Forex News and Events:
The week started with a poor risk appetite as the unexpected Chinese tightening of the property measures added on the top of the UK’s credit rating downgrade, disappointing Italian elections and the US sequester. The Asian equities saw heavy sell-off, while the US and European futures retreated overnight.
On the currency markets, JPY extended gains versus its G10 counterparts, GBP traded at its lowest levels since July 2010, while EUR slipped under 1.30 on the poor LTRO repayments announced on Friday.
JPY Remained Bid
In Asia, JPY and its crosses fell overnight on the back of the risk-off trading and some repatriation flows ahead of the fiscal year-end in Japan. Even Kuroda’s dovish promises were not enough to push the Yen lower overnight. The new BoJ Governor Kuroda promised to do whatever he can to reach the 2% inflation target within two years. In his speech in the parliament last night, Kuroda also added that the current asset purchases were clearly not enough to fight deflation. On the back of the verbal promises, we believe that radical policy measures are to be introduced in Japan sooner than expected.
Technically, the 1-month implied volatility is at its highest since August 2011, while the momentum indicators are clearly bullish on USDJPY. We keep our bearish view on Yen, and place our first target to 94.77 - year-high, seen on February 25th.
Euro Around 1.30
Euro has hard time to recover last week’s heavy unwind. On Friday, the LTRO repayments surprised the markets to the downside, sending the EUR below 1.2967 before recovering over 1.30 on some short-covering in Asia. This morning, we witness a fragile EUR, struggling around 1.2980/1.30 zone.
This week will give a clearer direction to Euro as we will see PMI figures tomorrow, 4Q GDP numbers on Wednesday, and ECB meeting on Thursday.
Technically, EURUSD is clearly bearish, and the negative trend deepens. MACD 50-100 day indicator signals a solid downtrend. The CFTC data shows that the speculative EUR positions decreased last week. In our view, EUR has room to the downside, as the political instability is growing within the zone, especially after the Italian anti-austerity votes last week.
Today the European finance ministers meet in Brussels at 13:00 GMT to discuss on budget cuts to solve the debt crisis.
GBP Smashes on Weak PMIs
GBP weakness deepens on the back of the weak economic data announced between Friday and this morning. UK, which saw its credit rate downgraded last Monday, is further hit by disappointing manufacturing and construction PMIs registered in February. GBPUSD slid to 1.4985 on Friday and remains under heavy pressure this morning.
According to trend and momentum indicators, the bearish trend in GBPUSD further strengthens. We remain bearish on GBP, but see limited downside before the BoE meeting on Thursday. In our view, there will probably be a further policy action in UK, and more QE should pull the sterling to lower levels. While the recent GBP weakening is expected to boost the GDP growth by 1%, the concerns on inflation should surge in the coming months.