Forex - Comments from the BoE Reverse Growing Optimism

Forex News and Events: It’s been a strong week for risky assets, with the S&P 500 having its best month since 1987. With the tight correlation between equity and FX pricing intact, currency traders will be paying particular attention to the stock markets. Commodity and emerging market currencies (lead by Asia) continue to gain, as sentiment remains positive and investors become more risk seeking. The growing optimism has been based particularly on some encouraging signs that global demand is stabilizing. Currently, global production figures downwards slide has now outpacing slowing demand and setting the stage for a rapid resurgence in output. Overall, we expect the markets’ improving sentiment to weigh on the greenback and continue to support high yielders. Gold Prices stand somewhat stagnated around $930, unable to build any serious momentum in either direction. The precious metal touched $944oz, but has since retracted gains to $932oz, which is a 50% retracement of its previous high over the last four days. In Japan, retail sales came in worse than expected at -5.8% vs. -3.0% y/y. The Japanese economy continues to falter, as worsening employment conditions and real wage decline take its toll on confidence and consumption. In addition, deflationary concerns have emerged as National core CPI inflation in February came in at 0.0% vs. -0.1% exp. The markets are expecting Japan’s inflation to fall into negative territory as the recession becomes deeper and longer than previously anticipated.. We expect JPY buying in the short term, as repatriation flows drive pricing. However, expect the trend to be short lived, as the buying activity never lives up to the hype. Today the JPY rallied across the board, pairing back recent losses and pushing the NzdJpy below the 56.33 resistance. Early in the European session (during publication), BoE MPC member Dale warned that the risks to the UK recovery are many, prospects are bleak and additional action might be needed. Combined with the revision in UK GDP data the cabled tumbled a figure and a half from 1.4450 to 1.4290. EURUSD was also pulled lower falling from 1.3550 to 1.3368. With more weak data, hawkish comments and failure of this weeks Gilt auctions we expect the sterling to be on weak footing.. In the US session, personal spending figures for February are expected to show that sales were decent considering all the downward pressure. The U. Michigan measure of consumer confidence might be revised up due in part to the recent bounce in equity markets.

Today's Key Issues (time in GMT): 09:30 GBP BoE chief economist Spencer Dale speaks at AVI Economic Research Conference 09:30 GBP GBP Current Account Balance (Q4) 09:30 GBP GBP GDP (Q4) -1.5 (-1.9 y/y) exp, -1.5 (-1.9 y/y) prior 10:00 GBP EUR M3, % y/y (3mma) 5.6 (6.3) exp, 5.9 (7.0) prior 10:30 GBP CHF KOF Leading Indicator (Mar) -1.48 exp, -1.41 prior 12:30 GBP USD PCE Deflator (Feb) 0.2 (0.6 y/y) prior 12:30 GBP USD Core PCE Deflator (Feb) 0.1(1.6 y/y) exp, 0.1 (1.6 y/y) prior 12:30 GBP USD Personal Income (Feb) -0.1 exp, 0.4 (1.9 y/y) prior 12:30 GBP USD Personal Spending (Feb) 0.2 exp, 0.6 (-1.0 y/y) prior 14:00 GBP USD Univ. of Michigan Cons. Conf. Index (Mar Final) 56.3 exp, 56.3 prior

The Risk Today: EurUsd BoE MPC member Dale comments hit the market hard with broad based USD buying. The pair has now broken below 1.3419 march 25th lows and focused on 1.3258 trend support. Intraday support stand at 1.3368 (day lows) and resistance at 1.4394 GbpUsd Bearish sentiment surrounding the sterling started with GILT failure Wednesday and was amplified by the poor economic data and Dales & Miles comments. Intraday support stands at 1.4287 (55 day MA) while resistance rests at 1.4505. UsdJpy Little movement from the European sell- off. Pair failed to overcome downward pressure, momentary spikes run out of steam in 98.22 – 98.57 resistance zone. Initial resistance at 98.57 aims for 98.99 unlocks potential for further gains. On the downside strong resistance stands at 96.93. UsdChf Sell-off in the sterling has carried over into this pair pushing through the 1.1170 - 1.1340 trading range. Yet to be determined if this deep correction in USD weakness is a short term movement or a trend reversal. Intraday resistance stands at 1.1433 while supports at 1.1280 (5day Ma).

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3740 S 1.4778 S 99.75 M 1.1728 T 1.3680 M 1.4521 98.97 1.1566 M 1.3592 K 1.4505 98.57 1.1460 1.3427 1.4317 98.10 1.1370 1.3368 S 1.4287 M 96.93 S 1.1172 M 1.3325 M 1.4174 95.58 1.1111 1.3292 K 1.4123 T 93.54 T 1.0373 K S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot