Aussie believed to be buoyed by banana prices

EUR USD (1.2760)
The opening of the European session on Friday only saw the single-currency a tad lower. But later on in NY, it managed to flex some muscle with more than a big figure rally which hoisted it almost straight up to its recent 1.2770 peak.

The market simply went from being overly bullish on the single-currency on Thursday to bearish on Friday morning as some traders wanted to sell the euro. In a market which is rather sensitive to interest rates, the Bernanke address from the previous week also kick-started the euro bullish train. Later on, the release of the Beige Book just provided some with another argument about the end of the Fed tightening cycle coming closer and one could even hear talk about the single-currency hitting $1.30 on a weak GDP number. On Thursday it very much sounded like it was the last hoorah for Fed rate hikes, at least as far as some traders were concerned. However, one could detect a bit of a change in tune amongst the short-term crowd on Friday morning as there was all of a sudden talk about an August Fed rate hike still being on the table and even some chatter about a ‘sovereign account’ selling the euro. Nevertheless, as some market participants tried the euro from the short side, these types of noises were just indicative of the short-term crowd’s preference for the short side. But on the release of the GDP number, which came in lower than expected, the single currency was lifted to a fresh high for the day as some had to jump in and cover their positions.

For risk-reward considerations our opinion on the single currency is neutral. Any further recovery would run into supply at 1.2845/50. This still serves as the trigger for an assault of 1.2980 (June high) and even beyond. A bullish strategy would also be justified in the 1.2610/20 zone with a tight risk-limit.

USD JPY (114.30)
As traders were cutting back on their short yen positions, there was no shortage of arguments to do so. Despite Friday’s US GDP number, the attention grabber was the renewed talk about the further revaluation of the yuan. In this respect, the Chinese Prime Minister even went so far as to pledge a ‘gradual raise’ in interest rates. Talk about the slow appreciation of the yuan is hardly anything new and it seems as if the market forgot that the initial revaluation could not help the yen for much longer than a couple of days. The dollar slipped below our 115.35 limit and continued to fall a big figure thereafter. This morning it even violated its best support at 114.40 and as a result it finds itself in a vulnerable position. The downside risk is for 113.30/35 and any weakness below this could even see the decline accelerating. On a bounce, resistances stand at 115.30 and at 115.85.

EUR JPY (145.90)
The euro has started one of its very familiar corrections after having hit a lofty 148.05 record high last week. We reckon with risk down to 145.60/75, which also marks a critical point for a more severe setback to 143.00. Overhead, we expect to run into hurdles at 146.90 (subsequent limit) and at 147.50.

EUR GBP (0.6845)
The target remains 0.6730. The euro retested its recent trough on Friday, but managed to recover again from there. The risk-limit to the bearish orientation is visible at 0.6860. For today we anticipate intermediate support at 0.6800. Beyond the pivot, the position will be neutral in which case the next hurdle can already be expected at 0.6885.

GBP USD (1.8655)
Even though there has been no new data releases on Friday that could shed some light on the direction of interest rates in the UK, but it is clear that some market participants are betting on a rate hike at the next BoE meeting. The upside remains open for additional gains to 1.8775 and thereafter to 1.8965. On a dip, supports are visible at 1.8530 and 1.8445/60. The last demand point remains the gatekeeper for short-term stability.

AUD USD (0.7660)
Our 0.7670/75 objective proved to have been the peak of last week’s recovery. Also here, the prospect of a rate hike is keeping traders busy. Market participants now even expect two rate hikes on the back of a strong surge in banana prices which is said to be fuelling inflation. Once the AUD clears the first the second one stands at 0.7810/15. In this event intermediate resistance will be poor ahead of there. In the meanwhile, we are looking for supports at 0.7625 and at 0.7570.