Yesterday during the first half of the day the euro strengthened amid the positive on the market. However, when the US trading session was opened, the rate pulled back. The reason was strong data on US Unemployment Claims (339K vs. forecast for 352K). However, the main reasons of increased demand for US dollars are new purchases of US stocks and fears of investors that the ECB slashes the key rate on May 2. News agencies say an increased demand for US stocks is expected in Japan as Bank of Japan implements the massive currency issuance. On the contrary, we consider the situation is slightly different. The US Treasury sold $29 billion of seven-year notes to the highest demand this year, even with yields on the securities at almost four-month lows, amid speculation the US faces further slowing in electronic growth. The government’s auction of the notes held yesterday drew a so-called high yield of 1.155%, the least since the November 29 sale of the maturity.
The Federal Reserve’s monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities to spur the economy have damped volatility and helped to keep Treasury yields at almost historic lows, said Thomas Simons, a government-debt economist in New York at Jefferies LLC.
Bidding has slowed at treasury auctions this year, with the $722 billion in debt sales attracting an average of $3.01 in orders to buy per dollar of debt sold, compared with a record $3.15 in 2012, according to the data released by the US Treasury and complied by Bloomberg.
Thus, demand for US stocks is not connected with Japan’s ambitions.
The major economic event is release of US GDP in the first reading in Q1 (at 16:30 GMT+4). It is estimated to be 3.0%-3.1% vs. 0.4% in the fourth quarter. Due to unexpectedly strong data in the UK GDP published yesterday we expect the data will be strong as well. On the other hand, the forecast did not take into consideration weak data on construction and probably the GDP will be revised downwardly. US Consumer Confidence in April (final estimate) is expected to be 73.3 vs. 72.3.
Technically, after the price consolidates above the resistance of threndline on the H4 (1.3042) we expect the rate will rise to 1.3095, the second target is 1.3126, the resistance of trendline on the H4, then resistance is trendline on the daily chart 1.3155.