EUR/USD continues to plunge. My end of week forecast of being in the 1.27s has come around
a little quicker than I thought. We’ve been as low as 1.2684 in early European
trade this morning. The downtrend still remains however I expect a lot of
resistance around the 1.2630/50 level (where we bounced last time around
mid-January). If however, further negative EUR news persists then we may indeed
push through this level opening the downside to the psychological level of 1.25.
After a session low of around the 1.2680 region we’ve traded around the 1.2730 level
as risk aversion seems to be off the table this morning. I expect us to be back
below the 1.27 in today/and tomorrows trading sessions. We’ll have some
retracement on an intraday basis and we’ll see some upside movements on data
releases etc however I fully expect EUR/USD to push lower.
So what of GBP/USD? We’ve broken through the 1.60 level thus negating the range
bound trading we’ve had lately. I’ve stated numerous times in the past few
weeks that we’re too high on Cable. The fundamentals of the US will continue to
improve and I expect dollar strength for the rest of the year. Short term (end
of month) my target for GBP/USD is 1.58. We’ve been as low as 1.5935 in London
trading however after the release of surprisingly strong UK labor data we
pushed up to around the 1.5985 level with a sharp 25 pip rally. A consensus of
a rise to 5000 claimants was expected however there were 13700 less claimants
in April. The previous months figure was revised showing 5400 less claimants
were registered instead of a rise of 3600 in April. Most surprisingly of all
however was the drop in the unemployment rate to 8.2%.
The good news on GBP/USD will prove to be short-lived. The main event of the day
has been the BoE Quarterly Inflation Report. There is pressure on BoE Governor
Mervyn King to explain why policy makers stopped expanding stimulus for the
economy last week (QE). It’s expected that UK unemployment probably rose to a
16 year high in the first quarter. We’ve seen a retracement on GBP/USD so if
you’re a seller of USD against GBP I’d look to work a market order around the
1.59 level and try and take advantage of any downwards move over the next few
days. Mervyn King will outline the BoE economic forecasts and go over the
decision on 10th May to halt QE. With further deterioration of
demand from the Eurozone it’s hurting the UK economy in its attempt to
rebalance and this is the reason why I think we’re in for further declines on GBP/USD.
GBP/EUR printed fresh highs at the 1.2575 level this morning. We’ve dropped off
slightly (on the back of stronger CPI figures out of the EMU – 1.6% against
forecast of 1.5%) however we’re looking quite settled now above the 1.25 level.
For those of you that secured your requirement at 1.25 as suggested now look to
‘average up’ your rate on a spot basis and then look to work another market
order at the 1.2575/1.26 level. Alternatively, look at an ‘oco’ at 1.25 and
1.26 to offset your risk and take advantage of further EUR weakness. Contact me
to discuss these options and look to put in a place a strategy that allows you
to take advantage of the recent sharp moves in the currency market.
Fairly quiet across the pond this afternoon with the main price action happening in
the European session. We have the FOMC (Federal Open Market Committee) minutes
out at 19.00pm (UK time). It’ll be interesting to hear the comments on the
economic and financial conditions in the US.
Written by Liam Alexander, Axia Fx
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