Euro: the risk of plummeting below 1.40 should be deemed to have receded. In the event of a revision to 1Q11 GDP, GBP should acquire a more pronounced weekly directionality. Yen in narrow range: very positive US data prerequisite to take USD/JPY past 82.00..…
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EUR – This week the euro recouped much of the ground lost the previous week. The tensions tied to the Greek debt have subsided somewhat for now. Greece remains under joint scrutiny by IMF and EU Commission, while the Ecofin has, as expected, framed the bailout plan for Portugal. Thus, the data and the issue of ECB and Fed rate hikes are back in the spotlight, and should dominate next week too. Since the data/events calendar does not appear to signal a clear preference for EUR or USD, the exchange rate should stick within the range 1.40-1.45 EUR/USD. Overall, however, the risk of an immediate fall below 1.40 should be deemed to have receded. Conversely, if the first May data –Euro area PMI and IFO – show particularly positive indications, EUR might try to climb past 1.4500.
GBP – Sterling weakened further, though not overmuch, since the signals, as the BoE itself admitted, remain discordant. Inflation has risen strongly, the labour market data were very negative, and retail sales surprised on the upside. The minutes show that the number of hawks on the committee has not increased. All of this points to the maintenance of a wait-and-see stance by the BoE, which is expected to leave rates unchanged again in June. Next week the most important figure will be the second 1Q11 GDP estimate, with breakdown. In our view the advance estimate of 0.5% qoq should be confirmed. There might possibly be a downside risk (one-tenth less). If this were the case, GBP would continue to fall, piercing 1.6000 GBP/USD on the downside. If, on the other hand, there were a surprise upward revision, GBP would bounce to 1.64-1.65 GBP/USD. In either case the directionality should be the same vs. EUR.
JPY – Yen in narrow range of 80-82 USD/JPY. Very positive US data would be required to take and keep the cross above 82.00 USD/JPY.
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