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Forex Flash: Majors diverge on Friday - OCBC Bank

Emmanuel Ng of OCBC Bank notes that the majors went their separate ways on Fri with the antipodeans climbing against the dollar (and strengthening across the board) while the GBP withered.

He notes that late Friday, GBP was sabotaged after Moody´s cut the UK´s credit rating to Aa1 from AAA, confirming prior rumours that had been circulating with global markets for weeks previous. He notes that in early Asia, the pair printed below 1.5100 before bouncing slightly. Looking to Europe he notes that apart from dovish forecasts out of the European Commission, EUR/USD was also capped after the ECB revealed that banks only repaid EUR 61.8 bln of LTRO loans this week, less that half the amount that was expected.

He writes, “Earlier in the day, the pair had jumped on a better than expected German Ifo but the ECB revelation extinguished the optimism, dragging the pair lower before a partial recovery into late NY. Going into the beginning of this week, expect markets to remain cautious towards the EUR pending news flow from the weekend Italian elections with exit polls expected after 1400 GMT.”

Looking to Japan, Ng comments that USD/JPY gapped higher early Monday in Asia past 94.00 after the Nikkei newspaper (and a newswire article) reported that Haruhiko Kuroda and Kikuo Iwata would be appointed as BOJ governor and deputy governor respectively. He writes, “Note that Kuroda presided over a previous extended episode of JPY-weakening intervention early in the last decade while Iwata has been touted as a yen-bear and with a strong anti deflationary slant. Notably, expect markets to remain edgy towards the yen with the government nominations for the posts expected to be submitted to parliament this week.”

Finally, looking to the US, Ng notes that elsewhere, aside from the deluge of data that a new month brings, he recommends that investors watch for broad dollar sentiment with Fed chairman Ben Bernanke scheduled to appear before the Senate Banking Committee (Tue) and the House Financial Services Committee (Wed). He writes, “In a nutshell, we do not expect Bernanke to radically alter the market’s perception that any potential exit from the current ultra accommodative stance in forthcoming in the near term. As such, any discretionary US-centric dollar optimism may be watered down.”

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