EUR/USD
The euro is poised to win this intriguing two-day standoff, and a push above 1.4149 is expected to open projected resistance at 1.4188. A push through 1.4188 is required to keep the uptrend intact, opening 1.4220 and the Mar. 22 reaction high at 1.4249. The 1.4095 area will look to contain weakness, but only a break below Wednesday's 1.4052 low would concern bulls.
GBP/USD
A short-lived foray towards 1.6150 is expected, following the completion of a near-term double-bottom on the 60-minute chart. However, this rally is considered counter-trend and the 1.6150 level is expected to limit the corrective upside scope. A push below 1.6012 is required to put bears back in control and attract further weakness to Monday's 1.5937 reaction low.
USD/JPY
Suffers a significant setback off 83.22, and support at 82.48 is being tested. However, with solid support lying at 82.00, downside risk would appear to be limited should 82.48 break. Regaining ground above 83.06 is required to bring the 83.22 high back into focus and longer-term bulls are still targeting the Feb. 16 reaction high at 83.98.
AUD/USD
Maintains the powerful uptrend into fresh 29-year highs, as AUD bulls close in on 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
Just a whiff of the hawks and the dollar has got all perky. Imagine what it will do when speculation of a U.S. rate rise really gets going. This week's parade of Federal Reserve officials banging the "end-to-QE2" drum may not have been entirely convincing. Some of the loudest of these officials haven't even been voting members of the Fed's open market committee. All they may have done is drown out the quieter doves, who will still vote to keep policy where it is at the next FOMC meeting ending April 27. Certainly, not all financial markets have been persuaded by the beat of the drums. Equities, which normally get hit at the prospect of tighter liquidity conditions, have continued to rally strongly, both in the U.S. as well as in other major global markets. Similarly, there has been little response in U.S. Treasurys, which would also normally reflect expectations of higher interest rates in the near-term with a rise in the yields of short-term bonds. This reticence to react to the hawks could be driven by the flow of U.S. economic data, which remains mixed at best. Although there has been recent evidence of improvements in the U.S. employment market, a recent decline in consumer confidence, could well convince more dovish Fed officials to preserve the country's ultra-easy monetary policy for now. However, the reaction in currency markets to these hawkish comments has been decidedly different. The dollar's trade-weighted index, which has been sliding steadily for the last five months, has turned higher this week, showing a distinct rebound that coincides with the talk of bringing the Fed's second round of quantitative easing to an end.
EUROPE
The euro continued higher Thursday, buoyed by predictions that the European Central Bank will lift interest rates next week and make further increases through the rest of the year as it tries to tackle rising inflation. In data released Thursday, the euro zone's annual inflation rate jumped to 2.6% in March, its highest level for 29 months. Economists were expecting the inflation rate to dip to 2.3% from 2.4% in February, according to a Dow Jones Newswires survey last week. The euro has also been supported by comments made Wednesday by the ECB's Lorenzo Bini Smaghi, who said the central bank will raise interest rates gradually while ensuring help is available for euro-zone banks that face difficulties from higher borrowing costs. But while the euro has found enough buying support to push it past the $1.42 level against the dollar, there are host of worries to keep it from rising too far, particularly the outlook for the area's fiscally-challenged states. Portugal is still widely seen as heading for a bailout, while already-rescued Greece and Ireland remain in the spotlight.
ASIA
The dollar slipped against the yen in Asia Thursday, as exporters and traders locked in profits following the greenback's recent rally, with speculation of an early end to U.S. credit easing waning. The dollar rose as high as Y83.22 in early trade on speculation that local fixing would show a shortage of dollars at the end of fiscal book-closing, but the gains lost steam after exporters started selling the greenback and short-term speculators unwound dollar longs, traders said. "The dollar's upside is also technically capped at Y83.30 to Y83.50. Hopes for an end to U.S. quantitative easing alone are not enough to push the pair up above those levels," says Yuzo Sakai, foreign exchange manager at Tokyo Forex and Ueda Harlow. It is hard to see the dollar continuing to rise unless we get a conviction that the (U.S. Federal Reserve) will take the next step," said Tomoko Fujii, senior forex strategist at Bank of America Merrill Lynch. "If the Fed will bring forward the end period of its credit easing (that is slated to end in June), that would be meaningful, but we can't count on that too much."
WORLD
The euro edged up against the dollar Wednesday in New York as the effect of recent hawkish rhetoric from Federal Reserve officials wore off, paring the dollar's recent gains. Central bank monetary policy has been the main catalyst for currency markets of late, as the European Central Bank is widely expected to raise interest rates in April and as several Fed officials have signaled their support for a more aggressive approach to inflation in coming months. Earlier this week, the dollar advanced on heightened hopes for an end to the Fed's accommodative policy stance, but the euro gained the upper hand as ECB board member Lorenzo Bini Smaghi signaled that there will be a number of rate rises to come in the euro zone. "When European central bankers are talking about rates, the euro benefits, when you have FOMC members talking about rates, the dollar benefits. It's kind of a tug of war right now," said Michael Woolfolk, senior currency strategist at Bank of New York-Mellon. Markets have been more sensitive to official commentary in recent days as they await key U.S. economic data at the end of the week, along with additional Fed speakers
