EUR/USD
The corrective recovery off 1.4125 is tackling resistance at 1.4285. However, with layers of resistance looming at 1.4330 and 1.4360, scope for corrective gains are limited. Wednesday's bull failure high at 1.4442 continues to dominate the daily chart and Thursday's low at 1.4125 remains vulnerable, which will become the focus on a break below 1.4195.
GBP/USD
Corrects higher off 1.5939, but with upside risk limited to 1.6122, the main threat remains to the downside. Renewed GBP bear pressure is expected on 1.5939, and there is scope for an extension lower towards targets at 1.5901 and 1.5859. Resistance at 1.6066 and 1.6100 protect the 1.6122 barrier.
USD/JPY
Thursday's cap at 80.80 keeps the action within a short-term bear pennant continuation pattern. Bear pressure is building on support at 80.34, and a push below there would bring Wednesday's 80.01 low back into the picture. Loss of 80.34 would also leave the 80.80 high as a near-term bull failure. Regaining ground above 80.64 is required to suggest a return to the 80.80 high is on the cards, protecting the important June 15 reaction high at 81.08.
AUD/USD
Stages a recovery off 1.0455, and a push above resistance at 1.0552 is expected. The pace of the three-week downtrend is slowing, and a break above 1.0552 would open the important 1.0630/51 projected resistance area. However, AUD bulls need to force a break through 1.0651 in order to gain control. A push below 1.0478 is required to re-expose the 1.0455 low, threatening a downtrend extension to 1.0441 and towards 1.0325.
FOREX FOCUS
Inflation is concentrating minds from Washington to Beijing. But that doesn't mean global risk sentiment will improve. On the contrary, recent comments from China, as well as the International Energy Agency's highly unusual decision to release crude oil stocks, both smack of a certain amount of desperation. Let's look at China first. Premier Wen Jiabao's claim that inflation has been vanquished will certainly come as a surprise to all those who, both inside and outside the country, have been looking for tighter monetary policy as well as further gains in the yuan itself. However, Wen's comments may reflect a greater reality about the state of the Chinese economy and the rapidly growing fears that the housing market is about to implode. Up until now, fighting inflation may have been the primary priority, especially given the damage that higher prices pose to the government's popularity. But, if recent economic data, including the latest manufacturing activity numbers this week, continue to point to a slowdown, Beijing's priorities might be changing. By claiming an inflation victory, Wen will reduce expectations of tighter policy and take some of the pressure off the housing market. This could make the headline of a well-timed piece of research by Societe Generale: "Chinese Construction Bubble: Preparing For A Potential Burst", look even more prescient. For financial markets, it is the coincidence of Wen's remarks with the IEA's announcement that have proved particularly unsettling. Although the prospects for the U.S. as well as the global economy are not looking as good as they once were, there is a growing fear that the recent rise in energy prices has gone too far and that inflation has become too entrenched.
EUROPE
The dollar rallied against other currencies in late Friday-morning trade in Europe on Italian bank credit concerns, reversing earlier losses after robust German business confidence gave investors renewed hope that a slowdown in the global economy would pass after weak data this week. The abrupt reversal in currency trader sentiment came after trading in leading Italian bank stocks was suspended after these fell sharply. The development followed a warning from Moody's Investors Service late Thursday that it may cut the credit ratings of 16 Italian banks. It also added to wider euro-zone debt concerns in the wake of 11th-hour efforts to stave off a default in Greece, even as hopes grew that the euro zone would muddle through following overnight news that Greece had reached an agreement with the International Monetary Fund and the European Union on a five-year austerity program. "There are still substantial uncertainties because the new Greek packages come with additional conditionality, including another EUR5 billion in extra fiscal cuts which will be difficult to get through parliament," said Hans Redeker, head of global currency strategy at Morgan Stanley.
ASIA
The euro rose against the dollar in Asia Friday as multinational efforts to tame crude prices and inflationary pressure prompted investors to think that central banks may refrain from policy tightening for now. The International Energy Agency said Thursday its 28 members including the U.S. have agreed to release 60 million barrels of oil from strategic reserves to boost supplies ahead of the peak summer driving season. As a result of Libyan conflict earlier this year, crude output has declined and pushed up oil prices. That added to already-high inflationary pressure in emerging countries such as China and Brazil, making investors speculate that authorities may tighten monetary policy at a faster pace to curb prices even at the expense of cooler share markets. The IEA announcement instantly sent oil prices down to a four-month low and eased the speculation, contributing to gains in Asian share markets. Japan's Nikkei Stock Average was up 0.8% and China's Shanghai Composite Index was 1.8% higher as of 0450 GMT. The euro often becomes strong when share markets are upbeat due to a high yields that euro-denominated assets have. That was indeed the case in Asia. "We may see the euro briefly touching $1.43," said Hideki Amikura, a senior dealer at Nomura Trust and Banking. Still, Amikura and other Tokyo dealers say the euro's upside potential is limited because Greece's debt problems are not over yet and a slowdown in the European economy has been seen recently.
WORLD
The euro had been beaten down so much by global growth and Greece debt concerns Thursday in New York that news of a widely expected accord helped significantly pare its losses. Greece's agreement with the International Monetary Fund and the European Union on a five-year austerity program isn't a long-term solution to Greece's credit woes. The program also still has to survive in Greece's parliament. The austerity agreement was necessary so that Greece's parliament would have something to vote on. But the news was enough to lift the euro to $1.4264 from an intraday low of $1.4125. "It's a (factor) of how jumpy the market is. In order to vote on an austerity package, you have to have" an actual austerity proposal, said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "Anything that might look like a bit of news, the market will react to it. The market is skittish and that doesn't always help." That said, support for an austerity plan is vital to a second bailout package for the laid-low country, and is integral to euro-zone officials' desire to avoid a complicated and messy debt restructuring. But this doesn't mean the problems are over for the once high-flying euro, said analysts, especially if global growth shows continued signs of slowing
