The single currency is still supported after Trichet's hawkish comments which figured that the ECB main worry is inflation as he has mentioned that the inflation is expected to be well above the 2% target in the short term. He didn't signal any clear warnings about the recent Euro appreciation limiting the probability of an intervention in the forex market to limit this surge but he has just repeated that excessive volatility in the forex market is undesirable. He added that the short term growth risk is to the down side while inflation is to the upside and there were no calls for cut or hike. the market has downplayed the expectations of a cut following the fed by the end of this half of the year pushing the single currency up further to signal a new all times high just after the disappointing waited Jan Non-farm payroll which came down to -63k before a profit taken wave dragged the pair to just a believed correction to 1.5313 as the same dovish sentiment is expected to come back again pressing on the Fed to cut interest rate further pushing more liquidity to the financial market to sustain growth.
Japanese yen is expected to get the same benefit too adding to that March repatriations as the end of the financial year in Japan and the risk aversion current wave which can triggered further carry trades unwinding. As the market wants to see a sustained growth to put money and take risk not just funding solutions can be capped with the current weak consuming sentiment and high commodities and energy prices which can be fueled by these easing actions and can form a real challenge to this economic bottoming out cycle this once. The speculators want to see results of this new 200bln funding plan to tackle the recession even in the market sentiment. Further equity selling and US interest rate cut can push the Javanese yen lower than the 100 psychological level.
After The British pound broke the psychological level at 2 after the BOE decision to hold interest rate unchanged as expected, the door has become opened for further GBP buying as the decision has become behind of us with no surprises. The cable became well-buoyed After the robust PMI service index which reached 54 eliminating a lot of market expectations of further cuts following the Fed and any cuts would be gradual in appreciation of the upside inflation risks as the current commodities and oil prices as the UK CPI is expected to be well above 2% in the near term. The pound can get support till the UK inflation quarterly report at this current sentiment.
Best wishes
FX Consultant
Walid Salah El Din
E-Mail: snipped-for-privacy@fx-recommends.com