FOREX PRO WEEKLY, May 09-13, 2016

Sive Morten

Special Consultant to the FPA

(Reuters) Sterling hit an 11-day low on Friday, as investors worried that a referendum on whether Britain should stay in the European Union was still too close to call, with seven weeks to go.

Regional and local elections, in which Britain's main opposition Labour Party lost less ground than expected and was leading the race for London's mayor, had no noticeable impact on the pound.

Instead, the primary medium-term focus for sterling remains the June 23 referendum on Britain's membership of the European Union, with most polls showing the "In" and "Out" campaigns neck-and-neck.

Sterling had hit a day's high of $1.4546 after a weaker-than-expected U.S. jobs report showed just 160,000 jobs were added in April, well short of the 202,000 expected. But it later retreated to $1.4422, its weakest since April 25 and down 0.4 percent on the day.

Average hourly earnings were the only bright spot in the employment report, rising 8 cents or 0.3 percent last month.

"The earnings data counterbalanced the jobs number, which is why the dollar rebounded," said RBC Capital Markets currency strategist Adam Cole. "I wouldn't want to go long sterling into the weekend ... The polls need to start improving from here, from sterling's perspective."

Despite most polls being close, bookmakers have consistently put the "In" campaign well ahead. Betting website Betfair shows the chances of leaving at around 31 percent.

Emboldened by those odds, some speculators are betting the pound could soar as much as 20 cents from current levels after next month's referendum if Britons vote to stay in.

Most economists reckon leaving the EU would deal a blow to the British economy, with a hefty current account deficit - 7 percent of GDP in the last quarter of last year - leaving it vulnerable to any pull-back in investment flows. Any news that makes a Brexit more likely, therefore, knocks sterling.

For the week, the pound is down 1.2 percent versus the greenback, on track for its first weekly drop in four, having also been hurt by weak purchasing managers' index (PMI) surveys that showed Britain's economy slowed in April.

"The economy could well be on a shaky road ahead of (the)Brexit (vote) in June," said Western Union's UK head of corporate treasury sales, Tobias Davis.

Do not blame it on Brexit – yet
by Fathom Consulting

In our latest quarterly forecast we argued that the UK had been growing at an unsustainable pace for the past few years and that some slowdown was inevitable, with or without the EU referendum. Last week’s labour market and retail sales data were both weak, and commentators were quick to lay the blame at the door of the upcoming EU referendum. But are we really seeing anything more than the inevitable slowdown that must follow several years of above trend growth?


Set against the backdrop of near-stagnant productivity, it is clear to us that the UK economy has been expanding at an unsustainable pace for a number of years. That recent rates of growth could not last is evident too in the headline unemployment rate, which has fallen dramatically; the record current account deficit; and the household saving rate, which has plumbed new depths. Some slowdown was inevitable, with or without the referendum.

As a rule of thumb, retail sales data should be taken with a large pinch of salt – they are notoriously erratic, and often subject to large revisions. But if we smooth through some of the volatility, it is clear that retail sales have been slowing since the beginning of last year. Growth rates have, in fact, broadly stabilised since the beginning of this year. Labour market surveys suggest that employment intentions have also been weakening for some time.

Consequently, we would struggle to conclude that, to date, the apparent slowdown in the labour market, and in consumer spending, is anything other than the sort of slowdown that one ought to expect after several years of above trend growth. If the UK votes to ‘remain’ in the European Union then we expect growth of 1.8% this year and 1.5% next year. If the UK does vote to ‘leave’ on 23 June, the long period of uncertainty that would follow means that growth is likely to turn out weaker, and perhaps by some margin.

Brexit – Project Fear is Working
by Amareos

With less than 10 weeks to go the EU referendum debate in the UK continues to hot up. The UK government is, for the first time in a generation, putting the EU question directly to the electorate. This should be viewed as a positive move and demonstrates democracy in action. However, far from there being a reasoned debate on the pros and cons of continued EU membership, to-date it has become an exercise in scaremongering. Both sides are using scare tactics to fuel emotions which they feel will give them an advantage in the debate. Fear is the most prominent sentiment used by both parties. Playing on emotions rather than producing the “facts” appears to be the main tactic used so far to win over the voting public.

Rather than putting forward arguments in favour of staying in the EU for the most part the “In” camp has been running a negative campaign focussed on the costs associated with Brexit. Indeed, just this week Chancellor Osborne, citing a 200-page HM Treasury report, warned that leaving the EU would cost households around £4,300 per year because of a less interconnected UK economy outside the union. Despite BoE governor Carney describing the Treasury report as “sound”, the government’s figures have come in for a great deal of criticism, and not just from those campaigning for Brexit[1].

The impact of Brexit, especially on the nature of trade relations with the rest of the EU, is inherently unpredictable because of the lack of precedent. Even though the EU treaty contains a clause for leaving (Article 50) it has never been used[2]. This means putting a precise figure on the cost of Brexit is extremely difficult.

However, the absence of a counterfactual is also a problem for the “Out” camp, because it is impossible for “Outers” to refute by example the Treasury figures, or to seriously challenge the underlying assumptions in the report[3]. Moreover, failure to provide a credible alternative narrative which challenges such reports and supports their own view is leaving (no pun intended) the “Out” camp with a credibility problem in the eyes of the electorate. It raises questions about belief and trust in their message, sentiments, which could have a significant bearing on the outcome of the referendum.

Surprisingly, despite all the noise generated by the debate, aggregated opinion polls still show neither side gaining a decisive lead (see chart below). Moreover, the gap in the vote share between “In” and “Out” is significantly lower than the percentage of undecided voters, which some polls suggest has actually risen of late to almost 17 percentage points[4].
Exhibit 1: Referendum Vote Intention Poll of Polls

Source: run by NatCen Social Research

Based solely on the opinion poll results it would appear that the outcome of the June 23rd referendum is, to borrow a much-overused phrase, “too close to call”. However, the sentiment indicators we track at Amareos suggest the vote may not be quite as close as the polls indicate.

Readings of Fear – both in relation to GBP and the broader UK economy – have risen sharply over recent weeks (see chart below[5]). This suggests that the “In” campaign (Project Fear as some have renamed it – correctly it would appear) has been very successful in triggering a strong negative emotional response in people.
Exhibit 2: The Brexit Effect


Such extremely high Fear readings, reflective of worries about the negative economic consequences of Brexit, serves to reaffirm our earlier expressed belief that “when push comes to shove the [UK] electorate will vote in favour of continued EU membership” because of the “power of the status quo” [6]. After all, UK voters are hardly likely to trigger an outcome they are already displaying such a high degree of concern about if it can be avoided altogether simply by ticking a different box on the ballot paper[7].

Of course, this is the state of play at present. The situation is fluid and 10 weeks of campaigning remain. But the Amareos sentiment data suggest that if the “Out” camp wants to win on June 23rd they need to begin to address the fears stoked by the “In” camp, and soon[8].

*Sentiment Analytics are based on Thomson Reuters MarketPsych indices.

The chart in the piece includes the TRMI Fear index for the UK economy and TRMI Fear index for GBP.

[1] See:
[2] The closest example is when Greenland split from Denmark and voted to leave the EEC in the 1985 referendum – hardly a useful comparison.
[3] The HM Treasury report makes clear the assumption as to the nature of post-exit trading relations is a critical component of their analysis.
[4] See:
[5] The Fear indicator is calibrated such that it lies within the range 0-100. Hence, the latest readings imply Fear in the UK is close to its highest possible level.
[6] See:
[7] Think turkeys voting for Christmas!
[8] Highlighting the downside for the UK economy of maintaining the status quo is another plausible strategy for the “Out” camp.

COT Report

Bearish bets on the U.S. dollar hit their largest since Feb. 5, 2013 this week, boosted by expectations the U.S. Federal Reserve will hold off on raising interest rates further this year, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.

The value of the dollar's net short positions rose to $6.46 billion in the week ended May 3, from short contracts valued at $4.19 billion in the previous week. Speculators were short the dollar for a third straight week. Prior to the current three-week bearish turn, speculators had been long since May 2014.

Speaking on GBP sentiment on a retracement up speculative net short position is started to decrease. Open interest also has dropped significantly as Sterling has turned to upside retracement. In last 3 weeks we see that speculative short position is dropping while open interesting shows shy growth. It means that investors have re-opened a part of long positions that were closed previously. Thus situation around GBP and Brexit is so nervous that even hit COT data and shows that investors also jump from one opinion to another.
Still it seems that these longs were mostly short-term. Take a look at jump in Open interest and deep pit in speculative shorts - this was a moment of big amount of long opening. As market has started move higher - open interest has started to decrease while net short positions have started to repair. THus, it means that recently opened longs gradually were closed.


Recently market starts to show some signs of weakness, that could become a reason for downward continuation. Although we prefer to get more bearish CFTC data, but currently we see contraction of long positions and may be this tendency will continue slowly till June. At least, Ireland voting last year has triggered outstanding drop in open interest of GBP. Net short-position also stands not at a record lows, thus some more decrease is possible. That's why, although fundamental picture does not look totally cloudless, but it doesn't confront to technical picture of possible GBP decrease.

As market recent time coiling around YPS1 - this barely made any impact on monthly chart. Some upward bounce but its scale insignificant for this time frame. Besides we do not have visible reasons and technical supports in area where this upside bounce has started – no AB-CD extensions, Fib levels, pivots etc. That’s why we treat this move as retracement yet and stand with our previous analysis on downward continuation in long-term perspective. Currently sterling is flirting around YPS1 and 1.40 lows.

Long Term Forecast on GBP rate

Our long term analysis suggests first appearing of new high on 4th wave at ~1.76 level and then starting of last 5th wave down. First condition was accomplished and we’ve got new high, but it was a bit lower – not 1.76 but 1.72. This was and is all time support/resistance area. Now we stand in final part of our journey. According to our 2013 analysis market should reach lows at 1.35 area. Let’s see what additional information we have right now."

Today, guys, we give some interesting observations on different time frames that could become a clue to undertsanding of GBP perspectives in nearest futures.

Trend is bearish here, but GBP is not at oversold. Unfortunately we've not got bearish grabber here, at least to date. On monthly chart we have two important patterns.

First one is uncompleted yet small AB-CD down. It amazingly agrees with huge AB-CD pattern, that has 0.618 target @ 1.3088 area. Since this is just minor 0.618 extension of huge pattern - sooner or later but market should hit it with high probability.

Second important moment here - GBP already has broken through all important supports - YPP, major 5/8 Fib support, natural supports of some former lows. Now it stands in an area of YPP, but upside reaction looks mild.

This leads us to conclusion that all time lows around 1.35 probably will not survive, despite how long they will hold price. Mostly because AB-CD targets stand right below it. If even market will not drop further - it will wash out lows. There is really high probability for this.

Thus, monthly chart mostly still shows existing of bearish sentiment. At least nothing crucial has happened here yet that could give a sign of tendency breaking.


Weekly chart has most important information for us, say, "the core" of our context. Currently trend is bullish here my MACD, but this is not the major issue right now.

Current upward action has started from bullish engulfing pattern and not it has reached the target. This upside bounce has started almost from 1.618 extension target of BC leg of our AB-CD pattern. It is interesting that if we will measure 1.618 of most recent upside action - we will get precisely AB=CD target around 1.33 area. So could we get here something line 1.618 3-Drive "buy" pattern?

Another important moment that market mostly has formed bearish reversal week right at weekly OB. Last week market has created new high, then reversed down and closed almost below the low of week before. Not quite, but very close. Although this is not pure reversal week, but overall action is definitely bearish. This candle could mean that hardly we will get new bull trend, some upside reversal of global tendency on GBP. Mostly it means that upside retracement is over and GBP has solid chances to return back to long-term bearish trend



As on weekly chart "almost' have got reversal week - on daily we do have reversal session right in the point of completion of H&S target. I mean AB=CD that is based on the head and right shoulder. Trend has turned bearish on daily chart.
Also recent H&S upward action just has re-tested former lows and its top reminds W&R of previous top. Following overall situation on monthly/weekly charts it is logical to suggest that our journey with H&S mostly is over. But theoretically until market stands above 1.40 area it keeps chances to continue upward action to next, 1.618 target of AB-CD pattern. Thus, to get final absolute confirmation of bearish continuation we need to get price drop below 1.40 area.
Thus, GBP mostly gives chances to trade on intraday charts, at least until daily traders will wait for final confirmation before taking short positions.
At first glance it seems too long way to confirmation, but in a scale of weekly chart with target around 1.34 - 300pips is really "small" distance.

Thus, reaction on weekly reversal week and OB probably will lead to deep retracement. That's why chances are blur that GBP will return back to uspide action.

This time frame gives us important information about strong support cluster at 1.4260-1.44 area. This is K-support that also includes H&S neckline, MPP and WPS1. Thus GBP probably will show upside bounce out from it.
At the same time, since Cable is overbought on weekly chart hardly it will finish downward action here. More probable that it will take shape of some AB=CD down. And on a way up price could, for example, just test WPP...

Second - it seems interesting 1.42 level, because this is major 5/8 Fib support and MPS1. If GBP will drop below it - this will be early confirmation of long bearish trend continuation.

Recent action barely impacts long-term perspectives for GBP. Mostly it stands in relation to daily and intraday picture and is tactical. So, we still keep bearish our long-term view.
In short-term perspective we expect downward action progress. First, we will be watching for price reaching of 1.4350 area, then upside bounce, may be to WPP and then CD leg down. This is our expectation on coming week. 1.42 level will become a red line among trends. If market will drop below it - this will significantly increase chances on further downward action.

The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.

Sive Morten

Special Consultant to the FPA
Good morning,

(Reuters) The yen fell to its lowest in almost two weeks against the dollar on Tuesday following warnings by Japan that it was prepared to step in to weaken the currency.

The dollar rose 0.4 percent to a 12-day high of 108.895 yen, after surging more than 1 percent on Monday. The U.S. currency tumbled to an 18-month low of 105.55 yen last week after the Bank of Japan stood pat on monetary policy.

Finance Minister Taro Aso said on Monday that Tokyo was ready to intervene to weaken the currency if moves were volatile enough to hurt the country's trade and economy. He reiterated that message on Tuesday.

Traders said some speculators were cutting favorable bets on the yen, having piled into the currency in the past few weeks.

"Considering that speculative long positioning remains relatively sizeable, such comments should increase uncertainty among all those who remain long," said Manuel Oliveri, currency strategist at Credit Agricole. "We do not exclude further position squaring-related downside risks."

Nevertheless, many believe the bar for intervention is high and unless the yen strengthens rapidly past 105 and towards the 100 mark against the dollar, authorities are likely to stay on the sidelines.

"Japanese authorities will obviously never state what currency levels are important to them, but if you can read between the lines, 105 yen seems to be one of the watersheds," said Bart Wakabayashi, head of FX sales at State Street Global Markets in Hong Kong.

Traders said Japan will also be wary of intervention before it hosts a G7 meeting later this month. Attendees at previous G7 meetings have frowned upon interventions, and Tokyo is sensitive to criticism that it is trying to engineer a weaker yen.

A recent U.S. Treasury report termed countries with substantial trade surpluses such as Japan which try to weaken their currencies through "persistent one-sided" intervention as manipulators.

The euro rose 0.45 percent to a near two-week high of 124 yen EURJPY=R, pulling further away from a three-year trough of 121.48 plumbed late last week.

The common currency was flat against the dollar at $1.1385 . The dollar index .DXY was at 94.151, having hit its highest in nearly two weeks in the Asian trading session and extending its rise from a 15-month trough reached on May 3.

So, guys, many currencies, and gold now stand at levels that we've discussed, but they weren't able to create clear response yet on touching this levels. Thus, GBP has reached K-support area that we've talked about in our weekly research. Gold as well has shown expected AB=CD action...So we will continue to watch for them.

Today we will give light update on EUR, since it has not shown any significant changes compares to some other currencies. In fact, on daily chart it has completed one important thing - touched MPP @ Fib support. Right now price stands in crucial area of former consolidation. Depending on whether price will hold here or not - EUR will continue move up to our next target, or, will turn to deep retracement, 1.08 or even lower:

On 4-hour chart we see that EUR still could rebound from current level. Here we see clear wedge pattern that is forming right around our Fib support 1.1368 and MPP. It seems guys that for those traders who would like to take long position - this is pain or gain situation. Because market stands at red line. I'm not sure that this is sufficient context for going long, but at least here we could place tight stop and get clarity on bullish failure if market will drop below daily top consolidation:
Last edited:

Sive Morten

Special Consultant to the FPA
Good morning,

(Reuters) The dollar dipped on Wednesday as investors locked in gains following its steep rise against the yen after intervention warnings from Japanese officials.

The dollar index .DXY, which tracks the greenback against a basket of six rival currencies, shed 0.2 percent to 94.126, moving away from its two-week high of 94.356 set overnight.

However, it remained well above a 15-month trough of 91.919 set on May 3.

The dollar fell 0.4 percent to 108.83 after climbing to a two-week high of 109.38 yen early in the Asian session. It moved back toward last week's low of 105.55, which marked its lowest since October 2014.

The euro slipped about 0.3 percent to 123.90 yen after notching a two-week high of 124.415 overnight after bouncing off a three-year bottom of 121.48 on Friday.

Both currencies had suffered losses in late April when the Bank of Japan held off from expanding monetary stimulus, touching off a rally in the yen that stoked investors' fears that Japan's Ministry of Finance would decide to intervene.

Still, many expect that Japan would be wary of conducting direct currency intervention before it hosts a G7 meeting later this month, as Tokyo is sensitive to criticism that it is trying to engineer a weaker yen.

"Japan can't intervene so easily," said Ayako Sera, market strategist at Sumitomo Trust and Banking. "But the recent comments from officials provided investors with good timing to unwind some of their long positions."

Koichi Hamada, a key economic adviser to Prime Minister Shinzo Abe, was the latest to sound a currency market warning.

Hamada said on Tuesday Japan will intervene in foreign exchange markets if the yen strengthens to 90-95 per dollar, even if that upsets the United States.

"Yesterday's comments from Japanese officials hinting at possible FX intervention to weaken the JPY, combined with the lift in European and U.S. equity markets have undermined JPY," noted Elias Haddad, currency strategist at Commonwealth Bank.

Still, recent dovish comments from core Federal Reserve members and weaker-than-expected job gains in April continue to cap the dollar.

The euro added 0.1 percent to $1.13810, though it remained below a 2016 high of $1.16160 hit on May 3.

The Australian dollar slipped about 0.1 percent to $0.7357 moving back toward a two-month low of 73 cents touched on Tuesday, as oil prices gave up their overnight gains.

The New Zealand dollar stole some limelight, rising 0.6 percent to 68 U.S. cents, climbing well away from a recent low of $0.6717.

Markets had sold the kiwi on Tuesday on speculation the Reserve Bank of New Zealand (RBNZ) would introduce new measures to curb Auckland's housing market. When the RBNZ held off from that course on Wednesday investors were quick to unwind those moves.

So, while we still watching for patterns on AUD and GBP - we take a look at EUR and briefly on JPY. At first glance nothing is going on with EUR. But, the fact that it stands around 1.14 level is bullish by itself. EUR has turned to retracement after it has hit major 1.618 AB-CD target @ 1.16. It could drop significantly lower and this would be logical, but, EUR stands very tight around MPP instead and previous top. This keeps bullish chances on further upside continuation. Here we have the same conclusion as yesterday. EUR stands at breakeven point - drop below 1.13 will lead price to 1.08-1.10 area while starting upside action could reach 1.18 within 1-2 months. That's why this level is very important to us:

On 4 hour chart we see that EUR makes attempts turn to upside action. Wedge pattern looks nice, trend has turned bullish here:

On hourly chart we also have bullish divergence, although it is unclear how important it will be for extended upward action. Still, this is a bullish sign:

Finally, on JPY. Here guys, we have excellent scalp setup for B&B or DRPO trade. Market has reached Agreement resistance on 4-hour chart. Upside thrust looks nice. Thus, here we could watch either B&B "buy" or DRPO "Sell" pattern with 60-80 pips potential:
Last edited:

Sive Morten

Special Consultant to the FPA
Good morning,

(Reuters) The dollar rose against the yen on Thursday due to position squaring, getting an added lift after a Japanese academic said the Bank of Japan was likely to expand its monetary stimulus as soon as next month.

The dollar edged up 0.5 percent to 108.97 yen. On Wednesday, the dollar had lost steam after touching a two-week high of 109.38 yen and ended up falling 0.8 percent.

Some traders who sold the dollar in its recent bounce seemed to be buying it back now, said a trader for a Japanese bank in Singapore.

The dollar added to its gains versus the yen after Takatoshi Ito said the BOJ is likely to expand monetary stimulus either in June or July. Ito is a prominent academic with close ties to Bank of Japan Governor Haruhiko Kuroda.

For his part, Kuroda said the BOJ won't hesitate to take further easing steps if necessary, adding that there were still large downside risks to Japan's economy.

The dollar had set an 18-month low of 105.55 yen on May 3, having slid after the BOJ held off from expanding its monetary stimulus at its policy meeting in late April.

The greenback has since regained some footing as traders cut their bullish bets on the yen following a series of warnings from Japanese Finance Minister Taro Aso that the government would intervene to curb any excessive one-sided gains.

But analysts believe Japan will be wary of intervening before it hosts a Group of Seven meeting this month, even though Tokyo is clearly unhappy with the yen's rise of more than 10 percent so far this year.

"For dollar/yen it would appear that it is now caught in nervous range trade around 105 to 110," said Heng Koon How, senior currency strategist for Credit Suisse Private Banking Asia Pacific.

"It is likely that Tokyo is still trying to build consensus and agreement on intervention both internationally and domestically," Heng said.

Against a basket of six major currencies, the dollar edged up 0.1 percent to 93.898 .DXY, but remained below Tuesday's high at 94.356, which represented a 2.7 percent recovery from its 16-month trough hit earlier in the month.

The euro held steady at $1.1424/

While the dollar has been supported by a recovery in risk appetite in financial markets, doubts linger over the strength of the global economy with political risks in many places seen as hampering companies' investment plans.

"It is not clear how strong the U.S. economy will be in the April-June quarter. It will be better than the first quarter but it doesn't look so strong," said Makoto Noji, senior strategist at SMBC Nikko Securities.

U.S. economic growth slowed to 0.5 percent in the first quarter, with the strength of the dollar late last year seen as a factor weighing on the economy. That has also supported expectations that the Fed may delay rate increases this year, further hampering dollar bulls.

Sterling remains on the defensive as the latest surveys show the "Brexit" referendum on Britain's continued membership in the European Union on June 23 is still too close to call.

The Bank of England's monetary policy committee releases updated growth and inflation forecasts in a quarterly report on Thursday but uncertainty over Brexit is likely to keep the central bank extra cautious.

The pound held steady at $1.4443, not far from its two-week low of $1.4375 touched on Monday.

So, guys, just in the begining of daily update - our JPY scalp B&B "Buy" has been completed recently:

In general, guys, activity has dropped significantly across the board. Thus, on EUR market slightly bounced up out from MPP and not stands. On daily chart situation has not changed at all. May be tomorrow on Retail Sales and PPI release we will get something.

On 4-hour chart our initial idea was correct and market indeed has shown uspide breakout of wedge pattern. Thus if you have taken long here - you could try to move stop to breakeven. Since if market will return back inside wedge body - this could lead to breakout of daily major consolidation:

Today we could watch for hourly chart. Here we have important area between wedge border and horizon 1.14 support/resistance area. EUR should hold above this 1.1370-1.14 area to keep chances on upside continuation:
Last edited:

Sive Morten

Special Consultant to the FPA
Good morning,

(Reuters) The dollar held to gains against the yen and euro on Friday, awaiting U.S. data later in the day that could set the greenback's tone.

The dollar was little changed at 108.86 yen after gaining about 0.6 percent overnight.

The U.S. currency, which had hit an 18-month low of 105.55 yen last week after the Bank of Japan stood pat on monetary policy, was on track to rise 1.8 percent on the week. Verbal warnings by Japanese authorities over the past week have so far helped cool the yen's rally.

The euro was effectively flat at $1.1371 after shedding 0.4 percent on Thursday.

The dollar was buoyed overnight as U.S. Treasury yields rose when Boston Federal Reserve President Eric Rosengren said the Fed should raise interest rates if data confirms a stronger jobs market and inflation outlook in the second quarter. He added that the markets are too pessimistic on the economy.

The currency market will have a chance to gauge the underlying strength of the U.S. economy through a batch of data to be released later in the day.

"In terms of impact on the dollar, April retail sales data will be key, especially since a high rise is expected. The University of Michigan consumer sentiment index also bears watching," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.

The April U.S. producer price index (PPI) is also due later in the day.

The dollar could face renewed pressure against peers like the yen if U.S. economic indicators fall short of expectations, which would be a new potential headache for Japanese authorities who have managed to arrest the yen's appreciation by threatening to intervene.

"Japanese officials can keep up their verbal warnings and even actually intervene, but the fundamentals continue pointing toward a stronger yen - a view many speculators appear to have embraced," said Junichi Ishikawa, forex analyst at IG Securities in Tokyo.

"Japan's current account surplus continues to increase and U.S. rate hike expectations for the year have been cut down from four to one. Furthermore, currency policy will likely become a topic in the U.S. presidential elections, making it hard for Japan to intervene," he added, listing the factors favoring a strong yen.

Japan's current account surplus was largest since 2007 in March due to falling oil import costs and a hefty income surplus from overseas investment, Ministry of Finance data showed on Thursday.

The United States has for years called on countries with current account surpluses to do more to lift their domestic demand, which has been perceived to be lackluster.

The pound dipped slightly to $1.4437, having spiked briefly overnight to a two-week high of $1.4532. Sterling rose on Thursday after Bank of England (BOE) policymakers voted unanimously to keep interest rates unchanged, quashing talk that one or two might vote in favor of a cut.

The BOE said sterling could fall sharply and unemployment would probably rise should Britain opt to leave the European Union - its starkest warning so far of the likely impact a "Brexit" would have.

The Australian dollar, weighed down recently by a central bank rate cut and a drop in the price of iron ore, remained on the back foot against a buoyant dollar.

The Aussie fell to a fresh two-month low of $0.7286. It was poised to fall 1 percent against the greenback this week.

So, today we will take brief look as on EUR as on GBP, since even havn't taken a look at it within a week. Thus, recent comments from Fed representative has pushed markets lower. EUR right now stands near the crucial level around WPS1 and the bottom of important consolidation on daily chart. If real breakout will happen - next destination point will be daily K-support @1.1150, but in perspective as far as 1.08 area again.
Still, wait for data release. Retail Sales has 75% correlation with GDP numbers. That's why it so desirable. If they will be poor , this put the shadow on economy pace in IIQ. Seasonally US economy is weak in QI and rebounds in QII. If this will not happen - upward action on GBP and EUR pairs could be really strong.

On daily GBP market is forming bearish flag. Currently we will not talk on extended 1.42 target. Let's better focus on action that we could get today.

Market mostly has completed our analysis for the week. Upward bounce has happened in the beginning of the week and Cable almost has touched WPP, as we've suggested. Still we're expecting mostly 2-leg action down, because of weekly and daily reversal candles and daily OB. Now we see that GBP has turned to downward continuation.
Here let's take a look just at closest target that GBP could reach today. 4-hour chart shows clear sign of bearish dynamic pressure. Nearest AB-CD 0.618 target stands at 1.4270 area and this is also 1.618 extension of BC leg. Thus, if market will form, say Butterfly "Buy", then it will have the same target.

So, let's wait for data release. Futher drop as on GBP as on EUR on a background of good Retail Sales will let us to shift to bearish sentiment, as key levels will be broken and we will be able to use more extended downward targets.
Last edited: