Sterling
The pound survived a negative GDP result mid last week to post gains versus the other major currencies with the markets choosing to discount the figure in light of recent improvements in more current economic indicators.
Having rebounded so strongly following the GDP release, the pound looks to have more upside potential over the coming week, although positive results may be needed from the forthcoming Purchasing Managers’ Indexes to see significant gains.
US Dollar
The dollar struggled to make gains last week, despite renewed debt worries in Europe and the UK’s double dip recession, as the Federal Reserve reiterated its plan to keep interest rates low until late 2014 and Chairman Bernanke stopped short of taking a bullish view on the US outlook despite recent better economic data.
GBP/USD now looks like it could test $1.6425 pending the results of this week’s PMI data and the latest non-farm payrolls figure. Support is at $1.6065/80 and $1.5985.
Euro
The euro fell sharply against the pound last week as the debt crisis returned in force and Spain saw its sovereign debt credit rating downgraded two notches to BBB+ by ratings agency Standard and Poor’s.
GBP/EUR still looks like it could test the June 2010 high of €1.2392 although resilient demand for the single currency despite last week’s developments may make it slow going. The PMI data and the ECB meeting on Thursday will be the key determinants of direction, along with any developments in the debt crisis.
Despite all reasonable logic dictating that the EUR/USD rate should be below $1.3000 the rate is currently testing resistance at $1.3265. If this level holds, it should force the pair lower again, but further gains can’t be ruled out.
New Zealand Dollar
The kiwi dollar remained more or less stable versus the pound last week in a range from NZ$1.9750 to NZ$1.9950, although the upper end of that range looks to be in greater danger after the Reserve Bank said they were concerned about the currency’s strength.
Last week’s target of NZ$1.9911 was tested last Friday and should be so again over the coming days. The kiwi dollar remains on the back foot and, provided there are no unpleasant surprises from this week’s UK PMI releases, a move above NZ$2.000 should materialise in the near future.
Australian Dollar
The GBP/AUD rate tested above A$1.5700 last week, before retreating, as slowing inflation made an interest rate cut at next month’s Reserve Bank of Australia meeting much more likely.
With the interest rate cut now fully priced in, we see scope for a correction lower, targeting A$1.5478 initially with next support at $A1.5301. A$1.5700/25 will continue to provide resistance to the upside.
Canadian Dollar
The Canadian dollar has strengthened versus its US counterpart last week thanks to the prospect of higher interest rates, which has allowed it to hold station versus the pound trading in a range either side of $1.6000.
GBP/CAD tested and breached resistance at C$1.6030 early last week, but has since fallen back. Support at C$1.5896 should provide a floor, with further gains possible if the PMI data this week is strong.
USD/CAD is now through support at C$0.9865 and looking to test as low as C$0.9805 as the monetary policies of Canada and the US diverge. A dip lower still to C$0.9700 is even possible depending on the non-farm payrolls result this week.
Chinese Yuan
The yuan continued to trade in its recent ranges against the US dollar last week as continued weakness in the manufacturing sector was offset by positive comments from the Governor of the People’s Bank of China.
The wider trading band is still having no material effect. Stronger reference rates last week have not resulted in yuan appreciation, suggesting the USD/CNY rate will remain in current ranges for the foreseeable future.
Japanese Yen
Trading on the yen has been a choppy affair over the past week, with the appeal of its safe-haven status leading investors into buying the currency even as the Bank of Japan takes measures to weaken it by expanding monetary stimulus.
USD/JPY is close to support at 80.40 and looks likely to test that level again. A range is now forming up to resistance at 82.05/10 – a break of this level will be needed to confirm the pair is on the way back up. GBP/JPY also looks to be coming under pressure, although gains on GBP/USD should protect support at 128.00. Resistance remains at 132.55/65.
South African Rand
The rand made decent gains mid-week as European sovereigns managed to sell debt at various auctions and global sentiment improved as the Federal Reserve refused to rule out further monetary stimulus, only for the problems in Spain and falling domestic inflation undermined confidence in the currency.
The pound could push higher over the coming week, particularly if there is decent data out from the UK. That said, the rand still seems quite resilient and we expect the range from R12.50 to R12.75 to persist. USD/ZAR could well push further down towards 7.700.
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