USD Growth Stalled - 13.3.2013

The US dollar strengthening against all the major currencies seems to have stalled. The US dollar index, which tracks the unit’s performance against a basket of six currencies, is falling for the third consecutive day after reaching last week a 7-month high at 82.89. Pair dollar-yen dropped in the morning to 95.60, compared to yesterday’s 3.5-year high of 96.70. Even if the correction continues, the IFC Markets Analysis Department believes that the support level at 94.40 can limit the potential strengthening of the Japanese yen. Trend for weakening of the yen remains strong, and we believe that these conditions will make possible opening long positions at lower prices. Meanwhile, the British pound this morning was also able to regain some lost ground against the US dollar after yesterday down fall to 1.4830. The pair has not dropped that low since June 2010. The new selling wave was occurred due to frankly weak industrial production data form the UK for January of this year. The index fell by 1.2%, compared with the previous month and by 2.9% on the annualized basis, which was much worse than market forecasts. This morning the pound has grown to around 1.4950. In our point of view, taking into account the downfall of the currency pair below its strategically important level at 1.50, the weak macroeconomic statistics and a significant probability of taking additional measures by the Bank of England to support the economy, we would not be surprised if the currency falls toward 1.42 within this year. In this regard, we prefer short positions on the cable, especially opened on upward corrections. The single European currency keeps consolidating above 1.30. In these circumstances, the results of auctions of Spanish and Italian bonds will be interesting for the market. Italy will conduct the 3 and 15-year debt securities auction today, and on Thursday a sale of long-term Spanish bonds is scheduled. The March dynamics of EURUSD still allows suggesting that the euro can grow up to resistance level at 1.3180. Good auction results could provide the European currency some short-term support. That is the reason why we would not rush to open short positions on EURUSD. However, we continue to believe that the significant political and debt risks in the Eurozone will sink the euro during the year. We prefer short positions in in case of approaching resistance level at 1.3180 and in case of a fall below 1.2955.