stanley claims that “very little is likely to come out of this summit... The pressure remains on the downside in EUR/USD and any rebounds will be sold into in this environment.”
Bank of America: EUR/JPY may gain
According to Bank of America, the common currency may reach its highest level against the Japanse yen in almost three weeks.
Analysts expect EUR/JPY to strengthen in a short term to 105.80 yen (50% Fibonacci retracement of a decline from March 21 maximum to May 18 minimum). In their view, the euro is looking oversold (14-day RSI is close to 30, signaling the downtrend may reverse) Since the end of March the euro has declined 8% versus the Japanese currency.
AUD/CAD: technical comments
According to the Organization for Economic Cooperation and Development (OECD), euro zone’s debt crisis may spill over outside the euro area with very serious consequences for the global economy
The OECD left its 2012 growth forecasts for 34 member-countries unchanged at 1.6% (euro zone’s concerns were offset by the improving prospects of the U.S. economy).
The OECD’s report recommends the ECB to be ready to resume quantitative easing if the situation in the euro region worsens. According to economists, declining inflationary pressure gives space for monetary stimulus.
Table. OECD GDP growth forecast for euro region
Yen strengthened as BOJ refrained from easing
The Bank of Japan has chosen not to deliver more monetary stimulus this month. The central bank kept benchmark rate unchanged at 0.1% and announced no additional bond purchases (the size of asset-purchase fund remained at 40 trillion yen ($503 billion).
According to the BOJ, Japanese economy is vulnerable due to the strong uncertainty over the global economic prospects and concerns about the euro area. Japanese monetary authorities assure the markets that they are ready to act if markets become destabilized and yen makes a new spike.
The lack of easing made yen to strengthen versus all of its major peers. In addition, Japan’s trading deficit narrowed from 0.62T in March to 0.48T in April – another driver for Japanese currency.
Yesterday Fitch cut the nation’s long-term foreign and local currency issuer default ratings to A+ with negative outlooks citing high rising public debt ratios. However, the downgrade didn’t have much impact on USD/JPY as most Japanese government bonds (JGB) are domestically owned.
Analysts see the next move to more easing in July after the central bank releases its economic forecasts. NLI Research Institute points out that “Japan is likely finding it more difficult than before to intervene in the currency market given international pressure, so if the yen spikes to around 77 to the dollar, the BOJ may act first through monetary policy to weaken yen.”
The pair USD/JPY is trading within gently sloping downtrend since the end of March.
AUD/CAD: technical comments
AUD/CAD keeps trading in a downward channel since January. Last week a bullish correction followed the break below parity, but the bulls were unable to reverse the long-term downtrend.
However, analysts at RBS see the potential for the pair’s upward reversal. The specialists underline that the pattern resembling such reversal model as “doji” was formed last week (see the weekly chart). In their view, the value of this observation increases as the market is trading in oversold conditions (14-week RSI is close to 30).
According to RBS, one may go long on AUD/CAD at $1.0060. The bank recommends increasing positions if Aussie overcomes 1.0112 (May 17 maximum). Bullish targets lie at 1.0430 onto 1.0557, while stops may be places around 0.9890.
In our view, the picture on the daily and weekly Ichimoku charts is still too negative. We advise you to bear this trade in mind. If the pair rebounds in the 0.9925/00 area (and support looks solid enough), don’t hurry and watch for the parity level. If the rate overcomes 1.0000, get ready to follow the lead of RBS.
- 0.9943 (38.2% Fibonacci retracement of a 2010-2011 growth);
- 0.9925 (support of a channel);
- 0.9913 (2009 maximum, 100% Fibonacci retracement of a 2009 growth).
- 0.9977 (May 15 minimum);
- 1.0175 (resistance of a channel);
- 1.0000 (parity);
- 1.0207 (double top in 2010);
- 1.0430 (100-day MA, 123.6% Fibonacci retracement).
JPMorgan: forecast for fx majors
According to analysts at JPMorgan Chase, the greenback is likely to strengthen versus its major counterparts as a “safe-haven” against the backdrop of possible Greek exit from the euro zone. Analysts expect the economic slump in China and in the U.S. to weaken commodity currencies as the prices will fall. Japanese yen is the only currency that is expected to appreciate against the dollar.
Specialists sharply lowered their forecasts for EUR/USD to $1.22 in Q2 and to $1.24 by the end of 2012. USD/CAD is forecasted to reach C$1.04 by mid-year AUD/USD may fall to $0.96, while NZD/USD – to $0.73. USD/JPY, however, may weaken to 78.00 yen in Q2.
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