EUR/usd
The newspapers are still savouring the Dow Jones high and nearly record levels of S&P 500, but in our opinion it's worth paying attention to the risks now. The divergence between the stock markets and oil, that we spoke about at the beginning of the week, also exists between the euro and the markets, albeit to a lesser extent. Generally speaking, the stock markets were swelling like a bubble thanks to cheap money from the Fed and CBs of other developed countries. Yet it doesn't mean that correction in the stock exchanges will necessarily make the euro grow. Quite the opposite. In case of the heavy profit-squeeze the single currency will be falling against our expectations of the move towards 1.50. So we just need to understand if this correction will happen in the near future or not. This week such a reversal in the markets and a deeper decline of the euro are quite likely. First of all, the major risk is posed by today's meeting of the ECB. There is still a slim chance (less than 10%)of the rate cut today. But it is more likely that draghi will point out that this step will be taken next month. It will be well enough so that EURUSD can get a grip below 1.30. Yesterday's report of the ADP on the employment in the US private sector for February is also very important before Friday's payrolls. The report says that private companies hired 198K employees. The revision of the previous statistics indicated that in 4Q 2012 there were created 633K jobs – roughly as many as in the second and third quarters together. The fact that despite this the economy contrived to drop to the near-zero growth rate must remain a mystery for the Fed, which since recently has been targeting employment.
GBP/USD
We were right yesterday when said that the sentiment pendulum should move away from the pound. The British currency for no apparent reason was being sold all day long yesterday. As a result, the sterling was below 1.50 by opening of the trades and now remains near that psychologically important mark while the euro is hovering around 1.30. Both the pound and the euro may face easing of the monetary policy as at the last meeting three people voted for this. Extension of the QE programme will bring to naught all the sterling's attempts to consolidate around 1.50 and will pave the way to the multiyear lows.
USD/JPY
usdjpy keeps growing despite the increasing cautiousness of the US stock exchanges. At the same time the Japanese indices continue their swift upsurge. The dollar again costs about ¥94, i.e. the pair has managed to return to the upper range of the February trading channel. So, here we also see that the old correlations, which worked at the risk on/risk off times, are no longer relevant. Anyway, should the markets reverse we may well expect that the Japanese currency will be again in favour as money will flow back to Japan from less ‘reliable' countries.
gold
Gold seems to have found support. For three weeks in a row it has been purchased on the dips below 1570. It may be a good signal for the bulls, which have almost completely abandoned this precious metal, being absorbed in buying the stocks. Since the beginning of the year Gold has not only been depreciating, but also it hasn't been supported by the ETFs, which was unusual in the previous years. Now it is too early to speak about the reversal of the 12-year trend, but we should bear in mind that the market trends cannot be eternal.
