GBP Rebounds Back Above 1.5900 Ahead Of BOE Interest Rate Decision This Morning

• EURUSD rebounds slightly in very quiet Asian trade as JPY strengthens and AUDUSD lifts back over 1.03
• Gold lifts slightly overnight to around $1630 ahead of London opening
• GBP rebounds back above 1.5900 ahead of BOE interest rate decision this morning
• Oil rises back above $102 in quiet overnight trade following yesterday’s move to reach a low of $101 a barrel
• Swiss currency reserves rise CHF 10 billion from February to March
• European equity markets open with modest gains but progress looks muted ahead of Easter weekend

Good morning. Yesterday the EURUSD was friendless as the price fell through 1.32 and then 1.3150 as the ECB unsurprisingly left interest rates unchanged.

The move through 1.3150 happened even as there was a degree of uncertainty surrounding what ECB president Mario Draghi might say at the subsequent press conference following the decision.

In the event he delivered a rather downbeat assessment for the Euro zone which was actually refreshingly realistic. That helped send the EURUSD lower, but it stalled in its descent above 1.3100.

There was talk of a large Asian barrier option at that level and certainly good buying from several Asian players just ahead of this capped the down move.

The move higher into the close of the US session has been hard fought with progress managing got recapture the 1.3160 level so far this morning.

Yesterday the one concern for the single currency was the deterioration of the situation in Spain as 10 year yields hit their highest level in 2012 at 5.75%.

The mismanaged auction yesterday was partly to blame for that as there was not the full amount raised. That has been widely reported since then but the move higher in Spanish yields was certainly one catalyst for the overly large sell-off in European equities.

The fact that Spanish yields are still around 5.65% this morning signals warning bells to me.

I will reiterate what I have said before, with no growth, 23% unemployment (and now new figures show unemployment in the under 24′s at over 50%) and economy build on largely on an overseas property boom that has imploded I see little hope that this country can recover without at least a massive aid program. Lastly Spain needs a significantly lower currency.

Yesterday the EURJPY did break the key levels at 108.75 and 108.55, sending the price back to the 107.85 support area before a bounce set in.

That has stalled again around 108.60 in late US trade and sent the price back to 108.00 overnight.

The early lift this morning has also stalled again around 108.35 so far this morning and if 107.85 gives way then that could open a path to the 106.00 region.

Gold did what it said on the tin yesterday and once the overnight low around 1640 was breached it fell sharply to 1628.

The rest of the day saw a continual raft of selling as the price ground its way down to as low as 1612 before lifting back as US equities recovered earlier heavy losses to end the day down 124 at 13,074.

The range so far this morning, despite lifting to the 1630 level has been tight and overall the price still looks heavy to me.

The USDJPY tried to rally yesterday but the general risk off and push lower in equities saw some heavy sellers emerge again above 82.75 and the price duly fell back to 82.10 before another attempt to push it higher again ran out of steam around that 82.75 level again.

It has fallen back in Asian trade as equity markets there fall again overnight. The return of risk off has benefitted the JPY and that flies in the face of the FOMC minutes supporting the US currency. As usual risk off sees a mix of USD and JPY buying as both currencies outperform.

The AUD did trade higher overnight, reaching back above 1.0300 earlier this morning but that has since fallen back as it slips back versus the CAD and the JPY.

The move lower in AUDCAD still looks like it has further to run, perhaps towards parity, but with oil prices slipping back towards $100 that may undermine support for the CAD.

This morning the main event is the BOE interest rate decision at 12pm. No change is expected on the headline rate or the level of asset purchases.

Now if that isn’t the case then there are clear implications for the pound as there are also from any accompanying statement that hints at any indication that the bank may be done with these special measures.

Earlier the SNB released their March foreign currency reserves, which showed an adjusted increase of CHF 10 billion from the previous month.

Clearly that would indicate that they have been active in the markets but that can’t always be taken as a given because of many other factors that might influence this data. The EURCHF didn’t budge a pip on the news.

Tomorrow the European markets are closed but the US is open and we will have the release of the March payroll data. There will however be no equity or futures markets open, so it could be a very dangerous day.

On the other hand there will be very few participants so of the numbers are entirely in line with expectations then it could be very quiet.

It really depends on the numbers here. The expectation is for an increase in non-farm payrolls of around 210k, down slightly from last month’s 227k with the underlying rate remaining unchanged at 8.3%.

Naturally an extreme number in either direction will have a significant impact. Yesterday’s ADP number of private payrolls showed an increase entirely in line with expectations at 209k which if the correlation between that and the wider government figures remains intact would point to another solid release tomorrow.

If that’s the case then it merely underlines the direction for the US currency versus the EUR as far as I am concerned.

My prognosis for a lower EURUSD was never based on a break up or a falling apart of the Euro zone, it was entirely based on the economic fundamentals playing out in the coming year.

I still stand by that in the longer term analysis of where I think the EURUSD will go as the bigger picture hasn’t changed as far as I can see.