EUR underperformance and USD outperformance was the main show in town once again. EUR-USD extended to a near three-month low of 1.3756. The euro also fell against other currencies, with EUR-JPY logging a two-month low of 139.10, for instance. The last down-leg in the euro was a delayed reaction to weaker than expected preliminary Eurozone Q1 GDP, which didn't initially prompt an FX reaction having been portended by the unexpected contractions in the earlier released national figures out of Italy and Portugal. Elsewhere, sterling posted a near 50-pip loss against the dollar, but managed to firm against the euro. USD-JPY rebounded from a Tokyo low of 101.66, which was seen after a much stronger than expected initial estimate of Japanese Q1 GDP of 5.9%, but downplayed as it was driven by a surge of big ticket consumer purchases ahead of April's sales tax hike. The pair settled around 101.90 after failing to sustain gains above 102.00.
[EUR, USD]
EUR-USD extended to a near three-month low of 1.3756 after meeting a fresh wave of selling from the 1.3780 area. The move follow weaker than expected Eurozone GDP data. EUR-USD's The price remains distinctly bearish, with there being a lack of substantive rebounds in the wake of ECB-initiated decline that commenced last Thursday, with lower lows continuing to be seen. We concur with a UBS research note of earlier in the week, which argued that EUR-USD will fall to sub-1.3400 levels over the coming weeks based on forecasts for May Eurozone CPI and the May U.S. payrolls report, along with ECB action at its June policy meeting.
[USD, JPY]
USD-JPY rebounded from a Tokyo low of 101.66, which was seen after a much stronger than expected initial estimate of Japanese Q1 GDP of 5.9%, but downplayed as it was driven by a surge of big ticket consumer purchases ahead of April's sales tax hike. The pair settled around 101.90 after failing to sustain gains above 102.00. Selling in EUR-JPY, which made a two-month low of 139.10, helped cap the dollar pairing. USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.
[GBP, USD]
Wednesday's disappointing labour market report and more especially the BoE May Inflation Report, which unexpectedly left GDP and CPI projections largely unchanged while signalling that there remains no rush to hike interest rates, were game changes for sterling. The market had clearly got ahead of itself with regard to BoE tightening expectations. While the labour report wasn't exactly bad, with unemployment dipping to a new cycle low of 6.8% from 6.9%, the claimant data pointed to a slackening in the pace of decline while average income data unexpected dipped to 1.3% y/y, below CPI inflation, which is 1.6%. This backs up BoE arguments that there remains a good degree of slack in the economy. We look for Cable to revisit 1.6700 and below, though we don't anticipate too much potential for sustained losses below 1.6500.
[USD, CHF]
EUR-CHF has re-established a sideways direction anchored around 1.2200, having recovered from a recent foray to the mid-121s. The cycle low of 1.2104 and 1.2100 are key support levels. The threat of SNB intervention into its 1.2000 limit peg is helping to deter franc buying to some extent. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.
[USD, CAD]
USD-CAD dipped to a four-day low of 1.0852 during the London AM session on Thursday, subsequently recovering toward 1.0880 amid a generally well bid USD environment. The pair had been in a consolidation phase since late January following a four-month rally period from sub-0.9700 levels, but a moderate bear trend seems to be emerging. However, the still-dovish outlook for BoC policy seems to be putting a limit on the CAD's upside. We expect a choppy, sideways bias in USD-CAD over the coming period.
