Major Pairs Analysis: May 16, 2013

Nobody was surprised at the eurozone's sixth consecutive quarter of contraction; the region had contracted more than forecast. The seventeen-nation economy shrank 0.2 percent in the first quarter of this year. France and Italy, the second and third largest economy in the region contributed significantly to the contraction. Germany, the largest economy was showing some resilience after its GDP surprisingly climbed to 0.1 percent albeit lower than expected from a contraction of 0.7 percent. France and Italy contracted to 0.1 percent and 0.5 percent respectively. The contraction marking its longest recession on records dating back to 1995. The euro dropped below $1.2900; pushed more by the strong greenback, it reached $1.2842 as the low for yesterday.
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GBP/USD
The British pound strengthened slightly against the U.S dollar after the BoE Governor Mervyn King said a recovery was now “in sight”. It advanced against all except one of its 16 major counterparts after the central bank’s quarterly Inflation report predicted growth may quicken to 0.5 percent this quarter, from 0.3 percent during the previous three months. Moreover, fewer jobless claims had backstopped the rally after claims declined by 7,300 more than forecast to drop 3,100. In his last speech, Governor King projected growth may increase to 0.5 percent in the second quarter of this year from 0.3 percent in the first quarter while inflation will peak at 3.1 percent in the third quarter - significantly lower than the February forecast. The sterling climbed to 1.5272 per dollar yesterday.
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USD/JPY
The third largest economy may end its decade of deflation after its economy expanded more than forecast in the first quarter, as a brighter outlook from consumer spending and exports climbed. Following the robust action of the BoJ that doubled its monetary stimulus in April 4, gross domestic product rose an annualized 3.5 percent in the three months through March, the most in a year, the Cabinet Office revealed earlier. The expansion was largely seen in reconstruction spending boosted growth to 6.1 percent the first three months of 2012. Private consumption comprised about 60 percent of GDP last quarter while department store spending rose to the highest in a year in March with consumer confidence climbing to a level previously seen almost six years ago. Housing construction also supported growth in the first quarter, with construction starts rising for seven straight months through March, according to government data. Japanese economy is getting its right footing when it comes to economic growth.
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USD/CAD
The Canadian dollar slightly gained for the first time in five days versus its U.S. counterpart after American industrial production dropped the most in eight months last month. It advanced against the majority of its 16 most-traded peers as output at U.S. factories, mines and utilities fell a more-than-forecast 0.5 percent, after a revised 0.3 percent gain in the prior month that was weaker than previously reported, a report from the Federal Reserve showed in Washington. Earlier yesterday, it declined nearly its three-week low as the nation’s factory sales surprisingly dropped to 03 percent in April from a 2.8 percent increased in March the third time in four months. It strengthened 0.2 percent to C$1.0155 per U.S. dollar after touching C$1.0218, weakest since 25th of April.
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