EUR/usd
The single currency is moving by fits and starts. Apparently, big players prefer to hold back from systematical buying, and trading is now driven mainly by technical factors. Yesterday, just like on Friday, the euro/dollar spent the most part of the day in a narrow corridor. However, within the first two hours of the US session it leapt dramatically from 1.3150 to 1.3260 and then again resumed tracking sideways. The current Forex movement in EUR/USD can be compared to what we saw after the 1st LTRO auction. For a while the single currency was falling as a result of the interbank interest rate cuts, but soon the general improvement in the markets spilt over into buying of risky assets. Then the euro sagged from 1.3050 to 1.26. The current range of the currency's decline makes 1.34 – 1.30. Thus, the shift ranges as well as the ECB auction sizes are almost the same. What happened next and what shall we expect now? Then, in mid-January, the single currency grew from 1.26 to 1.35. So, in our situation we may well expect that the single currency will reach the area of 1.40 in the coming 4-6 weeks. In addition, both the U.S. and European economic indicators more and more often point at improvement. It's rather doubtful if these signals of improvement will keep coming in steadily in the coming months (it mainly concerns Europe), but within the next few weeks this very sentiment will most likely dominate the markets, in this way supporting the demand for the euro and triggering the dollar sales.
GBP/USD
Today is an eventful day for Britain. We'll see data on the Consumer Price Index, CBI's Industrial Order expectations and Selling Prices. As for CPI, we don't see any serious cause for concern. It is expected that the February inflation rate will go up by 0.4% monthly, but will come in at 3.4% against the previous 3.9% annually. In Britain as well as in the US the growth is currently stimulated by food and energy prices, so the Core Price Index is growing slower, with the previous figure making 2.6%, and the February one expected at 2.4%. However, it is worth considering that according to the last week's data for January and February producers raised their selling prices by 0.4% and 0.6% respectively, but at the same time faced the increase in input prices by 0.1% and 2.1 %. If the economic theory still works, this will most likely exert an upward pressure on consumer prices in the coming months. For this reason, consumer prices may hold above 3% until mid-summer, thus forcing the BoE head to account for the failure to achieve the price stability before Treasury.
AUD/USD
We can now observe quite an interesting situation with gold. Despite the growth in demand for risky assets it fell below the 200-day moving average and even a bit below the long-term support line of the upward trend. What's that? Can it really happen that after 11 years of almost unrestrained growth this precious metal has ceased to be a favourite of those who seek to preserve their capitals? It can be so for two reasons. First, the structured default of Greece came in as a real relief for the markets, the yield of Italian 10-year bonds has now gone back to the 5% area, and investors again began to consider entering this third-largest debt market. Here we should recall Soros's logic, according to which the 2-3% yield is for conservative investors, the 5-6% one is for those professionals who love risk and know how to manage it, but with the yield of 7% and higher it looks rather like casino staking. Turning back to Gold, the second reason why this metal is no longer in demand may be connected with the increased yield of the basic bonds. Over last weeks the US, German and British bonds have been growing altogether.
Gold
The reverse side of lower interest in Gold is the weakness of the Australian currency. There is a high correlation between the market value of the precious metal and investor interest in the Australian currency and Australian mining companies. If the current market trend persists and is further accompanied by the slowdown in China's metal industry, the Australian currency will probably cease to be the traders' favourite.
