While the market is pricing a 65% probability for a Bank of England rate cut to 5.00% from 5.25% this Thursday, we deem rate a cut to be a done-deal as the central bank cannot afford to undergo further systemic and economic risk by leaving rates above 5.00% especially at a time when the highly leveraged UK consumer is being increasingly stretched by accelerating declines in UK home prices.

The chart below shows that the UK interest rates have further downside from 5.25% to 4.25% later this year, which will boost the US-UK 10 year spread and drag down GBPUSD towards $1.970 and 1.9620. We expect $1.9450 by end of the month, while upside to remain limited at $2.020.

Euro Capped at $1.5850

Euro was pressured by remarks from UAE central bank chief Al Suweidi indicating a continuation of the current foreign exchange regime, with no plans drop or revalue its currency peg to the dollar. The reiteration of these remarks come despite the forming of a committee studying the pros and cons of the current peg reporting to UAE prime minister and Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum. Denying any change in the inflationary currency regimes by Gulf State monetary officials has become the norm, despite double digit inflation rates resulting from pegging to the falling dollar and the soaring prices of foodstuffs. The leaders are also well aware that dropping any hints towards a revaluation or shift to a basket of currencies would accelerate the fall of the dollar and oblige them to take a bigger hit to the hundreds of billions in USD-denominated assets held by the States sovereign wealth funds.

What was a clearly dismal US March jobs report on Friday confirming a deteriorating labor market in the United States failed to extend the euros push higher towards the $1.58 figure. This weekends G7 meetings in Washington , DC will coincide with the semi-annual IMF/World Bank meetings, thus, naturally dissuading traders to add to euro longs in the event that officials reinforce their stance against excessive currency moves. But formalities aside, it is not the G7 meeting that will stand in the way of any fresh euro strengthening but a combination of GBP weakness indirectly dragging EUR lower and further worries of struggling banks in continental Europe .

Having said that, the various support levels underpinning the euro are stacked up in defending the single currency at $1.5550, 1.5450 and the notably solid support of $1.5350, which coincides with the a 38% retarcement of the rise from the Feb 7 to the Mar 17 high. The aforementioned weakening in US fundamentals will maintain the Fed on the easing side for the rest of the year. Upside capped at $1.5780. Key resistance stands at $1.5830.

USDJPY Upside Capped at 103.50

USDJPY resilience is largely emerging on yen weakness as risk appetite picks up an on an increasingly calm financial markets. Last weeks write downs from UBS and Citigroup were taken in stride by a market community that may be also complacent in shrugging a broadening and deepening erosion on the macroeconomic front. The argument that further economic weakness is already being discounted in the market does not take into consideration the number of layoffs (white & blue collar) in the pipeline, as well as the repercussions to an already fragile consumer spending power. The other part of the puzzle is corporate earnings, which are already in the red.

We continue to integrate USDJPY and rest of yen crosses into performance of US stocks, whose strengthening rebound towards the key 12,770 and 1, 285 levels in the Dow and S&P500 respectively are further rewarding risk appetite at the expense of the Japanese currency. Nonetheless, for newfound strength in momentum, we;; have to see a breach in the S&P500 above 1,390, which is 3% above the 50-day moving average, a technical requirement underlined by its repetitive failure even since the index topped out in October. Our longer-term assessment indicates that in order for the bull to reassert itself, a close above 1,400 has to take place.

USDJPY faces 103.50 resistance, which is the 61.8% retracement of the decline from the 108.21 high to the 95.73 low. 103.85-90 follows as the next barriertrend line resistance from 114.63 high of Dec 28. We expect 102 to be tested in second half of month, followed by 100 as we approach the Fed decision.