- British Pound Continues Consolidation Above 1.4600 - Breakout Potential
- Euro Holding Above Key Support at 1.3100 - Declines May Be in Store
- Australian Dollar, Canadian Dollar Consolidate Below Monthly Highs US Dollar, Japanese Yen Benefit from Low Volumes - US Retail Sales Could Slump Next Week
The US dollar and Japanese yen drifted higher yet again on Friday, as low liquidity left the major currency pairs to trade in tight ranges. The shift to higher volumes when the markets open next week, however, creates breakout potential for pairs like EUR/USD and GBP/USD since they are trading near such critical support levels. That said, the direction of these moves will likely depend on investor sentiment, as risk averse selling during the Asian trading session on Sunday could easily send the greenback higher due to flight-to-quality.
Looking to the next piece of US event risk, on Tuesday the Commerce Department is forecasted to report that US retail sales rose 0.4 percent in March, after slipping 0.1 percent in February, and excluding autos retail sales are anticipated to edge 0.1 percent higher. However, there may be downside risks for this reading as the latest ICSC chain store sales numbers show that the contraction in consumption accelerated during March. Indeed, deteriorating labor markets, tight credit conditions, and a year-long recession weighs heavy on the minds of consumers, but as we’ve seen with reports like US non-farm payrolls, the impact of a disappointing result may be mixed as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, traders should keep risk trends in mind, as flight-to-quality tends to benefit the US dollar, even if the US fundamental picture worsens.
British Pound Continues Consolidation Above 1.4600 - Breakout Potential
The British pound has remained contained to a tight range versus the US dollar of 1.4600-1.4750 following Thursday’s Bank of England rate decision, as they left the Bank Rate at a record low of 0.50 percent, as expected, which marked the first “no change” decision since September 2008. The BOE Monetary Policy Committee’s (MPC) statement was short and sweet, providing little in the way of new information. The MPC did indicate that they would continue with the quantitative easing efforts announced on March 5, but that it would take another two months before the program was completed because they had only purchased 26 billion pounds in assets of the planned total of 75 billion pounds. Ultimately, there are still significant downside risks for the UK’s economy and financial system, but as it stands, the markets are broadly anticipating that the BOE will continue to leave the Bank Rate at 0.50 percent throughout the remainder of the year, since further reductions are unlikely to have much of an impact. In the near-term, it may be worth looking for a GBP/USD break out of its recent range, but if risk aversion returns, the pair’s break could be a bearish one.
Written by Terri Belkas, Currency Strategist
