USD/JPY Still Softer

We saw the USD hit hard this afternoon during and following Ben Bernanke’s testimony. In some instances, like the EUR/USD, we are starting to see some profit taking and mild retracements of earlier upward moves. However, the in the case of the USD/JPY we are seeing no recovery yet as the USD continues to sell against the JPY. After breaking through old support levels at 81.61, we see no significant levels below which could indicate possible support until 81.254; the 100% retracement line on the move from Tuesday’s low to yesterday’s high.

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Commerzbank: German exporters expect euro to fall

According to Commerzbank’s monthly survey of German exporters, the majority of respondents still think that the single currency will soon drop.

The sentiment of German companies about euro has worsened this month in comparison with March: 66% of participants now expect EUR/USD to fall during a year, while last month this figure accounted for 46%.

As a result, the bank says that if the current uptrend for the pair doesn’t reverse in the coming months, some firms may record significant losses.

Respondents also expect the single currency to fall versus Swiss franc, pound, Polish zloty and Russian ruble.

Chart. Daily EUR/USD

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UK economy went out of the dip

According to the data released today, UK GDP added 0.5% in the first 3 months of 2010 after losing the same amount in fourth quarter of 2010. Analysts at Capital Economics claim that British economy has only reversed the dip without going forwards.

As a result, the opposition’s criticism of the government's austerity measures is likely to strengthen, while the possibility of the BoE rate hike may decline though inflation twice exceeds the central bank's 2% target.

Never the less, pound managed to gain on the news as investors were preparing for worse outcome, says Danske Bank. The market was also pleased with the encouraging readings of the key indicators that showed the 0.9% quarter advance in services and 1.1% manufacturing growth. The weakest link was the construction that contracted by 4.7%.

Resistance levels for the pair GBP/USD are found at 1.6600 (April 21 maximum), 1.6715 (December 2009 maximum) and 1.6750 (November 25/2009 maximum). Support levels are situated at 1.6550 (April 25 maximums), 1.6515/20 (previous day maximum) and 1.6430 (April 26 minimum).

Chart. Daily GBP/USD

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Analysts increase forecasts for Aussie

Australian dollar reached today the record maximum at 1.0852 as the CPI data showed that inflation rate increased by 1.6% in the final 3 months of 2010 from the previous quarter, making the biggest advance since 2006. As a result, the expectations of the Reserve Bank of Australia’s rate hike have strengthened.
In addition, Aussie benefited from the speculation that US FOMC will keep the interest rates at the minimal 0%-0.25% levels.
Analysts at Bank of America Merrill Lynch think that Aussie may add more in the short term. In their view, the market doesn’t have much rate rises priced in at least for the next few months.
Specialists at Ueda Harlow think that the pair AUD/USD may strengthen to $1.10. Economists at Commonwealth Bank of Australia raised their forecast for the Australian dollar. The analysts now expect Aussie to climb to $1.12 by the end of September, before declining to $1.04 at year-end. Earlier the bank projected that the pair will decline to 0.9400 by the end of September.
According to the Credit Suisse Group AG index based on swaps, the RBA will lift up the borrowing by 26 basis points in the next 12 months.

Chart. H4 AUD/USD

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Barclays Capital: Canadian dollar forecast

Canadian dollar added 11.8% versus the greenback since the end of June reaching $0.9453 on April 21, the maximal level since November 2007.
Analysts at Barclays Capital think that loonie may climb even higher. In their view, Canada’s currency will show the best results among the commodity currencies such as Australian and New Zealand’s dollars as those nations more depend on China the growth of which may slow. In addition, Canadian economic growth is gaining pace and the specialists expect the bank of Canada to conduct 2 rate hikes this year.
Barclays warns, however, that later sluggish productivity growth and troubling current account deficit will come into focus. There’s also the evidence that loonie's strength is affecting exports of some goods to the United States. As a result, in the longer term USD/CAD may reverse its downtrend.
It’s also necessary to note that, according to The Economist's Big Mac Index based on the purchasing power parity Canadian dollar may be overvalued by at least 12%.

Chart. Daily USD/CAD

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Bullish AUD/NZD met with resistance at 1.3425

Upon the release of Australian CPI data this Wednesday, the AUD/NZD was taken to session lows at around the 1.3320 level (50% retracement of the rally between 1.3388/1.3446) before spiking higher, recording a 4 day high in the 1.3425 zone. The pair is now consolidating below this level and is currently trading in the 1.3410/20 area, 30 pips above the daily open.

The Australian currency can now be seen strengthening throughout the market. The AUD/CAD broke above the 1.0270 level and is quoted now at 1.0290, but not before climbing to an all-time high of 1.0322. AUD/JPY presents a bullish tone and is edging higher from its daily open at 87.86, quoted now just below the 88.30 area. And the AUD/USD is slowly grinding higher, now trading at 1.0830, more than 40 pips above its opening price.

Support levels (AUD/NZD): 1.3395, 1.3375, 1.3365 Resistance levels (AUD/NZD): 1.3425, 1.3445, 1.3463

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Juergen Stark: it’s vital to avoid debt restructuring in euro zone

European Central Bank Chief Economist Juergen Stark claimed in the interview to German TV station ZDF that debt restructuring euro area member state may lead to more severe consequences than those of the Lehman Brothers bankruptcy that market 2008 crisis. In his view, such move would result in new banking crisis failing to solve the budget and structural problems in individual nations.

According to Stark, the county that restructures its debt risks being thrown out of capital markets and foreign financing for an unforeseeable time.

The economist is sure that the only way out for the indebted European economies is to conduct fiscal reforms and fully repay their debts.

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