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Fundamental Afternoon Wrap: EUR making a bottom?

FXstreet.com (Barcelona) - This afternoons institutional research sees focus continue on EUR, with Cypriot developments having to make space for poor German and French PMI numbers this morning. There is a feeling that with the failure to break much lower in EUR/USD over recent days, much of the bank news may be priced in and a bottom may be forming.

EUR

Brown Brothers Harriman analysts note that peripheral European bonds are firm today with Italian continuing to outperform Spain, but in the core flash French and German PMIs were disappointing. They say that this serves as a warning that despite the positive Q1 GDP, Germany is struggling. Elsewhere, namely Cyprus, they note that the ECB has given Cyprus until the weekend to reach an agreement before it cuts off its ELA funding. Jane Foley of Rabobank adds that in Cyprus the improvement in market sentiment yesterday demonstrated that the situation in Cyprus is being perceived by investors as less of a risk to EMU coherence than Greece was at the height of its crisis. However, despite the improvement, she feels that investors are likely to remain jittery and maintains the view that there is scope for dips in EUR/USD back towards the 1.28 level. TS Securities analysts write, “The fact that the Cyprus uncertainties weren’t able to push the EUR below significant support either suggests that a lot of bad news is already priced in. From a broad perspective, that is a sign that we could be seeing a base forming here, as long as the Cyprus or Italian situations don’t unravel.”

GBP

Brown Brothers Harriman analysts note that today the UK reported better than expected Retail Sales, inspiring a move higher in sterlingto around the 1.52 leve. Elsewhere they note that that in yesterday´s budget the Debt/GDP level in the UK is not set to peak until 2015/16, which may inspire a future downgrade. Jane Foley of Rabobank comments on the BoE´s change in remit, stating that the move was not as aggressive as it could have been insofar as the 2% inflation target remains the central focus of policy. She feels that the adoption of forward guidance of policy expectations has Carney´s fingerprints all over it which she finds reassuring in the respect that it reaffirms the BoE´s independence from the government.

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