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Fundamental Afternoon Wrap: GBP Pounded as EUR drops off radar and JPY simmers

The afternoon round up of institutional research has one clear theme. Don´t try to catch falling knives, and as such, don´t try to be a Cable hero. Other areas in focus are JPY which, as the markets weakest currency so far this year, is naturally obliged to be covered, and NZD where overnight the Governor indicated that the RBNZ were willing to take action. Otherwise, EUR has completely dropped off the analyst radars for now, but no doubt it will return again next week following the Italian elections.


Brown Brothers Harriman analysts note that Sterling has eclipsed teh Yen as the main focus in the fx market. They note that the surprising news that has kicked it to fresh multi month lows was that the BoE is closer to further easing than suspected and the fourth time that Governor King has been outvoted. All in all it indicated that King´s reign looks ready to be over. The King is dead, long live the king (Carney) indeed. GBP is now down 5.8% against USD, second only to JPY at 7.2%. The story is continued by James Knightley of ING who comments that the BoE´s overlooking of a two year inflation targeting failure adds to the growing suspicion that the UK may lose its AAA rating. BNP Paribas economist Catherine Stephan however notes that despite the easing story, the UK Labour market still remains strong, with employment increasing 1.9% YoY. Phillip Rush of Nomura notes that the expectation had been for more inflation caution to be urged.

Sebastien Galy of Societe Generale comments that he was once told that only a brave man tries to catch a falling knife and that he suspects that the market will probe the break below this support before deciding if it needs to consolidate gains. he writes, “UK job data continued to be encouraging but the signs point to a slow down as the reality catches up. Whatever happens; GBP/USD remains a clear medium-term sell. Christian Lawrence of Rabobank notes that last weeks CFTC report reflects the falling Cable knife and he recommends that investors take extreme caution trying to go long.


Brown Brothers Harriman analysts note that the local press in Japan have started to downplay Muto as the next Governor of the BoJ. He had previously been perceived to be the least dovish of the top contenders. Raymond Van Der Putten of BNP Paribas notes that exports boosted by pick up in the global manufacturing cycle, especially due to the Chinese New Year. Sebastien Galy of Societe Generale notes that USD/JPY has dropped back half a percent. He writes, “(It) looks like it will continue to to build a new trading range (90-95?) for now before the move to higher levels later in the year.” Meanwhile. Nick Bennenbroek of Wells Fargo notes that the yen is little changed against the greenback, and is one of today’s better performing G10 currencies, with Prime Minister Abe’s comments extending the recent less dovish tone to political rhetoric from Japan.


Brown Brothers Harriman analysts comment that the RBNZ threatened intervention overnight in protest at the currencies strength. They note that in the short term, Kiwi eclipsed Sterling as the weakest major pair with a 1.25% decline. Christian Lawrence of Rabobank reiterates the bold RBNZ stance, quoting Governor Wheeler as saying that “The Reserve Bank is prepared to intervene to influence the Kiwi” before noting that it is not surprising that NZD was hit so hard. Nick Bennenbroek of Wells Fargo expands, noting that Governor Wheeler warned investors that it would not be a one way bet.

Forex Flash: EUR/CAD with solid support on dips to the low/mid 1.35 area – TD Securities

TD Securities analysts notice the resumption of the upmove in the EUR/CAD “and a positive close today will support the impression of a sustainable bullish break out from the consolidation (flag) formation that built up over the turn of the month”. “Trend support is strong from shorter-term MAs and the DMI oscillator measures which are aligned across a range of timeframes here as well—this is a very bullish signal and implies limited downside potential and an ongoing grinding bid at least for EUR/CAD”, wrote analysts Shaun Osborne and Greg Moore, pointing to support at 1.3185 to maintain bulls in control and targeting the 1.40 area. “Expect solid support on dips to the low/mid 1.35 area now”, they added.
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Forex Flash: Normalization in Eurozone is EUR positive – UBS

According to the UBS Analyst Team, “We remain of the view that at least in the short-term any further normalization in the Eurozone is euro positive. Draghi skillfully corrected in his February press conference what many saw as a communication mistake back in January when there was an impression of the ECB having become more hawkish.”
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