Daily Technical Report: Major And Cross Currencies - May 22, 2013

The euro reversed earlier losses and gained against the dollar on Tuesday, as investors took on risk ahead of Federal Reserve Chairman Ben Bernanke's Wednesday testimony before the U.S. Congress. The dollar moved higher earlier, amid a flight to safety ahead of Bernanke's Wednesday testimony before Congress. Stimulus measures currently in place, such as the Fed's monthly USD85 billion bond-buying program, weaken the greenback by flooding the economy full of liquidity to keep interest rates low and encourage investing and hiring. Federal Reserve officials have publicly suggested recently that the U.S. central bank may begin to scale back stimulus tools this summer, though some backtracked on such comments, causing uncertainty in markets that made the dollar more attractive due to its safe-haven appeal. The dollar, however, gave back gains against the euro on talk that a decision to scale back stimulus measures in the U.S. will reflect an improving labor market, which enticed investors out of the safety of the dollar.

GBP/USD
The pound extended losses against the U.S. dollar on Tuesday, as official data showing that consumer inflation in the U.K. fell for the first time since September last month continued to weigh on demand for sterling. The pound came under pressure after the Office for National Statistics said U.K. consumer inflation slowed to an annual rate of 2.4% in April from 2.8% the previous month. It was the first fall since September and was below expectations for a reading of 2.6%. Month-over-month, consumer price inflation rose 0.2%, below expectations for a 0.4% increase, after rising 0.3% in March. Core CPI, which excludes volatile food and energy costs, slowed to 2.0% from 2.4% in March. Analysts’ had expected core prices to tick down to 2.3%. The ONS said lower petrol and diesel costs accounted for almost half the drop in the annual rate of inflation. The drop in inflation will give incoming Bank of England Governor Mark Carney more leeway to implement policy measures to bolster the U.K. economic recovery. Meanwhile, demand for the dollar continued to be underpinned ahead of Wednesday’s Federal Reserve minutes and testimony at the U.S. Joint Economic Committee by Fed Chairman Ben Bernanke. Markets were awaiting any indication that the U.S. central bank will begin to scale back its asset purchase program this year after recent U.S. economic data bolstered optimism over the economic recovery.

USD/JPY
The U.S. dollar rebounded against the Japanese yen during Tuesday’s Asian session after falling Monday on concerns the yen has fallen too far too fast against its major rivals. The dollar’s Monday woes against the yen were sparked by comments from Japanese Economy Minister Akira Amari. In comments made Monday, Amari said the rapidly depreciating yen could harm the world’s third-largest economy and that it is the responsibility of the government there to prevent that from happening. The Bank of Japan has enacted massive monetary easing measures to steer the country away from deflationary decline and more towards growth, with the yen plunging to lows against the dollar not seen since 2008. Despite Amari’s comments, Japan may have a tough time suddenly reversing course to strengthen the yen. That strategy does not jibe with Prime Minister Shinzo Abe’s desire to get inflation to 2% and financial markets have become accustomed to the weak yen.

USD/CAD
The U.S. dollar rose to session highs against the Canadian dollar on Tuesday as investors awaited Wednesday’s Federal Reserve minutes and testimony on the economy by Fed Chairman Ben Bernanke. Demand for the dollar continued to be underpinned ahead of Wednesday’s Federal Reserve minutes and testimony at the U.S. Joint Economic Committee by Fed Chairman Ben Bernanke. Markets were awaiting any indication that the U.S. central bank will begin to scale back its asset purchase program this year after recent U.S. economic data bolstered optimism over the economic recovery.