EUR/usd
For the last 12 trading days positive and negative news on the euro have been perfectly balancing each other, making the euro/dollar fluctuate up and down the 1.31 level. Today the markets are standing still in expectation of the long-term Spanish debt auction. Remember that despite the yield growth the short-term auction results were regarded as positive and brought down the CDS price. The same outcome can be expected this time, as the ECB will hardly let the situation run out of control at such an important moment. After all, if deterioration in Spain reaches the same point as in Greece, it will be simply impossible to find enough money to bail it out. Yet, in Spain support should be primarily given to the private sector, where every one in four is officially unemployed, and the banking sector, which suffers from the consequences of the property bubble blowup. In our opinion, if through the efforts of the ECB and the European leaders the markets function smoothly and the economy resumes growth, the situation may change for the better in the long run. However, the smooth functioning of the market and a single viewpoint are the hardest things to achieve for Europeans. Yet the all-round economic recovery can hardly be expected across the whole region. Along with the labour market where unemployment keeps growing, the construction sector is also suffering a slowdown. The Construction Output tumbled by 7.1% in February and by 12.9% y/y. The worst thing is that the index has been below the current level only twice since 1990. Yet both times it was just a quick drop immediately followed by a recovery. We can only hope that such a recovery will occur this time as well, though the trend gives a real cause for concern.
GBP/USD
The sterling managed to become the hero of the day yesterday. It broke up the 1.60 level in GBP/USD, fell below the 0.82 support level in GBP/EUR and consolidated below it. The pound-bulls are looking to resume the attack today. If they manage to break above 1.6050, they may get support on the triggering stop-orders and approach another local high above the 61 point (1.61, 1.6130, 1.6160). Of course, having lost Posen as the main advocate of the QE extension a part of the bears had to move to the other side of the barricade. The situation with EUR/GBP is even more interesting. The pound must feel really uncomfortable at such low levels, besides a long stay here may seriously undermine the positions of exporters, the majority of whom work with the Continent. Still the expensive pound promises low inflation, which is so necessary to maintain trust in the CB.
USD/JPY
The yen keeps weakening against the dollar and the majority of other currencies. The market players tend to listen attentively to what the Japanese officials say. As it turned out, apart from the intention to support the euro-zone the BOJ seems to be planning further cash infusions. As the next meeting is scheduled already for the next week, the markets regarded it as a hint. If the pair had gone just 10-20 points lower, it would have performed the full 50% correction of the February and March rally. The pair reversed at 80.28 against the expected decline to 80.0.
AUD/USD
The aussie was supported on the ongoing rumours that China may shortly ease the policy by means of cutting banks' reserve requirements. Of course, it isn't that the Aussie started to shine on such reports, but still it managed to hold out and remains afloat above 1.0350. At such levels the Aussie looks really attractive for buying, but don't rush with the purchases before inflation data are published. Producer prices are scheduled to be released next Monday and consumer prices – next Tuesday. The strong easing of the price pressure (which is very unlikely to occur) will trigger selling of the Aussie.
