Traders are tensed due to BOE Interest Rate Statement .
Economical News
USD
Yesterday the service sector ISM index, which measures the activity level of purchasing managers in the services sector, dropped to 52.4 in comparison to last month's reading of 54.3, but since the reading was above 50, the reversal effect on the USD was not triggered. However, the ADP Non Farm Employment Change released at 106K when in fact, the market expected 125K.
The increase in the ADP release for March compared to the Feb release gives us a hint that this Friday's NFP will be higher than 150K and will give some push to the US economy. In recent years, forecasting payrolls has been nothing more than an educated guessing game, but this time, enough stars are lining up in favor of a strong report.
In the meantime, high oil prices will keep inflation a concern. This predicament gives the Feds no choice but to leave interest rates unchanged at 5.25%, which will keep carry trades in play for the time being. The market expects a strong payrolls number to indicate that economic growth is chugging along. If the scenario will happen it will take the dollar to higher ground. If payrolls fall short of expectations and there are no revisions to save it, do not be surprised to hear the market question whether the Fed is doing the right thing by keeping rates steady and not considering a rate cut.
The overall sentiment of the USD is biased to the downside; however the market will keep cautious before the US Labor Department releases March NFP report this Friday.
EUR
Royal Bank of Scotland Group Plc's European PMI services index fell marginally to 57.4 in March from February's 57.5. In contrast to the service sector in the US, the service sector in the Euro zone actually saw faster growth in the month of March. Services growth accelerated in Germany and France.
However, Unemployment in the EMU fell to a record low and consumer confidence rose to a 6-year high. Also German manufacturing orders rose a stronger-than-expected 3.9% m/m in February following January's 0.3% m/m decline.
The impact of the Value Added Tax on Germany and the Euro zone as a whole continues to be limited. This keeps a rate hike by the European Central Bank in play as overall estimates remain hawkish.
Tomorrow the BoE will finish its two day meeting with an interest rate announcement expected later today, with a 40% chance priced in for a rate hike by the BoE plenty of market interest will surround the announcement.
JPY
The JPY was mixed today with the currency rising against the USD and GBP but falling against commodities currencies like the AUD and NZD.
The global interest in carry trades and levels of risk aversion will remain very important in the short term. While confidence in the global economy remains strong, the yen will remain vulnerable to capital outflows on yield grounds with renewed interest in using the yen as a global funding currency.
Bank of Japan Deputy Governor Muto said nothing new about the central bank's monetary policy. He indicated that rates will be adjusted as the economy expands but will still remain low for some time which might imply strength of the Japanese economy which can be reflected in the JPY.
Technical Analysis
EUR/USD
On the 4 H chart we can see a bullish head and shoulders which may imply a breakout of the 1.3400 resistance level.
The daily trend is clearly up ,however the RSI and Slow Stochastic are sailing in the neutral territory .
GBP/USD
When the 4 H RSI and Slow Stochastic are neutral combined with the MACD at 0.0016 there is range trading expected. It seems that the GBP is gathering new momentum for testing the 1.9800 resistance level.
USD/JPY
The USD recovered 100 pips from couple a days ago after touching the 117.69 and boosting to 119.08 and now reversing to 118.70, RSI is at 70 forming an upward reversal on the 4 hour chart where the next significant barrier is located at 119.26, however the volatility on the daily charts has dropped.
USD/CHF
This pair has come back up from yesterday's low of 1.2084 to 1.2232 and has been trading a tight range in the last 8 hours, daily slow stochastic is at 73 and RSI is at 65 with a neutral behavior.
Wild Card
GBP/JPY
In this forex pair we can see on the daily chart a classic pattern of the 5 Elliot waves which was started from March the 5th and during the coming weeks should complete the A ,B ,C bearish waves that would take this pair down .
RSI and Slow Stochastic on their way to overbought territory.
4 H chart is bearish and no signs of reversal is observed .
Market Trend
| EUR/USD | GBP/USD | USD/JPY | USD/CHF | AUD/USD | EUR/GBP | |
|---|---|---|---|---|---|---|
| Daily Trend |  |
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| Weekly Trend | |
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| Resistance | 1.3458 | 1.9890 | 121.64 | 1.2391 | 0.8269 | 0.6865 |
| 1.4008 | 1.9805 | 120.43 | 1.2332 | 0.8242 | 0.6813 | |
| 1.3380 | 1.9771 | 119.38 | 1.2231 | 0.8200 | 0.6785 | |
| Support | 1.3321 | 1.9684 | 118.36 | 1.2176 | 0.8151 | 0.6748 |
| 1.3285 | 1.9630 | 117.69 | 1.2144 | 0.8120 | 0.6711 | |
| 1.3210 | 1.9540 | 116.93 | 1.2100 | 0.8073 | 0.6646 |
Indicators
| Date | Time GMT | $€£¥ | Event | Period | Prev. | Forecast | Imp |
|---|---|---|---|---|---|---|---|
| 04/05/07 | 8:30 | GBP | Industrial Production | (M/M) | 0.1% | 0.2% |  |
| 04/05/07 | 8:30 | GBP | Manufacturing Production | (M/M) | -0.2% | 0.3% |  |
| 04/05/07 | 10:00 | EUR | German Industrial Production | (M/M) | 1.9% | -0.4% |  |
| 04/05/07 | 11:00 | GBP | Interest Rate Statement | 5.25% | 5.25% | | |
| 04/05/07 | 12:30 | USD | Unemployment Claims | 308K | 314K | | |
| 04/05/07 | 23:01 | GBP | NIESR GDP Estimate | 0.5% | |