Sterling
The pound finally succumbed to selling pressure last week as its new found safe-haven status proved insufficient to defend it against a worsening situation on the continent and a typically dovish Bank of England statement.
Sterling was due a correction from recent highs with further consolidation versus the euro likely before moving higher again. The dollar will likely make greater gains thanks to its genuine safe-haven status, as such GBP/USD could have further to fall if the situation in Europe deteriorates further.
US Dollar
The dollar overcame concerns about the chances of more quantitative easing from the Federal Reserve to rise strongly against the other major currencies, with the exception of the yen, as investors sought safe haven assets amidst the ongoing European debt crisis storm.
With the EUR/USD rate approaching resistance, further USD gains versus the pound could be limited; however, support at $1.5600 could be tested pending this week’s UK GDP revision. Resistance is now around $1.6000.
Euro
The euro continues to struggle as contagion fears resurface and Greece fails to form a government and looks to go back to the polls.
Although there is a feeling that a lot of bad news is now priced into the euro rate, further falls cannot be ruled out. We are approaching key support levels on the EUR/USD meaning a test of €1.2590 is likely at some point. Versus the pound, this could well result in another test above €1.2500 but further significant gains look unlikely at this point – unless the GBP number is revised higher.
New Zealand Dollar
The kiwi dollar continued to weaken across the past five days, although the pace of declines slowed following the Bank of England statement last Wednesday which brought generalised GBP weakness.
Once through NZ$2.0706, the next target became, and remains, NZ$2.1000. There is, however, a growing likelihood of a correction or at the very least consolidation of recent moves.
Australian Dollar
The Aussie dollar has regained some of its poise versus the pound last week despite soft economic data, dovish comments from Australian government officials and the ongoing debt crisis.
The GBP/AUD rate fell short of A$1.6200 and is forming a range down to A$1.5900. The upside target at A$1.6355 remains in place but the stability the Aussie has found below parity with the US dollar may prevent significant further upside.
Canadian Dollar
The Canadian dollar fell sharply against the its US counterpart last week, although it still managed to hold its ground versus sterling, as weak US economic data weighed on the chances of interest rate hikes from the Bank of Canada.
GBP/CAD pulled back from C$1.6200 as GBP/USD broke lower and is now in a range from C$1.6000 upwards. We expect this to continue through this week, with a bias towards the upside.
The USD/CAD rate will probably rise further after weakening past resistance at C$1.0097 last Wednesday. Despite a pull back today the pair should now push on to C$1.0319 – the 2012 low.
Chinese Yuan
The USD/CNY rate drifted higher last week, pushing up to 6.3300 as the euro weakened against the greenback as the People’s Bank look to protect the nation’s exporters amid slowing economic activity.
As mentioned last week, a falling EUR/USD rate was likely to lead to a weaker yuan and this is what we have seen over the past days. 6.3400 remains a possibility, although with EUR/USD approaching support and the G8 summit last weekend, any moves will be gradual.
Japanese Yen
The yen gained strongly last week as risk aversion drove investors towards traditional safe haven assets as Japan’s economic growth picked up, prompting further threats of intervention from the authorities.
USD/JPY is through support at 79.60/70, but has found some support at 79.20 in advance of the next major level at just over 78.00. GP/JPY recovered from its dip below 125.00 last week, but looks likely to struggle given the heightened risk aversion surrounding Europe.
South African Rand
The rand stabilised against the pound last week as sterling also fell versus the US dollar; however deterioration in Europe could well set the rand off again, testing the recent highs.
With the potential for the situation to get worse in Europe, the rand remains vulnerable to further falls. GBP/ZAR resistance is at R13.34/38 and R13.65. Support at R12.70.
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