The equity market has ended last week strongly and it is expected to start this week strongly too which can push USDJPY up again as the risk apatite is still improving and there can further rooms to take risks.

The greenback has started the week strongly versus the British pound after another failure to break 1.477 by the end of last week. The cable is trading below 1.46 currently. Last week we have seen a slump of the GDP of the first quarter by 1.9% q/q and by 4.1% y/y and dovish comments from Darling who has declared that the government is adopting an easing policy to stimulate growth by increasing the imposed taxes on the rich ones while the government is increasing its spending and encouraging the borrowing which can reach £175bn this financial year before falling to £173bn in 2010 and £130bn in 2011.

While the single currency has had the support that pushed it higher after the release of The germane IFO business climate which climbed to 83.7 and the market was waiting for just 82.3 and the IFO expected conditions came better than the market expectation of 82.6 at 83.9 before retracing versus the greenback to be traded below 1.32 right now and tomorrow, We will wait to see closely the preliminary release of April EU HICP as we wait later this week for the ECB interest rate decision which is expected to come with another .25% cut as further weak rates of inflation can open the door to further easing to spur the cooled investments. The market is waiting to see further steps toward adopting the quantitive easing policy after these cut following the Fed like UK and Japan in the face of the recession after the credit crisis. If we have seen negative rates expressing about deflation risks in EU this can undermine the single currency progress and weigh on it. In the last meeting, the ECB president Jean Claude Trichet has downplayed the risks of deflation and elevating these risks in the next meeting can dampen the EUR.

Best wishes

FX Consultant
Walid Salah El Din

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