EUR/usd
On Friday the euro dropped below 1.32 on the sales of technology stocks. During the Asian session the stocks were recouping the losses suffered on Friday's falling of U.S. stock markets, while the euro/dollar remained almost unchanged – just below 1.32. If the pattern we saw in December repeats itself, the single currency may fall into decline for a week or two. The fact is that the “soft money”, issued by the ECB, is primarily directed to ease crediting conditions, which, in its turn, leads to lower euro borrowing rates. But after all, it positively affects the economy and spurs inflation, which is sure to support the single currency in the near future. However, that's all about the future, and now it is important to see the clear signs of the European economic recovery. In this connection, today's PMI report on services is of interest. The index has cooled the markets' ardour, having fallen down to 48,8 against 50,4 in January and shown the preliminary data revised down to 49,4. As we see, February's final reading confirmed the activity reduction. At the same time, business and consumer sentiment indicators are turned upwards, which promises further improvement in the coming months. Thus, if no extreme scenarios unfold, the eurozone economy will show a better performance in the near future. In case this improvement turns impressive and involves not only Germany and France, but also the periphery, investors will probably turn away from the bond sales in the region's peripheral countries. Time will tell. But for now we warn you against going too far with these expectations.
GBP/USD
It looks as though traders had decided that the British pound has climbed too high and too fast. On Friday and during the Asian session on Monday the sterling suffered a big sale, having dropped to 1.5820. Traders took profits, following the preceding impressive rally and taking of key resistance levels above 1.5930. Data on Services PMI have come out for Britain as well. Unlike most European countries, Britain may boast although slowing down, but still growing activity in the non-manufacturing sector. It is expected that the rate will be at 55 in February against 56 a month earlier. According to this indicator, the British service sector has been steadily growing since December 2010, and February was the first month of decline over this period. That taken into account, Britain performance can be characterized as rather good. This is not the same with industrial production – it is still unable to bottom out, holding more than 10% below the peak of 2008.
USD/JPY
The Japanese yen has been trading around 80.30 against the dollar for the third trading session in a row. At the same time, we may observe some decline in the euro/yen. This decline is mainly connected with the poor performance of the single currency (see above). But the correlation between the strength of the yen and the weakness of stock markets shouldn't be overlooked either. The current correction in the stock market produces an adverse effect on the euro/yen positions. At the same time, EUR/JPY remains above the 200-day moving average, which is a good technical sign.
AUD/USD
The Australian dollar continues to decline. Today the pair fell to 1.07 on the market correction, although Friday's trading was opened above 1.08. It is feared that the downward trend may extend for a while. Tomorrow night the RBA will hold a regular meeting where it will be decided on the rate. It is expected that the Bank will keep it at the same level of 4.25%. Traders will be especially concerned about the commentary on the decision to find some hints on the possible lowering of the rate in the near future. February brought some signs of this possibility. If these signs come as more obvious in March's commentary, aussie may go even lower.
