On Thursday we observe a further decline in the dollar’s rate against the unexpected decision of Singapore to tighten its monetary policy. The market participants have taken this step explicitly and presumed that the other Asian Central Banks (and not only Asian) will also go for raising the interest rates and strengthening domestic currency. If we take into account the fact that all the talks about the US exclusively concern the easing of the monetary policy, then there is nothing surprising in seeing subsequent massive sales of the US dollar. Moreover, there were many stop-losses taking place at the frontier level 1.4000, which gave EUR/USD impulse to consolidate above that strong resistance level.
In additions, another reason for speculative game on the dollar’s downtrend could well be the announcements of the world largest bond fund PIMCO which sold Treasuries on expectations that the second round of debt purchases by the Federal Reserve would have limited impact.
We still think that in the short-run a rise in the EUR/USD pair will be limited by the level 1.4150.
Speaking of the European single currency, on Thursday we have a rather sluggish news background in the region. Mainly, as was already pointed out, the euro purchases were due to a decline in dollar’s rate amid the decision of the Central Bank of Singapore to tighten the monetary policy. A certain impulse for EUR/USD rise was provided by the improving situation on the bond market in Eurozone. This time, the yield of the 10-year Irish government bonds demonstrated a daily drop from 6.45% to 6.2% which follows that the situation on the sovereign bond market in Europe is fine.
Yield curve of the 10-year Irish government bonds (Bloomberg)
Among the less significant data, we emphasize the publication of economic outlook report by German economic institutions. Among all other things, the analysts forecast a GDP growth rate in 2010 at 2% compared to the previous target of 1.4%. The given report underlines a stable economic situation in the German region which in the end could favor euro. In other words, a stable situation in Germany clearly increases the probability to see ECB tightening the monetary policy in the 1h11.
Following the European session the EUR/USD pair rose to 1.4120 from 1.3965.
Amid an increased appetite towards risk the GBP/USD pair has broken through the strong resistance level 1.6000 and by the time of writing this article reached the February highs at 1.6030-1.6060. Passing of the given resistance was followed by a number of stop-losses on the short GBP/USD positions.
From the fundamental analysis perspective it’s worth pointing out the Daily Mail interview with the Bank of England’s Vice Chairman Paul Tucker who now expressed confidence of the current inflation level. This is a clear “dovish” position which should negatively tell on the British pound’s rate in the cross-rates.
- Barclays Capital: closing above 1.60 will signal a resumption of an uptrend
Jevgeni Beloussov, analyst
of company Admiral Markets.
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