Forex: EUR/USD jumps but the dark clouds remain there; The long & sweet BoJ Game


FXstreet.com (San Francisco) - Is the war, is the currency war! The Euro recovered ground against the US dollar and after two days of spectacular rally, the pair rose 300 pips from the 1.2745 double bottom to break above the MA200 days to 10-day highs at 1.3040. Is it the end of the two month decline for the single currency? But there are Portugal now...

The Portuguese constitutional court rejected some austerity measures listed in the 2013 budget by over €1Bn. The court's rejected measures include public workers and pensioners paycheck, unemployment subsidy and sickness benefit are unconstitutional according to the court. So, the Eurozone seems to be not longer fixed. As resul, the Portuguese Prime Minister Pedro Passos Coelho will hold an extraordinary Council of Ministers on Saturday at 14 GMT. Meanwhile, Socialist opposition leader, António José Seguro, said he's "ready to replace the government."

Another chapter in the long European tragicomedy. Cyprus, Spain, Slovenia, Ireland, Portugal, Italy... who is next? Natural Citi analysts state that "$1.2260 is fair value for the euro."

After consolidating above the 1.3000 during the last part of the session, the EUR/USD reacted slightly down, considering the hour it was a nice movement, and the pair lost 20 pips to close the session at 1.2995. "Bias however remains to the upside as the hourly chart shows price found support in a strongly bullish 20 SMA and indicators heading north above their midlines," comments FXstreet.com analyst Valeria Bednarik. "As long as above 1.2950/60 area the pair could present an upward continuation, although the movement is seen as corrective in the long term, up to 1.3112, 38.2% retracement of its latest daily fall."

Nomura strategist Saeed Amen considers that the EUR/USD is technically bullish. Looking at a daily chart Amen notes that with spot breaking about the 200 SMA, it suggests that momentum is on the upside. Further, he adds that RSI is relatively elevated with the past few weeks. Elsewhere he adds that bandwidth is quite low and it is likely that spot will range from here. He writes, “Hence, our target is relatively close at 1.3000.”

According to the FXstreet.com currencies forecast, investors have just a little more faith in the EUR/USD. With a 1.3021 average as 1-week target, Euro finds some adepts among the experts, at least in the short term view. The quarterly outlook however shows no consensus, seen in a 2000 pips range.

technicals Euro Pound Yen

The long and sweet BoJ Game

Impressive Yen weakness across the board. In two days, the USD/JPY rallied 500 pips from the 92.75 area to reach the highest level since June 16 2009 at 97.82. The EUR/JPY climbed 815 pips from the triple bottom at 119.15 to 127.30, highest since February 7th. But astonished was the GBP/JPY. The pair jumped 960 pips, yes... 960, from 140.40 to trade at 150.00, the highest since January 2010.

Natural that George Soros states that the BoJ game is dangerous, many investors could think the same after comparing the Yen performance in the last two days with the last two years. Soros pointed that EE.UU. is three times Japan and in relative terms, he stated that Japan plan is 3 times the current US QE3.

technicals Euro Pound Yen

In this line, Rabobank analyst team commented in a recent report that "after years of struggling with deflation there are no guarantees that the BoJ will succeed either in its aim of achieving a 2% y/y inflation on a 3 year view or in returning decent, sustainable growth levels back to Japan."

On balance, Rabobank continues, "we foresee plenty of resistance to future yen losses and consequently have revised up our 12 mth USD/JPY forecast moderately to 97.00 from a previous forecast of 95.00. Near-term, we continue to favour buying USD/JPY on dips."

There are divergences in opinions, early in the day the RBS analyst team published that the BoJ opened "a new era of the JPY funded carry trade," and they said that their RBS' target for the year end is 110.00. On the short term, HSBC revised higher its USD/JPY forecast to 95.00 in Q2, but HSBC keeps view that pair will finish year lower than current spot, targeting 88.00.

The FXstreet.com USD/JPY forecast poll doesn't see heavy gains in the USD/JPY as they sees 97.16 as 1-week average target. However, the Bank of Japan set the tone of USD/JPY, as the pair is expected to remain well bid over the upcoming months, with 100.00 turning real.

"Is 110 Possible in USD/JPY?" BK Asset Management's analyst Kathy Lien asks. "Considering that the Bank of Japan has just begun easing, there's a lot more room to the upside," Lien points. "Its 10 year average is 100 and at minimum, we expect USD/JPY to rise to this level but 110 is also possible though 104.50/105 is a more realistic short term target."

The week ahead:

In the next week, market will digest monetary policy decision with the minutes from the FOMC and Bank of Japan releases and the ECB monthly report. Investors must pay attention to Germany inflation on Thursday and US retail sales and the Michigan Consumer Sentiment Index on Friday.

Throughout the weekend, market will focus on Portugal developments and new negotiation between Portuguese government and the opposition, and even the Troika, to fix the 2013 budget.

On Monday, calendar will bring the Sentix Investor Confidence index in the EMU for the month of April, ahead of the German Industrial Production. Across the pond, the most relevant event will be a speech by Chief Bernanke.

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