Sterling
Despite a fairly heavy calendar and some significant data releases, the pound’s direction has been dictated by the EUR/USD rate in recent days, falling versus the dollar while struggling to rise versus the euro. Although the initial reaction was not pronounced, falling inflation, a deeper than expected contraction of GDP in Q1 and surprisingly weak retail sales figures will have done little to support the pound’s prospects.
The pound’s consolidation versus the euro looks likely to continue this week, with little on the calendar standing out as a market mover. GBP/USD could fall further if EUR/USD pushes lower, but the single currency seems to be finding some support, meaning recent ranges should persist – at least until Friday’s US jobs data.
US Dollar
With investors forgoing yield in exchange for perceived safety, the dollar has been gradually strengthening as the European debt crisis deepens – even with an absence of and significant US data and continuing dovish comments from the Federal Reserve.
GBP/USD has slowed in advance of support around $1.5600, with additional levels coming in with additional support at $1.5462 ahead of the year’s lows at $1.5234. Consolidation around current levels seems the more likely outcome however, as the markets await direction from Europe and the US jobs figure.
Euro
The euro fell sharply against the dollar last week as the latest EU summit failed to come up with any new ideas and the anti-austerity political parties in Greece gain support in advance of next month’s re run elections.
GBP/EUR seems to be forming a range from €1.2340 to €1.2570 and looks likely to stay in that bracket for the time being although a further test lower can’t be ruled out if there are positive developments on the continent.
EUR/USD is below support at $1.2590 and may now test $1.2322 on the way down to the 2010 lows at $1.1876 – although a move in that direction should only come if the debt crisis worsens markedly.
New Zealand Dollar
The GBP/NZD rate tested resistance around NZ$2.1000 last week before falling back as UK data undermined the appeal of the pound and saw it equally blighted by risk aversion as the kiwi.
We expect a range from NZ$2.0620 to NZ$2.1025 in the coming week as the markets wait for further direction. On balance a weaker kiwi dollar is the more likely outcome once the dust settles.
Australian Dollar
The Aussie dollar has by and large held station versus the pound as risk aversion saw both drop versus the US dollar and yen. The sharp decline in its value has however, led many to feel the move has been overdone and may precipitate a correction.
We expect further range trading on GBP/AUD from A$1.6180 down to A$1.5900. As was the case last week, the upside target at A$1.6355 remains in place but significant further upside looks to be off the table for the time being.
Canadian Dollar
The GBP/CAD rate has stayed in a narrow range all week as both fell versus the greenback on risk averse trading following the deterioration in Europe and signs of slower economic activity in the US.
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 has yet to test the C$1.0319 2012 high, but should do so in the coming days. Next resistance is at C$1.0422.
Chinese Yuan
The yuan depreciated versus the dollar last week, tracking the euro lower versus the greenback as the PBOC looks to protect its export industry amid signs of slowing economic activity.
Until there is a resolution in Europe, or at least some euro strength, the yuan is likely to continue to remain soft versus the US dollar. Monetary easing from the PBOC is also unlikely to be accompanied by currency gains. As such, expect the USD/CNY rate to trade around the mid 6.30’s for the foreseeable future.
Japanese Yen
The yen weakened versus the dollar last week, but gained against most other currencies as investors sought safe-haven assets. The Bank of Japan refrained from adding monetary stimulus at their meeting last week, but pressure on them remains intense.
USD/JPY has found support at 79.00 and pushed higher, now trading in a range up to 80.15. This should continue this week unless there are developments in Europe or some other form of government intervention. GBP/JPY is looking vulnerable and could fall to 122.00, but a period of consolidation seems the more likely outcome.
South African Rand
The South African currency continued to pay the price for its close trade ties with Europe this week as the general trend away from high yielding risky assets was particularly pronounced in the case of the rand.
Having fallen back from resistance at R13.34/38 as the pound declined versus the US dollar, the GBP/ZAR rate remains well above R13.00 and looks likely to remain volatile in the coming days with further tests higher quite possible.
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