GBP/USD Clears 1.50 Offers As USD Trims Gains

GBP/USD breaks above 1.50

The Cable rallied on stops above 1.50 amid the BoE minutes stated that the decision to hold the bank rate at the historical low of 0.50% has been “finely balanced” given the risks of a faster-than-expected pick-up in inflation. GBPUSD immediately surged above 1.50 and is expected to extend gains to 1.5050 with stronger resistance seen pre-1.5200/1.5225 (mid-term technical resistance). The downside risks due to pre-election uncertainties prevail. The vanilla bids stand at 1.4900/20, a break below this zone should suggest a renewed weakness toward 1.4740 (April 1st low). The key support remains at 1.4550/66 (four month horizontal range bottom).

Australian CPI favourable for an RBA cut in May

The Aussie has been the best performer among G10 currencies as the Australian CPI stabilized at 0.2% q/q in the Q1, verse the softer market expectations of a quarterly inflation down to 0.1% q/q. Nevertheless, the headline CPI on year eased from 1.7% to 1.3% y/y, keeping the wide market position skewed on dovish RBA expectations. Given the mixed sentiment regarding the Fed outlook and waning Eurozone yields, the Australian rates are still attractive and the inflows into the Australian bonds should lend support to the Aussie as long as the market remains risk-on. Technically, the short-term bullish momentum still points at an upside attempt to 0.7910/0.8000 zone (100-dma / psychological resistance), while the positive trend should, at some point, vanish on dovish RBA speculations walking into May 5 policy meeting. The RBA is expected to cut the cash rate by 25 basis point to 2.0%. A break below 0.7700 should pave the way to 0.7490/0.75. We see interest in selling on tops.

USD/JPY: bullish with limited upside potential

The surprise improvement in Japanese trade surplus in March (from -425 billion to +229.3 billion yen) somehow dissipated the concerns on weaker Yen’s disadvantages for the local business. The USD/JPY technicals turn marginally bullish, a daily close above the conversion line (119.68) should reinforce the upside correction. Nevertheless, levels above 120.00/85 still look challenging as low US yields are of minor support. On the downside, the support is seen stronger above the daily Ichimoku cloud base (118.94).

USD swings back and forth

The early optimism triggered by Teva Pharmaceutical Industries (ARCA:TEVA) offer to takeover Mylan (NASDAQ:MYL) did not last long in the New York session yesterday. The US equity indices trend lower since DuPont (NYSE:DD) voiced disquiets that stronger dollar is putting pressure on full year profits. Despite the worrisome comments on strengthening USD, the latest earnings reports from the US companies brought analysts to revise their forecasts for S&P 500 companies higher. Among the upcoming earnings reports this week, we remain focused on Facebook (NASDAQ:FB), Coca-Cola (NYSE:CCE), AT&T (NYSE:T), Boeing (NYSE:BA), McDonalds (Wed), Novartis (NYSE:NVS), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), P&G, Amazon (NASDAQ:AMZN), Caterpillar (NYSE:CAT), Ericsson (LONDON:0O87) (Thu), Volvo (LONDON:0HTP), Biogen (NASDAQ:BIIB) (Fri). Encouraging US earnings have slowly started to translate into a hawkish readjustment in Fed expectations; however a significant USD rebound is not on the agenda until the next FOMC meeting and the NFP release (due on April 29th and May 8th respectively). It is still too early to shift the first Fed hike expectations any further than September; the overall direction remains strongly positive for the US Dollar.