The main event yesterday was an abrupt reaction of the British Pound to the issue of inflation report of the Bank of England, where King confirmed that inflation would remain high and the growth pace would be slow. Other currencies tried not to over perform ahead of G20 meeting. As a result, the Euro closed near 1.3440 and the Pound around 1.5540. During the day the Euro didn’t demonstrate a desire to move, but retail sales in the UAS could affect the pair of the EURUSD as we assumed. From an opening level at 1.3449 the pair could get expand above 1.35 to reach a high of 1.3519. It couldn’t hold there and finished trading near 1.3440. American consumer demand weakened apparently because of an incremental tax load introduced in the beginning of the year. Retail sales increased only by0.1% after 0.5% advance in December. The latter fact has become another argument in favor of continuation of the QE era in the US. The Pound suffered a lot from an inflation report. There was nothing new, just a reflectory reaction of the market, encouraged by sales of British clearing Bank. So after opening at 1.5649 the Pound dipped to the minimum 1.5522. The thing is that investors are afraid that the Bank of England will probably broaden its program of assets’ purchase. In addition to that the CB head didn’t give any hope that the economy would get out of the recession. The Japanese currency was quiet considering clarification of G20 that it was concerned about the “Japanese case”. The pair even attempted to ease, sliding to minimum of 92.81, though in the end it bounced above 93 near 93.35.
An event in focus today is GDP data. It is especially important taking to account the fact that in the second and third quarters the growth was negative. The forecast is also negative constituting 0.4% reduction. If there is surprise from Germany, it will also negatively affect the Euro. The probability of it is high against the background of Draghi’s reserved tone during his last speech. Thus the fall to the area of 1.3380 with further target of 1.3340 is not completely ruled out.
The Pound retains a negative sentiment. The fact that the pair couldn’t recover after King’s speech only confirms the bearish bias. Unfortunately, there is no release of essential data in Britain, so the support might come only from the performance of other currencies. The level of 1.5460 will be hard to pass. But in case the break occurs, the pair might aspire in the area of the May minimum of 1.5267.