EUR/USD
The powerful uptrend remains intact, and further gains above Monday's high at 1.4240 are expected. The Nov. 4 reaction high at 1.4283 is the main target, which is straddled by two 1.618 Fibonacci extension targets. Monday's low at 1.4138 will look to limit corrective weakness, and only below there would prompt a deeper corrective setback towards 1.4036.
GBP/USD
The March 2 reaction high at 1.6344 is the focus, as the recovery off the March 11 low at 1.5978 powers on. The threat of leaving a seven-week head-and-shoulders top is reducing following the sustained break above 1.6277, although only a break above 1.6344 would negate the top pattern entirely, creating scope for 1.6401 initially. A longer-term target lies at 1.6715. Only a push below 1.6205 would concern bulls, exposing 1.6175 and 1.6061.
USD/JPY
Fresh bear pressure is expected on support at 80.52, as the setback off 82.00 looks to extend. The dominant bear trend is likely to test the 79.75 area, although there is scope for 79.17 before the likelihood of finding a near-term base. Regaining ground above 81.32 is required to re-open the 82.00 high.
AUD/USD
The strong short-term uptrend is extending above 1.0057, to pave the way for the March 11 high at 1.0160. The key lower high at 1.0203 from March 1 would then come within striking distance, as the recovery off the March 17 reaction low at 0.9705 strengthens. Downside risk is limited to the 0.9950 area, which is protected by 1.0033.
FOREX FOCUS
The G-7 will probably soon be able to claim another currency victory, but not just yet. Since Friday's coordinated intervention, only the group's sixth in 30 years, the yen has stabilized, with the dollar trading well over Y80. The sheer increase in yen liquidity, an improvement in global risk appetite over the weekend, and a renewed focus on inflation pressures around the world are all helping to reduce the risk premium in the Japanese currency for now. But, given market uncertainty over just how far the G-7 is prepared to go, investors will likely still test its resolve and start pushing the yen higher again. The dollar's sharp rally, from a low of Y76.25 before the intervention exercise was launched, reflected at least in part, fear over the power of G-7 coordination. As UBS pointed out, the group has succeeded in four of its previous five intervention exercises. Its only failure was in 1987 when interest rate policy failed to support efforts to drive the dollar higher against the Deutsche mark. This time, a combination of Y32 trillion of liquidity injected into the money markets by the Bank of Japan along with G-7 sales of the yen amounting to at least Y2 trillion, will reinforce market expectations that while Japanese monetary policy will continue to ease, the policies of both the euro zone and the U.S. are likely to start moving in the other direction. The bulk of intervention came from the Bank of Japan, as there is essentially no limit to the amount of yen it can sell. Sales by other central banks are capped by the amount of yen reserves they hold in cash rather than securities. As they have limited ammunition at their disposal, any further coordinated intervention is likely to be designed to take the market by surprise, having the maximum effect for the minimum expenditure. This should be enough to do the trick.
EUROPE
Sterling was the center of attention in European trading on foreign exchange markets Tuesday, rising to its highest level against the dollar since January 2010, after inflation data boosted expectations the Bank of England will have to raise interest rates soon. U.K. consumer prices rose 4.4% in the 12 months to February, the highest annual rise in more than two years, the Office for National Statistics said. The higher-than-expected figure pushed sterling up against the dollar and euro as expectations grew among market participants that the Bank of England will have to respond soon to inflationary pressures by raising interest rates. "Inflation numbers out this morning were good for sterling bulls," said Daragh Maher, deputy head of global foreign exchange strategy at Credit Agricole in London. But in terms of what this means for increases in interest rates, activity numbers are more important, he said. "What will resolve the debate is if growth can recover despite the fact real incomes are being squeezed. If it is, then the neutral members of the monetary policy committee will move towards the rate hike camp," he added.
ASIA
Buying by Japanese exporters pushed the yen up slightly against the dollar and the euro in Asia Tuesday, though gains were limited as short-term investors refrained from getting onboard amid concerns about possible intervention. Japan's Finance Minister Yoshihiko Noda said Tuesday that the Group of Seven leading industrialized nations will continue to cooperate after pledging joint intervention to tame the yen last week. A person familiar with international currency policy told Dow Jones Newswires that Friday's G-7 pledge should not be considered limited only to that day. "It's now a lot harder for speculators to buy the yen, which means for the time being those kinds of speculative moves have likely been suppressed," says Hideaki Inoue, a senior foreign exchange dealer at Mitsubishi UFJ Trust and Banking. "I think the trend should be toward a weaker yen for now given the threat of intervention and the moves by the Bank of Japan to ease further, which make it harder for speculators to buy the yen," said Inoue.
WORLD
The dollar fell to its lowest level in 15 months against a basket of currencies on Monday in New York, driven mainly by a recovery in investors' risk appetite and a surge in demand for the euro. Europe's common currency has the biggest weighting in the dollar index at 57%. Amid anticipation that the European Central Bank (ECB) will hike interest rates as soon as next month, the euro surged to its highest level since Nov. 5. This helped push the dollar index to its lowest since December 2009. As the euro has risen strongly on the back of expectations of higher interest rates in the 17-nation currency bloc, the Federal Reserve bias for maintaining ultra-loose monetary policy -- combined with surging oil prices that threaten to stoke inflation -- has diminished the dollar's allure as a safe haven. Last week's intervention by the Group of Seven stabilized markets and restrained traders willing to buy the yen. As a result, investors who have recently fretted about the global repercussions of Japan's nuclear crisis momentarily bought currencies that offer the potential for higher interest rates
