Market Review for March 21

European currencies again disagreed and directions: EUR came under pressure, and GBP was supported, but by Thursday afternoon everything was back in its place. As a result, EUR/USD ended the day in the 1.2920 and GBP/USD — in the area of ​​1.5170.

Since the beginning of the European session, EUR/USD slipped below $ 1.29 at the exit of weaker than expected data on business activity and the ongoing turmoil with banks in Cyprus. Preliminary PMI E-17 index showed a further fall below the key 50-point mark. The index in the manufacturing sector slipped to 46.6 vs. 48.2, and in the service sector — to 46.5 from 48.2. And the saddest thing is that the engine of the region Germany showed a depressing decline from the previous period, confirming the probability of a negative GDP in the first quarter. As a result, the pair opened the day at 1.2931, 1.2879 rolled down to a minimum, and recovered to the levels of the opening at the end of the trading day.

GBP/USD, on the contrary, received good support from unexpectedly strong retail sales data. Indeed, a stable labor market gives consumers the ability to increase spending, so restrained mood MPC at the moment is well founded. The pair opened at 1.5094 day, peaked at 1.5208 but failed to hold above the day and closed near 1.5160.

USD/JPY, despite the positive data from the labor market and from the industrial sector of the United States, passed the position slightly, mainly due to the dynamics of EUR/JPY. The greater the uncertainty in the eurozone, the more the desire of investors to hide in the «safe haven» in the form of yen. The pair opened day at 95.99, slid to a minimum 94.53, closing the day around 95.00.

Forecast for Thursday, March 21, 2013

ECB set a new ultimatum: support for the banking system of Cyprus will take place only until Monday, which reduces time to negotiate. Meanwhile, Russia has set other conditions, threatening that there will extend the loans. In essence, Cyprus very few alternatives. But they just thought of something. Despite the small size of the country and the contribution that it makes to the total GDP of the euro area, the collapse of the banking system could cause systemic risk, especially if the concern among investors of the other peripheral countries in the region will trigger an escape from the banks.

Economic calendar Friday rather poor. Interest are only the results of the study of trust in the business community of the German IFO. Given the fact that the sentiment indicators recently served positive signals, resonating with the data from the real economy, we would not be surprised index at or above the forecast. However, the market can completely ignore the release as market attention continues to arrest the situation in the small island nation. If the decision will not be made public, we can not rule out a new wave of selling EUR/USD in anticipation of the weekend, thus causing EUR/USD back to test 1.2860 targeting 1.2780.

GBP/USD yesterday attempted to get close to the level of 1.52, but the positive retail sales were not enough to keep the pair above indicated resistance. However, the pound sterling in the absence of economic releases from the UK may well play on the contrast. Given the more stable state of the economy, investors may pay attention to the «second European» in the repositioning before the weekend. We still can not rule out the breakdown of this resistance, with the immediate goal at 1.5260.

USD/JPY continues to remain under pressure due in part to the demand for safer assets, partly due to the dynamics of EUR/JPY, partly due to repatriation flows, traditionally strengthening yen at the end of the fiscal year in Japan. Thus, until the end of next week, the pair will be difficult to continue to grow. For now expect a further rollback pair with the immediate goal at 94.30.


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