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Forex markets: Euro, sterling and yen all strengthened.

Euro, sterling and yen all strengthened. However, in all three cases the upward movement was  not rooted in solid grounds: the situation could begin to pan out next week .         

          For professional investors and advisers only

          EUR – The euro appreciated from just under 1.3200 to almost 1.3400. However, the movement  was mostly technical. The upside breakout through 1.3165 – the upper limit of the downside  front – plus the size of short euro positions awaiting the Eurogroup and Ecofin meetings (today  and tomorrow) led to an upward shift of the exchange rate’s fluctuations. From a technical  point of view, a rise to 1.3436 may be considered as a normal retracement, with no compromise to the possibility of a correction towards/below 1.3000 in the short term. In this case, the “reversible” upside may also even extend to 1.3471-1.3487 (end-of-February relative highs).
          Next week’s ECB meeting (this time scheduled on a Wednesday) could provide the opportunity for a downside reversal, unless the wait-and-see  stance taken at the previous meeting is abandoned.


          GBP – This week sterling strengthened further against the dollar, from GBP/USD 1.58 to 1.60.

          This was the pound’s third consecutive week on the rise, starting from a floor of GBP/USD 1.56.

          However, the movement remained restricted to within the same trading range already outlined in the past two months, and therefore does not signal the start of a new trend. Economic data released in the week were mixed, but cannot be considered positive on  the whole. Therefore, the strengthening of sterling does not rest on solid foundations. GDP growth in Q4 2011 was revised downwards from -0.2% to -0.3% q/q, the March CBI retail sector  survey surprised on the upside, and so did February consumer credit data. However, other data (including mortgage approvals and consumer confidence) were poor, and on the whole the picture for Q1 2012 is not a positive one. We expect growth to rise back into positive territory in Q1, after  contracting in Q4, albeit just barely above zero (our Q1 GDP growth estimate: +0.1% q/q). Data due next week – especially March PMI indices, expected to be down – will be important to gain a moreexhaustive picture of the situation. The Bank of England meeting should not bring any particular developments. Barring surprises from data, sterling should therefore pull back against the dollar towards GBP/USD 1.58-1.56.   

          JPY – This week the yen stayed at the lower end of the USD/JPY 84-82 range. Widespread uncertainty on the markets, and some positive data releases in Japan, supported the Japanese currency. The expected improvement of the Tankan on Monday could aid a deepening of the foray to between USD/JPY 81 and 80. In order for the yen to resume its downtrend, interrupted last week, no disappointment must come from US data.  However, a retracement to within USD/JPY 81-80 should not be taken to signal a trend reversal, but as a temporary lateral phase.

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