For the coming week we expect markets to continue in the same direction as the previous week. Look for the US dollar to depreciate, the Canadian dollar to rise and for the commodity markets to get ever-hotter. On Tuesday, US trade balance will go a long ways towards indicating whether the weaker greenback has had significant impact on US exports.
If the US economy is indeed on the “right-track”, this notion will surely be reflected in the Forex market. Friday the Chinese will report almost every major economic data point known to man. We’re talking GDP, CPI, PPI, new loans, business climate, and more. This data is bound to move the markets.
Last week, The BOJ accelerated its easing measures to stimulate economic growth after the Great East Japan earthquake. In addition to increasing the amount of the Asset Purchase Program by about 5 trillion yen, as well as injecting as much as 18 trillion yen to the market, shortly after the disaster, the central bank offered 1 trillion yen in one-year loans for businesses in disaster areas. Interest rates remained at virtually 0%. Policymakers also downgraded their economic assessments for the first time since October 2010. For more on this, see our USD/JPY predictions below.
Earlier today, Gold jumped to a record high for a fifth straight trading day as the prospect of more declines in the U.S. dollar drove investors into the precious metal, with record exchange traded fund holdings helping silver to its highest in more than three decades. Heightened inflationary threats despite interest hikes by China and the European Central Bank boosted gold’s safe haven appeal, while the Gold-Silver ratio is at a 28-year low. Monday’s gains could be capped by a drop in energy prices. Light sweet crude fell below $110 after the African Union said Muammar Gaddafi has accepted a roadmap to end the civil war in Libya, including an immediate ceasefire in the North African producer.
USD/JPY
The pair was on an upward trend for much of the week, however reports of yet another earthquake in Japan prompted broad based JPY strength late in the week. In turn this meant that the pair was unable to finish the week above the crucial 85.00 level. It is worth noting that the BoJ downgraded economic assessment in its April monthly report, and said that Japan’s economy is under strong downward pressure. The central bank also said exports and output will remain weak for the time being, adding that worsening sentiment is restraining consumption. It further said that credit spreads for corporate bonds are widening somewhat. In terms of technical levels, supports is seen at 84.60. On the other hand, resistance levels are noted at 85.39 and further on at 86.00. Long positions are encouraged.
Stop Loss: 84.60
Take Profit: 85.39
GBP/USD
Despite the fact that the BoE refrained from raising interest rates, together with much weaker than expected Industrial/Manufacturing production reports, the pair finished the week higher as traders continued to speculate that the central bank will soon begin to tighten monetary policy. The pair was in part supported by the release of surprisingly strong UK Services PMI report. Still, the outlook remains somewhat uncertain and it is unclear whether the BoE will raise interest rates in May. In fact, analysts at RBS pushed back their calls for a first rate hike from the BoE to August from May this year. In terms of technical levels, support is seen at 1.6257. Conversely, resistance levels are seen at 1.6430 and then at 1.6516. We expect this pair to head higher again this week.
Stop Loss: 1.6257
Take Profit: 1.6430
Natural Gas
Last week saw natural gas prices decline for the second consecutive week, dropping to the lowest level in three weeks on Friday amid speculation spring’s low-demand shoulder season was approaching, dampening demand expectations for the fuel. On the New York Mercantile Exchange, natural gas futures traded at $4.034 by close of trade on Friday, plunging 6.65% over the week. Once again we claim that natural gas prices are predicted to fall, though support is likely to be encountered at the psychological price of $4.000.
Stop Loss: 4.5600
Take Profit: 4.000
