EUR/usd

On Friday and Monday the markets went bearish on the concerns around the Spanish bond auction, which eventually ran smoothly. Spain managed to sell €3.18 bln of bills, so the demand was satisfying. And though the yield grew, the markets still favoured the results of the auction, which is confirmed by the 15 bp decline of the CDS price. Yet, we look forward to Thursday, when long-term bonds will be auctioned off. The German ZEW Economic Sentiment performed a pleasant growth. Instead of going down from 22.3 to 19 as forecasted the indicator grew from 37.6 to 40.7, which is the highest level since last September. Now we are expecting strong data from Ifo at the end of the week and with optimism look to the future of the euro-zone. Probably, the situation is not as bad as it seemed a couple of weeks ago, don't you think so? Even the American statistics on the housing market look encouraging. In March the annual rate of building permits made 747K. Unlike the housing starts it is a leading indicator. The housing starts figures didn't prove to be very impressive, in fact. They reflected the 5.8% decline in March – 654K against the expected 705K. The Capacity Utilization Rate has grown, however the industrial production has been declining for 2 months in a row. It may well signal reductions in the capacity utilization. Is it a real cause for concern? Most likely it is not, as the year-to-year growth rate looks good, showing the 3.8% growth. Under such circumstances stock markets have some room for growth, however for now it cannot turn into the euro strengthening. The latter is still nailed to 1.31.

GBP/USD

No surprises came from Britain yesterday. The inflation accelerated from 3.4% to 3.5%, which is at variance with the Bank's forecasts of the gradual and steady slowdown in price growth. It's interesting that the core indicator should have grown as well: in March the annual price growth rate excluding the fluctuations of commodity and food prices made 2.5%, mainly due to the clothes and shoes prices. But today's statistics look even more interesting. The published employment data have showed the further increase in the number of claimants by 3.6K, but it's much better than expected. In addition, the previous data on the Claimant Count Rate have also been revised down to the 4.9% level; the same rate was demonstrated in March. As to the Average Earnings Index, it came in weak, demonstrating a drop to 1.1% (compare it with the inflation rate!). Yet, the main intrigue of the day is the release of the April MPC Meeting Minutes. Last time the markets unexpectedly stumbled on two dissident-doves, who already in March suggested extending of the QE programme. Today one of the dissidents, Adam Posen gave in, joining other RVG (MPC) members, who have proposed to keep the QE size at 325 bln in April. The sterling rally sent the dollar/pound to test 1.60, and the euro/pound – to break 0.82.

USD/JPY

The positive sentiment in the markets reversed the dollar/yen in the upward direction. The consolidation around 80.30 ended up with an upsurge to 81.30 on the optimism of Asian exchanges after the pessimistic tone of Tuesday. The Japanese seem to get at the root of the problem now. Earlier the Bank spoke about the high risks the Japanese economy could incur in case of the sharp deterioration of the situation in Europe. Yesterday it became known that the Japanese are planning to allocate $60 bln to enhance the power of the IMF. It may serve as a good example for other Asian countries, whose markets and investments directly depend on the US and European state of affairs.

USD/CAD

The BOC kept the interest rate unchanged at 1.0%. Yet the release of the commentary provoked an emotional reaction in the Loonie.  Long depreciated and stuck in a narrow range, the currency unexpectedly passed the way from the upper boundary to the lower one over a few hours. All these fluctuations were running around the parity of the dollar and loonie, but thanks to the positive commentary the rate managed to stabilize below the 99 point. Now the trading is held at 0.9890. The strong support level is at 0.9850. The commentary points out that despite the remaining high risks, the prospects of the global and Canadian economies have become much more favourable over the last 3 months. The strong employment data should be also considered: yesterday's rally is partly their work.