The pound rebounded sharply after weakening throughout Asian trading where it fell to as low as 1.4822 before it soared over 140 pips. The bullish sentiment strengthened despite the DCLG house price index showing a 12.3% drop in values, which was the largest on record.
[B]Talking Points
• Japanese Yen: Briefly Break Below 200-Day SMA
• Pound: Higher Despite Falling Home Prices
• Euro: Found Support At 100-Day SMA
• US Dollar: CPI and Fed Beige Book On Tap[/B]
[B]Sterling Remains Supported Despite Home Prices Continuing To Fall, Will U.S. CPI Spark Risk Aversion? [/B]
The pound rebounded sharply after weakening throughout Asian trading where it fell to as low as 1.4822 before it soared over 140 pips. The bullish sentiment strengthened despite the DCLG house price index showing a 12.3% drop in values, which was the largest on record. The February 9th high of 1.4988 has been a staunch form of resistance and could once again limit upside potential. However, a break above there would leave the January 8th high of 1.5375 as the next target. We may continue to see sterling support as the BoE has started to see success from their quantitative easing efforts. After a slow start the central bank reported that its weekly purchase efforts on Tuesday were met by three times as many offers. As they continue to pump money onto the system borrowing costs should continue to fall which is expected to help bring an end to the worst housing crisis since the Great Depression.
Euro continues to be weighed by the risk aversion that is currently permeating markets and the uncertainty of the future course of action from the ECB. The single currency fell to as low as 1.3203 before finding support at the 100-Day SMA which continues to hold firm and may limit downside risks. However, bullish sentiment has been limited as traders continue to fear that the central bank will need to take more aggressive actions going forward which may include a reduction of their benchmark interest rate and quantitative easing measures. Indeed, today’s German wholesale price index release added to deflation concerns as it showed a 0.9% decline in prices –the largest in 22 years. Unlike the BoE which has maintained that inflation would undershoot their target and have taken significant measure to combat possible deflation, the ECB has maintained that it is not a concern of theirs and has continued to take their deliberate approach to monetary policy. ECB member Axel Weber was on the wires today confirming the committee’s stance when he stated that “I’m critical of reducing the main refinancing rate below 1 percent” as it would discourage interbank lending. The comments have provided some Euro support which push the EUR/USD to as high as 1.3267.
The Yen fell to as low as 98.155 which sent it briefly below the 200-Day SMA at 98.91 before a reverse in sentiment would push it back above the technical indicator to 99.15. A clean break below could set the dollar/yen up for a larger move lower which could be the case today if we see fundamental data and corporate earnings fuel risk aversion. Upside potential for the pair may be limited until the government reveals the results of their bank stress testing. The uncertainty of the outcome has started to push equity traders to the sidelines and may remain a supporting factor for the yen.
Inflation in the U.S. is expected to fall to the lowest level since 1954 as the current recession continues to drag consumer prices lower. Forecasts are for CPI to fall to -0.1% in March from 0.2% the month prior which will raise deflation and growth concerns. Considering the sharp drop in [producer prices that we saw yesterday which fell 1.2% in March, we could see a greater than expected decline which could add to recent dollar support. Domestic and global growth concerns have fueled risk aversion flows which may continue today after Intel’s dour earnings report. However, we have seen sentiment start to reverse during European trading and U.S. futures have crept into positive territory which is putting pressure on the greenback. Net long-term TIC flows and the Fed Beige book are also indicators to watch as they have potential to impact risk appetite.
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Forex Trading Weekly Forecast - 04.13.09
[I]To discuss this report contact John Rivera Currency Analyst:[/I] [email protected]
