EUR/USD
Despite falling shy of the 1.4151 upside target, the recovery off 1.4021 is expected to extend above 1.4149. While support at 1.4047 holds, the main threat is for a push through 1.4128 and 1.4149, paving the way for further gains to 1.4188. A clean break below 1.4047 would damage the positive outlook, and prompt a return to Monday's 1.4021 low. However, the underlying uptrend is still intact while 1.3965 holds.
GBP/USD
A lateral consolidation phase is underway between 1.5937 and 1.6041, but a bearish resolution is the main threat. A push below Monday's 1.5937 low would extend the powerful downtrend to the 1.5872/95 area initially, but downside risk to 1.5796 cannot be ruled out on concerted weakness. Definitive resistance lies in the 1.6100/15 area to limit the scope for corrective strength.
USD/JPY
Extends the bull wave above 82.00 to open resistance at 83.01, and the Mar. 11 lower high at 83.30 is the primary target. The completion of a bull flag on the 60-minute chart provides upside projections that highlight potential scope to the 83.40 area before peaking. Corrective weakness will attract support while above 82.48, protecting solid support at 82.00.
AUD/USD
Maintains the powerful uptrend into fresh 29-year highs, as AUD bulls look to test the projected 1.0400/1.0425 area. The structure of the bull wave off Tuesday's 1.0204 low suggests there is scope for the 1.0455 area, which marks the upper side of a resistance cluster. Only a reversal below 1.0269 would question the bullish outlook, exposing 1.0204.
FOREX FOCUS
This looks like the end of the road for sterling's rally. For months, the pound attracted support on hopes that the U.K. economy had seen the worst and that the Bank of England would be able to start raising interest rates soon. Strong inflation data and calls by some monetary policy committee members for early rate moves all encouraged sterling buying. Bank of England Governor Mervyn King even became the target of widespread criticism for suggesting that the economic recovery was still too weak and that rates didn't need to rise. So interest rate hawks continued to set the agenda, helping to push the pound up as high as high as $1.64 earlier this month from under $1.54 at the end of last year. Their assumption has always been that, despite the nasty winter weather at the end of 2010 that put the brakes on economic activity, growth would pick up sufficiently in the first quarter to allow the central bank to start fighting inflation. But, as the first quarter draws to a close, economic data suggest just the opposite and there are signs that King was right to remain cautious after all. Growth is moribund, business confidence is at a two-year low, house prices are still falling and consumer activity, as measured by retail sales, is plummeting. New GDP, consumer and government spending figures, as well as net trade numbers, all suggest that the last thing the U.K. needs at this stage is higher interest rates. This is all hardly surprising given that the bulk of public-sector cuts that the government introduced in an emergency budget last summer are only just starting to take effect and that the country is facing an unexpectedly sharp rise in energy costs. The parlous state of the economy was also recognized in the government's latest budget last week, when Chancellor of the Exchequer George Osborne attempted to ease some of the immediate pressure on U.K. consumers and reduced regulations and taxes in an effort to boost business.
EUROPE
The yen continued to weaken across the board in European trading hours Wednesday, pushed lower by more upbeat market sentiment and growing expectations that the Federal Reserve will move towards policy normalization when its second round of bond-buying ends in June. The dollar has risen to above Y83 against the yen, well above its post-intervention high of Y82, and the euro is hovering around Y117--a 10-month high. "The yen is certainly going to be the most interesting currency today and for the rest of this week and many are starting to argue that there are fundamentals for a weaker yen," said Jane Foley, senior currency strategist at Rabobank in London. "However, this is not a particularly good week to talk about chance in the trend because it is fiscal year-end in Japan," she added. This time of year typically sees a stronger yen as Japanese companies bring funds home. Foley also points out that the yen could benefit if the market becomes less upbeat. "There's still a lot of bad news. There's a lot of potential for risk appetite to falter, which could lead to more yen buying," she added.
ASIA
The dollar climbed to a near three-week high against the yen in Asia Wednesday as traders scrambled to buy the greenback on speculation that the U.S. Federal Reserve will not extend its quantitative easing program beyond the end of June. At 0450 GMT, the dollar was at Y82.90, after rising as high as Y83.01 according to EBS via CQG, the highest since March 11. It was at Y82.48 late Tuesday in New York. Federal Reserve Bank of Dallas President Richard Fisher said in an interview with Fox Business that he doesn't support further liquidity provision from the U.S. central bank and doesn't expect the Fed to launch a third program of asset purchases. "I cannot foresee a circumstance where I can support any further liquidity in the economy," Fisher said, according to excerpts from an interview that the network is to air Tuesday night U.S. time. Fisher's remarks echoed those made recently by St. Louis Fed President James Bullard, as well as Philadelphia Fed President Charles Plosser that were viewed by traders as a cue to lay the ground for an end to U.S. credit easing.
WORLD
The dollar advanced against some rivals, though it slipped against the euro Tuesday, after a drumbeat of Federal Reserve members threw their support behind an end to quantitative easing. A gradual move from easing toward tighter monetary policy would make dollar assets relatively attractive. Currency market participants view the recent comments by St. Louis Fed President James Bullard, as well as Philadelphia Fed President Charles Plosser as a signal to prepare for an end to loose U.S. monetary policy. "The markets are now finally contemplating life without [quantitative easing]," said Paresh Upadhyaya, head of Americas G10 FX strategy at Bank of America Merrill Lynch. "It's all about interest-rate differentials." The dollar lost ground against the euro, amid growing anticipation that Europe's central bank will raise rates next month, well ahead of any Fed move. As worries about Japan's nuclear situation and upheaval in the Middle East and North Africa appear to have momentarily subsided, investors have shifted their focus back to central bank monetary policy and interest-rate differentials, analysts said. The Fed's $600 billion Treasurys-buying program is scheduled to end in June.
