Fundamentals on major pairs for 22 May 2014. USD strengthened as bond yields recovered, USDJPY rebounded, and GBPUSD rallies might be disrupted by GDP release.

10 Years US Treasury bond yields at last signals recovery, crawling back out of 2.5% treshold. As well, USD has started to showcase its strength against safe haven currencies such as the Yen. However, USD is still overshadowed by GBP that has emerged as the new strong currency this year. FOMC members conflicting ideas about when the Fed should hike benchmark rates has lowered market expectations toward Greenback.

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Exports Stuck, USDJPY Rebounded

Yesterday (22/5), USD rebounded against the Yen after having plunged into 100.82; the lowest level in almost three months. Aside of the falling US Treasury bond yields that has weakened the Dollar, the Yen also supported by the Bank of Japan decision to hold the current easings. However, following the reinforced bond yields, USDJPY seemed to have experienced a significant reversal.

BoJ decision on Wednesday is based on valuation of the current economy that is being tought of as surviving in the moderate recovery. The economy has grown 5.9% yoy in the first quarter of 2014, the highest stat in almost three years. The BoJ is optimistic that Japan will experience a good time despite of the recent consumption tax hike. Therefore, they announced that they are going to keep monetary base of 60-70trillion Yen by utilizing (mainly) open market operation.

Nevertheless, most analyst expect the BoJ will soon see the impact of tax hike in the second quarter of 2014 economic reports. Furthermore, BoJ is fully expected to defend the policy until 2016 or until 2% inflation target is reached. The problem is, Japan fundamental publications has failed to show any significant and long-lasting improvement both in external sector (exports) and domestic sector (consumptions).

JapanJapan Exports Data 2013 - April 2014

In short, there is little possibility that Japan fundamentals will change in the near future. We ought to wait until the second quarter data is out if we wish to see significant changes on the trend. Until that time comes, the Yen ought to rely on its safe haven benefit to gain against other majors.

 

GBPUSD Rallies, GDP In Focus

In the long-term chart, GBPUSD has gone bullish since the middle of 2009. To see UK fundamentals when we write this article, the rally seemed to stay strong. Well, that is, excepting the possibility that BoE official might thinks GBP might think the currency is too strong and has to be jawboned.

Recent rallies are supported by the skyrocketed retail data and BoE meeting minutes that has indicated official hawkish biases. BoE does not deny that rates might be hiked sooner if economic reports don't disappoint.

Market attention today is mainly on UK GDP report a few hours from now that will prove whether BoE is overly optimistic or correctly deduced. Estimations placed UK GDP firmly on 3.1% (yoy) and 0.8% (qoq). Lower or higher stats might be game-changer, but analysts are not expecting discrepancies.

Don't miss market excitement during today's London Hour until yesterday's market closing. Together with GDP, volatility will spread around Euro and USD pairs. The upcoming PMI Index, German GDP, and IFO index are not likely to influence ECB decision come June, but little sparks on Euro pairs could be expected to emerge. This is particularly an important hours, because in the next Monday UK and US enters public holiday which most assuredly mean the market doesn't get much fundamental releases but low impacts from New Zealand and German.