EUR/USD Finishes Week Lower

EUR/USD

The pair finished the week lower after various macroeconomic data points indicated that the prosperity, or the lack of it, of the joint-currency bloc remains at the mercy of politicians who have hastily introduced draconic austerity measures which have now even filtered through to the power house that is Germany. This, together with the ECB announcing that professional forecasters have downgraded their view on Eurozone HICP for 2014 and 2015 resulted in an aggressive upside traction by Bunds, which in turn saw the yield on the benchmark EGB print below 1.00% for the first time in history. Despite a raft of EUR negative factors, the pair benefited from the unexpected unwind of long GBP/USD and short EUR/GBP positions after the BoE surprised market participants by slashing its Q4 2014 annual wage growth forecast to 1.25% vs. 2.5%. Going forward, market participants are expected to keep a close eye on the developments over in E. Ukraine, but also pay a close attention to comments by various Fed officials who are due to attend the annual gathering of central bankers in Wyoming (Jackson Hole).

GBP/USD

As was to be expected, this week all focus for the pair was firmly placed on the BoE’s QIR report. Heading into the report participants had an opportunity to digest the UK jobs report which revealed a record low for average earnings ex-bonus and subsequently saw the GBP/USD begin its decline for the week with the pair slipping below the 1.6800 handle. In terms of the QIR, the BoE slashed their wage growth expectations to 1.25% from 2.50%, highlighting the persistent weakness in the UK labour market that prevents the BoE from tightening policy. This subsequently saw the GBP/USD spike lower towards the 1.6700 level to trade at 10-week lows as the report lessened imminent expectations for a rate hike by the BoE. The pair saw further losses as a broadly stronger USD towards the end of the week saw the pair break below its 200DMA at 1.6664 to hit its lowest level in four months. Looking ahead, attention now turns towards next week’s BoE minutes release with participants continuing to speculate over a potential split on the MPC, with Weale and McCafferty potential names in favour of a rate-hike.

USD/JPY

This week’s main data point from Japan was that of the GDP release which came in at -6.8% vs. Exp. -7.0% thus wiping out all gains made earlier this year. However, Economy minister Amari played down the release, attributing the fall to the April sales tax hike which saw a last-minute rush before the rise took effect. Thereafter the pair’s price action was largely dictated by events in fixed income markets, notably on Thursday, USTs were seen sharply higher alongside the move higher in Bunds as the German 10yr yield broke below 1.0% for the first time in history and thus seeing the USD/JPY pare some of its earlier gains. Looking ahead, next week sees the release of the Japanese trade balance and manufacturing PMI. However, participants will continue to focus on geopolitical events as despite comments from the Finnish President saying that the EU are not to place on further sanctions on Russia, suspicion continues to mount over Russians movements around and across the Ukraine border.