Monday, February 14, 2011

EURUSD: bearish outlook expected to prevail

!! EUR/USD !!

The pair will likely remain volatile this week and the bearish outlook
which gathered pace last week is again expected to prevail. This week
sees the return of government debt auctions by the peripheral Eurozone
states in form of Spanish bonds and Portuguese T-bills. In addition to
that, investors will be paying a particular attention to the release
of the ZEW Survey, performance of which is crucial in judging the
economic recovery not just in Germany but is also a excellent
indication of business attitude across the bloc. If that wasn't
enough, German and France are due to release their preliminary Q4 GDP
readings.  In terms of technical levels, a major support is seen at
1.3500, which once broken will open the door towards a support level
located at 1.3479 which is also the 38.2% Fibonacci retracement of the
1.2860-1.3862 go.

!! GBP/USD !!

This is a crucial week for the GBP currency since the data and events
that are due to take place will be seen as key indicators whether the
BoE will bring to somebody's attention rates in H1 2011 or in fact
remain on the side-lines well into later 2011. The release of the
latest CPI data will likely show that inflation has jumped to above 4%
and that core CPI now stands at 3%. Much of the rise will be
attributed again to a rise in commodity prices and also to the fact
that retailers have all applied a higher VAT rate. But the major risk
which may see the currency surrender a majority of the recent rise is
the Quarterly Inflation Report by the BoE which is expected to show
that the policy makers are stubborn that a high level of economic
slack will bring down inflation to a mandated level. Should this prove
to be the case investors will be mandatory to reposition their rate
hike expectation which will result in a broad based GBP sell-off.
Finally, in terms of technical levels, key supports are seen at 1.5922
which is also the 38.2% Fibonacci retracement of the Dec-Feb go,
followed by the 100DMA at 1.5825. On the other hand, resistance levels
are seen at 1.6020 and then at 1.6115/40.

!! USD/JPY !!

A slew of risk events in Europe and the US, together with the fact
that the USD index remains in a bullish sample indicates that the pair
will remain on an upward trend this week. Still, this week's release
of the monthly report may see the BoJ policy members upgrade its
assessment on the economy and while the interest rate range is also
expected to remain unchanged, the minutes may show sign of hope for
the economy.


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