Market Review for May 8

After Tuesday’s European currencies doubt once again went on the mend. The lack of economic events restrained dynamics, however, we still observed a slight strengthening of demand for risk. As a result, EUR/USD ended the day near 1.3160 ​​and GBP/USD — in the area of ​​1.5510.

EUR/USD for a few days remained locked in a narrow range of 1.3050 — 1.3150, as the two divergent flow of shorts and longs are almost equal in terms of. However, yesterday published data on industrial production in Germany was supported by a positive, reflecting an unexpected increase of 1.2% compared with an expected decline of 0.1%. By evening, the demand has increased due to a couple of conversations about what the ECB will start to buy «bad debts» of Southern Europe to ease the situation with lending. A pair of opening level 1.3077 grew to a maximum of 1.3193, closing the day near 1.3060.

GBP/USD has followed the path of European colleagues, without having to hand their own catalysts. American session helped the pair to reach 1.5590 high, but the closing of trades occurred at the level of 1.5550.

AUD/USD was terrified anticipation of Chinese Trade Balance Report and in the morning said at least 1.0154, but higher than the forecast figures released cheered pair. The surplus was 18.2 billion from 15.5 billion projected that several eased fears over further cooling of the economy the main trading partner of Australia. The pair opened the day at 1.0182 and the day came back to the area of ​​1.0200.

Forecast for Thursday, May 9, 2013

EUR/USD balances within a fairly narrow range as traders can not determine the direction. The bears are betting on further easing of monetary policy by the ECB, and the bulls are confident that the worst is behind us, and the yield of Japanese investors from national bonds will help support Europe’s bond yields at low levels. However, yesterday the scales from Long yet outweighed, and blame to a new wave of talk about what the central bank E-17 will be able to save the situation by pouring more liquidity into the economy, and not resorting to the printing press.

Yesterday in the German media articles appeared that the ECB is considering the option of buying the «bad» loans in Southern Europe, to ease conditions for banks to peripheral countries. If this is confirmed, and will be a more detailed implementation plan conceived in the short term, it can support the demand for the EUR/USD with a probability of 1.32 and a breakthrough targeting 1.3240, that seen on May 1. However, we’ve learned that the ECB does not hurry up with all sorts of solutions, so that after a short wait a couple returns to the 1.30 support — we still have a bearish sentiment.

And another interesting topic, which has a long history, but received a second wind a few days ago. «Currency war» reached its climax, probably, yesterday, when we learned that the Reserve Bank of New Zealand intervened in the foreign exchange market in order to reduce the cost of «kiwi». And mind you, this is at a high enough rate, which could still be lower, ie, CB clearly wanted to achieve their goal (a cheaper currency) as quickly as possible.

So, the circle is complete. The Fed has long been pumped into the markets of liquidity, the Bank of Japan announced an unprecedented leniency literally in March, the ECB followed the «gentle way» last week, and brought the RBA interest rate to a 50-year low on Tuesday. Now everything is almost equal (with the exception of the Bank of England, which lingers with additional mitigation), so GBP good potential to strengthen over the medium term, and among other currencies stronger will be the one whose bank will be less radical.

Finally, we turn to the economic events of today that can produce at least some effect on the markets. UK publishes data on industrial production. If the figures will surprise again taller than the predicted values, GBP / USD may again try to test 1.56. From the Bank of England did not expect, as recent data of the Central Bank to refrain from any action. In case of breaking 1.56 mark next goal will be 1,5640.


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