EUR/USD: The USD came under heavy selling pressure after the G7 meeting, which combined with the increasing slope of the US yield curve and rising oil prices as well as Central Bank diversification are likely to keep the currency under pressure. The technical charts are showing a clear sell signal since last week and once the 1.2420/55 near term resistance area is cleared, then the coast will be clear for an assault on the next objective of 1.2550, where we would advise profit taking on longs, or max. to 1.2590/1.2615. A clear break above 1.2615 will lead the way for a test of 1.2640, then 1.2690, the high since May ‘05. On the downside, if the 1.2420 becomes the near term top, then expect a corrective decline to 1.2340 (Friday NY close) or 1.2270, which is a very good level to load up more on euros. Anything below 1.2270 is likely to delay the major euro rally by first calling for a test of 1.2180, which we expect to hold.
USD/JPY: The yen rallied sharply after the G7 meeting, which called for greater flexibility in exchange rates in emerging Asia. Interestingly, Trichet today also mentioned the need for an ‘orderly and appropriate’ adjustment in fx rates. He reaffirmed the call for Japan to take steps to boost domestic demand. Clearly European policy makers are concerned that Europe will pay much of the brunt of a USD decline. A broad-based weakening of the USD is more accepted. The gap in USD/JPY has yet failed to be filled and given that the market is net short JPY (the latest IMM report shows the market having a net short 41,141 contracts as of 18th April vs. 54,471 contracts the previous week), USD/JPY could see further downside potential. A break of the previous low at 114.05 is seen opening the way for further decline to 113.40, then 113.00 while on the upside, rallies are seen limited to 116.25/55.
USD/CHF: The dollar has formed a near-term base at 1.2655, which needs to break in order to open the way for a quick move to 1.2550/60 where we intend to take profit on our short dollar positions. Only a clear close below 1.2550 would indicate more dollar weakness to 1.2400, then 1.2240 the low since Sept. ‘05. On the other hand, if the 1.2560 support is not given, then expect a rebound to 1.2780 and possibly 1.2810, while heavy res. at 1.2875 is seen capping the upside.
GBP/USD: Sterling has having a difficulty to break through 1.7940, which has been holding since Jan ‘06 and has been tested three times including this week’s high. Break of 1.7940 sees a move to 1.8090, then 1.8150 beyond which its wide open for a move to 1.8430. Otherwise, if the 1.7940 res. does not give way, expect a retracement back to 1.7820, then 1.7730, with more support seen at 1.7670 to 1.7610.
Disclaimer: The recommendations on this page are for indication purposes only and the Financial Mirror does not take any responsibility for investment action taken on the above. Always consult a professional before investing.
