British inflation numbers, including CPI, missed their estimates, and Retail Sales looked awful. GDP salvaged the week, gaining 0.3%, which matched the forecast.

The only Canadian numbers last week were a disappointment, as Core Retail Sales and Retail Sales fell below expectations. The US dollar spent much of the week above the 1.03 level, as the Canadian dollar remains under pressure.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:  

The 7.32% crash in the Japanese stock markets send USD/JPY from the new multi-year highs to much lower ground. Also the rising bond yields, despite massive QE, are the first test for “Abenomics”. Some fear that Japan might lose control. Also the  possibility of tapering QE in the US weighed on the pair. Following the extraordinary QE program on April 4th, the Bank of Japan made no policy changes for the second time in a row. The central bank is looking to expand the size of the monetary base raising its economic assessment in light of recent improvements. 

Germany, the largest economy in the euro-zone, produced mixed signals: on one hand, it printed less than satisfactory services PMI, while manufacturing PMI also failed to reach the 50 point line. It seems that Europe’s locomotive is stuck due to its neighbors’ recession. However, the IFO business climate showed better prospects for the future. The euro rocked on Bernanke: at first, the prepared statement showed that the Fed is worried about a premature withdrawal of QE, and EUR/USD tried reaching 1.30. However, when asked about an exit strategy, Bernanke opened the door for QE tapering in one of the “next few meetings” and the pair dropped. The focus could shift back to the ECB, with the talk about a negaitve interest rate, especially if inflation falls again. Let’s Start:

The past week saw wild swings as the markets kept guessing if the Fed will taper or not.  Bernanke’s testimony provided the biggest drama: the prepared cautious statement sent the dollar lower, only to make a big surge when he left the door open for reducing QE later in the year. USD/JPY was certainly a wild mover, breaking to new multi-year highs only to be smashed by the Japanese stock market. The Aussie had a roller coaster week, testing yearly lows before making a kangaroo leap. The euro showed lots of resilience, also thanks to some positive German data. Last week US weekly jobless claims fell by 23,000 to 340K beating market projections. To taper or not to taper? This remains an open question.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

This number lends itself to Bernanke’s comments earlier this week and the idea that the US economy is on the mend and could show constructive growth in the second half of 2013.

First, the Japanese Central Bank suggested a depreciation of the yen had gone far enough for the time being, sparking an immediate rally for the Japanese currency. The yen had seen a 20 per cent tumble in the past six months, making it one of the worst-performing developed market currencies.

May 24, 2013 – AUD/USD (daily chart) has consolidated after its swift decline to major support around the 0.9650 price region, retesting the lows that were last hit in early June of 2012. This plunge to support effectively originated near the 1.0600 resistance high in early April and has broken down successively below key prior support levels, including the 1.0150 trading range support and then parity (1.0000). In the process, the currency pair has established close to a one-year low. The trend bias for AUD/USD continues to lean strongly to the downside. With key upside resistance currently residing around the 0.9850 price region, downside support targets on a continuation of the current downtrend reside around 0.9400 and then 0.9200.

EUR: The German Ifo release is one of the more important ones of the monthly calendar. The headline index has fallen for the past two months and the market expects a steady outcome at 104.4 for the May release.  A weaker number would undermine the euro, which has held up relatively well, given the generally firmer dollar environment seen through this week. Update: The score is 105.7, above expectations, EUR/USD rallies.