Forex Daily News

The US dollar weakened following GDP release for the first quarter, annualized growth was at 2.5%, lower than expectation at 3.1% but higher than the revised 0.4% increase the previous quarter. US dollar index dropped back to 82.47 from resistance at 82.70. Nonetheless growth has increased in the US coupled by stronger than estimated companies’ earnings in yesterday trading placing a floor in dollar weakness as optimism improves. The greenback against the Japanese Yen declined from cap at 99.49 to as low as 98.10 due to upward growth revision in Japanese GDP by BOJ board members for 2013 and 2014 as well as CPI higher expectations for 2014 to 1.4% and for 2014 to 1.9%. However, the nationalized CPI excluding fresh food released earlier indicate decrease to minus 0.5% in March, down from -0.3% in February but the Tokyo CPI excluding fresh food rose to -0.3% in March, more than expected and up from -0.5% in February. Technically the USDJPY formed a double top pattern in the 4 hours chart and that could lead in the intraday to support at 161.8% extension at 97.83.

Elsewhere the Euro maintains its ground against the US dollar around 1.3030 ahead of next Thursday’s ECB meeting, where speculation is increasing for a rate cut. The British pound versus the US dollar inched above yesterday cap at 1.5475 amid dollar’s modest weakness.

FED’s withdrawal from aggressive monetary policy becomes less possible with CPI unexpectedly declinig. In addition, risk sentiment improved as the US equities recovered with S&P 500 closing higher by 1.43%. Yahoo, Goldman Sachs and Coke beat projections. However lid was placed on risk appetite by the IMF in its April report, reducing growth prospects for US economy also globally sees 3.3% in 2013 instead of 3.5% forecasted in January.

The common currency rose to 1.3198 against the greenback as the US dollar index weakened to 81.69, consolidating for the time being around 1.3175. Euro was broadly stronger with the EURJPY pair advancing to 129.67 and the EURGBP inching as high as 0.8635. Euro was gaining even though the IMF reduced Euro area growth to -0.3% from 0.5% in January report. Furthermore, the IMF forecasted that Italian economy will shrink by 1.5% in 2013 compared to contraction at 1% projected in January and Spain at -1.6% from -1.5% previously estimated.

In Japan, the IMF expects growth in 2013 to be 1.6% up from January projection of 0.4%, also expects inflation of 0.1% in 2013 and 3% in 2014. The Yen appreciated on Monday and Tuesday due to commodities weakening with the USDJPY falling to 95.91, nonetheless as the Gold rebounded to resistance at 1403 the currency pair surged to 98.41.

The Gold eventually rebounded to 1397 following a drop from 1565 the previous week to a more than 2-year low at 1322. Short covering induced the precious metal to pull back up approaching 38.2% Fibonacci retracement of 1565 to 1322, at 1415.

Eurozone CPI data was slightly higher than expectations as the EZ annual core inflation for March was at 1.5%, 0.1% higher than projected and up from 1.3% in February while ZEW Economic Sentiment unexpectedly dropped to 24.9 for April from 33.4 the previous month . The common currency advanced from 1.3042 towards 1.3134 in the intraday, spiking to 1 ½ month high at 1.3146. However was recently capped as IMF cutt EZ growth from 0.5% increase to -0.3%. The IMF sees contraction increase in Italy to 1.5% compared to 1% projected in January, Spain to -1.6% down from -1.5%, France will also contract instead of growing projections in January, pressuring ECB to further enhance monetary policy, as there is still room for lower interest rates and use asset purchases.

Concerning global economy the IMF said will expand by 3.3% in 2013 instead of 3.5% projected in January and reduced expectations for China, India and Brazil growth. Additionally, for the US economy also reduced growth projection to 1.9% for 2013 from 2.1% in January. US annual CPI (all items) was at 1.5% in March, 0.1% lower than forecast and down from 2.0% the previous month, decreasing chances for QE withdrawal. All that, set pressure on the US dollar index that inched to 81.96, however positive US Housing Starts and Industrial Production supported the greenback.

US Federal Reserve released the minutes of its meeting on March 20 revealing that expects economic growth will proceed at a moderate pace and the unemployment rate will gradually decline while inflation is anticipated to remain around 2% in the medium- term. The FED restated that will continue highly accommodative policy, implying $85 bln asset purchases per month and key interest rate at 0-0.25% until unemployment rate remains below 6.5% and inflation 2-year projections are not exceeding 2.5%. One member voted against the continuation of this monetary action and other members voted for this. Traders should have in mind that the meeting took place two weeks before the latest NFP report that created concerns about improving US labor market. Therefore, raising chances that current status of FED QE to remain longer than before sluggish NFP report.

USDJPY after meeting minutes spiked above 99.64 but quickly retreated lower. In general today currencies have been trading steady without much fluctuation. Nonetheless during Wednesday’s Asian session the Australian Dollar was further supported by Chinese Trade Data that reported deficit in March of $0.88 bln due to import increase by 14.1%. Furthermore risk appetite is improving as central banks add more stimulus, US equities continually create new highs and US earnings period initiated positively. We expect higher yielding currencies to maintain gains and even move higher.

US Non-Farm Payrolls increased by 88K in March, less than projections at 200K and down from revised 268k increase in February at the same time the Unemployment Rate decreased to 7.6%. The greenback lost broadly against its counterparties with the US dollar index spiking down to 82.26. Despite US dollar sell-off the USDCAD rose from 1.0103 to 1.0202 amid sluggish employment data also released for Canada. StatCan reported that employment declined by 54.5K in March compared to 50.7K increase in February, market consensus was at an increase of 6.8K. Canadian unemployment rate increased in March by 10 bp to 7.2% increasing selling pressure on the Canadian dollar.

The EURUSD continued the upside that started yesterday from 1.2750 passing earlier today through 1.2877 and finding cap at 1.2948 ahead of NFP. Weaker US employment data benefited the currency pair that breached 1.2948 and surged to psychological level at 1.30.

Elsewhere, the Aussie took the opposite way and dipped from around 1.0430 to 1.0376 currently trading, breaching support at 1.0385. The British pound versus the greenback jumped on fewer than estimated US jobs increase, breaching key resistance at 1.5255, the pair was lastly seen hovering above 1.53, at 1.5306.

Latest news moved the markets as ECB left key interest rate at 0.75%. Draghi said in its press conference that ECB is ready to act and that monetary policy will be accommodative as long as it needed, following that pressure on EURUSD increased. According to ECB statement, inflation remains contained below but close to 2% and economic recovery in the second half is subject to downside risks. The common currency dipped to support at 1.2750 from 1.2844 previously against the US dollar, with selling pressure threatening to drop prices lower.

US Jobless claims increased more than projected to 385K the previous week compared to 357K two weeks ago, weighing on risk sentiment and adding to selling pressure on EURUSD. In addition, AUDUSD was heavier and dipped from resistance at 1.0430 towards recent lows at 1.0402, was lastly seen at 1.0415. In addition BOE also decided to maintain its interest rate at 0.50% and the asset purchase program at £375 bln as it was expected. Investor's focus is now on meeting minutes release on April 17.

US dollar versus the Yen jumped from 92.83 this morning to cap at 95.66 following the BOJ’s monetary decision on Kuroda’s first meeting early on Thursday. BOJ adopted very aggressive measures to achieve 2% inflation in 2 years, monetary base of asset purchases will increase by 60-70 tln yen per annum and JGBs purchases will expand to all maturities up to 40 years, thus more effectively reduce interest rates.

FX markets are mostly unchanged amid bank holidays in most of European and Asian countries. The EURUSD trades sideways around 1.2810 after previous Thursdays retracement as high as 1.2844. Italy continues for more than a month in a political deadlock and that makes the currency pair heavier even after Cyprus rescue agreement. Latest developments from Cyprus indicate that the largest Cypriot bank, Bank of Cyprus (BOC), deposits above €100K could incur losses up to 60%, 37.5% already agreed to be converted into shares and 22.5% are “frozen” until further notice. In focus are Tuesday’s PMIs for Spain and Italy as well as ECB decision on Thursday.

Concerning Japanese Yen, was stronger as NIKKEI was pulled down by disappointing Tankan PMI reports and Chinese PMI data. Nonetheless USDJPY rebounded from 93.26 as investors have in mind BOJ monetary decision on Thursday. Highly anticipated first BOJ meeting with Haruhiko Kuroda in leadership could satisfy markets projection that will extend asset purchases to longer term debt as well as increase the amount of purchases. However Kuroda did not satisfy previous expectations that could have enhanced stimulus before his first meeting.

Elsewhere, ahead of BOE decision also on Thursday the EURGBP dropped to more than 2-months fresh lows at 0.8410 on thin trading but quickly retraced, it was lastly seen at 0.8430. The AUDUSD was weighed by Chinese PMI earlier today since China is the largest trading partner for Australia, sinking to 1.0385, however soon after climbed back to cap at 1.0421. Lastly, according to the latest CFTC report only Aussie maintains net long position versus the greenback among its major counterparties.

The EURUSD dropped below key support at 1.2829, trading at the time being at 1.2767 amid weaker demand on today’s Italian bond auction compared to previous one. In addition Cyprus is getting ready to open banks tomorrow with capital controls that will limit outflow of funds as part of the rescue plan agreed with troika. Bids on Italian 10Y bonds was 1.33 times today compared to previous 1.7 bid-cover-ratio, while on 5Y bonds was 1.22 compared to average of 1.4 in 2013, Italy managed to sold €6.9 bln worth of bonds, close to its upper target of €7 bln. In the secondary market Italian 10Y bonds surged by 0.13% to 4.72%. Discussions today to overcome political gridlock in Italy ended without any agreement for one more time. The euro is broadly under heavy selling pressure against its counterparties with EURGBP retreating to 0.8439 and EURJPY struggling to hold above psychological 120.00.

The sterling also followed negative path falling below 1.5135 against the greenback after Current Account deficit announced worse than expected in 4Q of 2012 while GDP contraction in confirmed at 0.3% in 4Q of 2012. In addition yesterday the weaker than expected CBI realized sales release increases downside expectation for the currency pair which found support today at 1.5092.

The EURUSD advanced to 1.3046 earlier today, positively influenced amid Cyprus bailout plan was eventually agreed between Cyprus and Troika early on Monday. Cypriot President agreed to resolve second largest Bank and split it into a good bank and a bad bank. The good bank will be folded into Bank of Cyprus while the bad bank will be run down over time, according to Eurogroup statement. In addition, Laiki deposits up to 100k will be included in the good bank while above 100K deposits of Bank of Cyprus will be subject to a loss of 30%, in that way deposits up to €100K are safeguarded. The currency pair found resistance at 1.3046 and then followed a negative path, trading now at 1.2876 due to oncerns that other south European countries will face capital outflows. Short positions are increasing heavily on the single currency that penetrated support at $1.2885 and is heading towards 4-month lows.

European indices until now are trading in a positive ground with the FTSE 100 being positive by 0.45% and DAX rising by 0.45%. US indices were also opened higher as Cyprus avoided banking collapse with Dow Jones Index inching higher around 14,560 but then losing as Eurogroup chef Jeroen Dijsselbloem stated that Cyprus bail-in and Bank restructuring plan a template for the rest of Eurozone.

The EURUSD was weaker in recent trading amid French and German PMI released lower than expected. In addition ECB said that will cut emergency liquidity assistance to Cyprus if a new bailout plan is not agreed until Monday. On the other side US Unemployment Claims reduced to 336K, less than expected 343K and almost the same like the revised two weeks ago at 334K supporting greenback. The currency pair dropped to 1.2879 approaching the 4-month low, lower levels could be seen as the Cyprus worries start to mount with the further delay of a second bailout plan.

Yen has been observed strengthening despite that Kuroda took its post in BOJ leadership and earlier today Japanese Trade Deficit widened to ¥1.09 tln. The USDJPY retreated to support at 95.02 and held its ground after Kuroda said that is confident about achieving 2% inflation, it seems that investors were expecting a more aggressive speech by Kuroda.

The Aussie against the US dollar gained ground on better than expected Chinese HSBC PMI and also on stronger US job data, rising as high as 1.0444. The USDCHF despite the improved Trade Balance remains in 0.9496/0.9428 well established sideways zone, most probably amid worries on Cyprus deal. Lastly the Cable spiked above 1.5175 as Retail Sales increased by 2.1%, significantly more than expected increase by 0.5% and much more than previous revised decrease of 0.7%.