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Forex Market UpdateBig USD comeback as the French Finance Minister comments on EUR strength.
French Finance Minister Breton said that "they will do everything" to prevent more EUR/USD gains igniting a large USD correction. Generally, risk aversion was the theme again in many markets.
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ US Core CPI out at 0.3% versus 0.2% expected
â€˘ Bank of England Minutes shows 6-2 vote for unchanged, 1 to cut and 1 to hike.
â€˘ UK ILO Unemployment rate out at 5.2% versus 5.1% expected.
â€˘ Euro-Zone core CPI out at 1.5% on the yoy vs. expected 1.4%, headline CPI on the MoM out at 0.7% vs. 0.6% expected.
â€˘ Canadian TICS data stronger than expected, as was wholesale sales
â€˘ Australia weekly wages rising more in Feb than previous month.
â€˘ Japan - Tokyo Department Store Sales falling 0.5% in April. The fall in Nationwide sales is 0.6%.
USD regained strength across the board yesterday as comments from the French MoF Breton started an avalanche of USD short covering with his comments, that â€śthey will do everything to prevent more EUR gains.â€ť.
Breton's comments were not a surprise given past statements, where he has stressed the need for Asia and the US to do something to address global imbalances. In the wake of the G7 statement April 21, Breton said, â€śThe Eurozone is absolutely not responsible for these imbalancesâ€ť.
The Financial Times in an article says that, those who expect the bank to move early also expect it to move fast. Interest rates futures suggest the market has priced in a second rate rise this year, bringing the composite increase to 0.5% points and expect 3 or 4 hikes of 0.25% next year. Analysts however are seeing a June rate hike as less likely and expect that the Bank of Japan want to see the July Tankan report first.
THEMES TO WATCH â€“ UPCOMING SESSION
This move yesterday has likely cleared some USD shorts and the next sessions will show if the market has the strength to continue. Still we will not be concerned about more prolonged USD strength unless 1.2660/1.2690 support area is compromised. Also keep a close look at 111,50 USD/JPY and 1.8735 GBP/USD.
Remember to keep stops close in this environment, or alternatively buying FX options to play the short term direction.
Further, a close eye should be kept on the emerging currency markets as well as the metals market. Nervousness in these markets may spill over to the majors and create a flight to safety.
Todayâ€™s economic releases include UK Retail Sales at 830GMT, a speech by FEDâ€™s Bernanke at 1330GMT, US Leading Indicator at 1400GMT and US Philly FED at 1600GMT.
Note: the support/resistance levels used in the matrixâ€™s of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
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