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FOREX: Major Currencies Consolidate, Dollar to Resume Rally Next Week

FOREX: Major Currencies Consolidate, Dollar to Resume Rally Next Week

2011-05-20 05:51:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Swiss Franc, Japanese Yen Outperform in Quiet Overnight Trade
  • Bank of Japan Keeps Monetary Policy Unchanged as Expected

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4232

1.4415

GBPUSD

1.6159

1.6349

The Euro and the British Pound were little changed in overnight trade. The single currency oscillated in a narrow range near 1.43 to the US Dollar while Sterling consolidated below 1.6240 to the greenback. We are looking for EURUSD and GBPUSD selling opportunities and remain long USDJPY.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Net Migration s.a. (APR)

-100

-

-510 (R+)

1:30

AUD

RBA Foreign Exchange Transaction (A$) (APR)

270M

-

699M

3:00

NZD

Credit Card Spending s.a. (MoM) (APR)

1.6%

-

-1.4% (R+)

3:00

NZD

Credit Card Spending (YoY) (APR)

6.0%

-

1.6% (R+)

3:15

JPY

Bank of Japan Interest Rate Decision

0.10%

0.10%

0.10%

4:30

JPY

All Industry Activity Index (MoM) (MAR)

-6.3%

-6.1%

0.7%

Currency markets were little changed in overnight trade, with the major currencies confined to narrow ranges against the backdrop of a lackluster economic calendar and indecisive risk sentiment trends. The Swiss Franc and the Japanese Yen narrowly underperformed toward the end of the session as Asian stock exchanges managed a small advance, weighing on safe-haven demand for the former currency and spurring carry trades funded in the latter.

The Bank of Japan unanimously voted to keep interest rates on hold at 0.10 percent as expected. The bank’s asset-purchase fund and credit-loan program were also left unchanged at 10 trillion and 30 trillion yen, respectively. Policymakers kept their economic forecasts unchanged and echoed familiar sentiments, saying the economy “faces strong downward pressure” and will remain under stress “for the time being”. They added that a recovery was expected in the second half of the 2011 fiscal year. Japan formally entered into recession as growth shrank in the first quarter.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Producer Prices (YoY) (APR)

6.0%

6.2%

Medium

6:00

EUR

German Producer Prices (MoM) (APR)

0.6%

0.4%

Medium

7:00

JPY

Convenience Store Sales (YoY) (APR)

-

7.7%

Low

8:00

EUR

Euro-Zone Current Account s.a. (€) (MAR)

-

-7.2B

Low

8:00

EUR

Euro-Zone Current Account n.s.a. (€) (MAR)

-

-9.5B

Low

8:00

EUR

Italian Industrial Orders s.a. (MoM) (MAR)

0.5%

1.9%

Low

8:00

EUR

Italian Industrial Orders n.s.a. (YoY) (MAR)

15.7%

16.2%

Low

8:00

EUR

Italian Industrial Sales s.a. (MoM) (MAR)

-

1.5%

Low

8:00

EUR

Italian Industrial Sales n.s.a. (YoY) (MAR)

-

12.8%

Low

The economic calendar carries no first-tier economic releases and while indecisive positioning on S&P 500 stock index futures hints risk sentiment trends have not settled on a defined direction over the last hours of the trading week. Furthermore, the US data docket has cleared out for the week, pointing to continued consolidation through Friday’s session in European and North American trading hours.

Broadly speaking, the standstill will cap a week of corrective gains across the spectrum of risky assets after two weeks heavy losses, with the retracement relieving some oversold pressure and seemingly opening the door for renewed downside next week as the expiry of QE2 – arguably the fuel source for buoyant markets over recent months – looms ever closer. As noted in detail in our forex trend monitor, this promises to drive the US Dollar higher against the spectrum of major currencies.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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