NEWS / Foreign Exchange

Waiting for data

• US Treasuries trade sideways in quiet session
• European bonds in consolidation phase
• Waiting for data
• There are the central bankers
  

The EUR/USD pair dipped slightly during yesterday??™s trading. The pair went form the 1.3590 zone to the 1.3550 area. The euro can no longer gain without any fresh news apparently. With the record highs so close Friday morning, that can only be seen as logical as this is a formidable resistance. Already Friday during the session some hesitance was noted.

This sort of price action, heading slightly lower in EUR/USD, seen over the past days seems to indicate something convincing will probably be needed to make a break above the EUR/USD 1.3660 record highs, or at least to do so in a sustainable fashion.

Today, the calendar does offer some input (much to the contrary of last Friday and yesterday). Indeed, US data include the consumer confidence and existing home sales releases. These have the ability to influence markets, but it will probably not be enough to give a definite direction for sure, but on the day they will have their impact.

In the longer term, a pro euro bias is kept in place. Nobody seems to be scared of a strong euro. The view is that there is a decoupling between the US and the restof- the-world economic cycle. That would imply the euro zone can digest the present currency strength. As long as this theory flies, this can be used as a guide to market thinking. The US side of the story will get a check-up next week with the ISM and payrolls.

USD/JPY was helped in the morning by the story of the S&P upgrade of government debt. The politicians milked this story, but the USD/JPY pair didn??™t gain anymore after its initial reaction (USD/JPY down from 118.80 zone to 118.30 area). In fact the USD even fought back, bringing the pair back up to the 118.80-90 zone, but there the pair hit the ceiling, as the USD sentiment is still not strong enough. That left a sideways view in place on the day.

This morning, there is talk of some yen short covering ahead of the holidays. Indeed, it is Golden Week holidays in Japan next week and this makes some people nervous about keeping open yen shorts.

Also note that still some players are talking about the BoJ in a sense that they might surprise in talking more hawkish. To us, the risk is quite the opposite as the semiannual Economic Outlook may contain a downgrade of inflation expectations as a newspaper rumoured this week.

We continue to have great difficulty believing in a sustained yen comeback. There is no momentum visible in eco data or in the BoJ rate policy. That would be needed to keep the yen on a rebound trajectory. For now, this pair seems delivered to daily sentiment tribulations, putting it in abroad sideways pattern between the 115 and 122 zones.

The EUR/GBP pair laid down a sideway pattern yesterday at the 0.6780-90 zone, without any fresh guiding news.

The recent sterling performance was a disappointment to us. The sterling should have profited from a positive news flow, which incited the market to price in a full 25 bp rate hike in May and another one later in the year. But in the end this translated only in a more or less sideways path for EUR/GBP. The truth of the matter is that the euro seemed to be untouchable at that time.

Now the moment to seize the day has probably passed by a bit. It appears a bit that an up-hill battle against the single currency is a tough mission. It has to be said the euro momentum in EUR/USD, which was leading the rest for a while, has a bit waned. But so has the impetus for the sterling it seems??¦

We already turned more neutral on this pair. We now first want some signals that things are cooling down further in the EMU/euro momentum.

In other FX markets, the AUD received bad news as the CPI rose only 0.1% Q/Q in Q1 ??™07. This was much lower than expected and made players unwind beliefs in a rate hike in Australia next week. Today there will also be attention for the rate decision in Canada, although this will likely yield a no-change outcome.