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EUR/USD Starts The Week On The Backfoot

Published 09/01/2014, 10:01 AM
Updated 07/09/2023, 06:31 AM

EUR/USD

The EUR/USD started the week on the backfoot during Asia-Pacific trade as participants looked ahead to this week’s ECB rate decision with speculation mounting over potential further action by the governing council. This subsequently saw the EUR/USD trade at its lowest level since September 2013 and in close proximity to an option expiry at 1.3100. Thereafter, all eyes were on the Eurozone PMI report, although the figures from the core Eurozone nations were final readings and despite largely falling short of expectations, the EUR/USD shrugged off the lacklustre release. The EUR/USD then staged a modest recovery following the lower than expected UK manufacturing PMI release which lifted the EUR/GBP away from its YTD lows. For the remainder of the session with the US away from market, the pair then proceeded to trade in a relatively rangebound manner with a lack of pertinent newsflow and the US away from market. Looking ahead, all eyes are on the ECB rate decision, ahead of which Barclays say although Draghi will sound dovish at the Sept. 4th meeting, policy inaction may give EUR some limited, albeit short-lived relief and says EUR/USD's technical support is seen around 1.3100, but may not hold for long.


GBP/USD

The GBP/USD was seen higher from the get-go as the EUR/GBP continued its recent move lower below the 0.8000 handle and ahead of the key UK manufacturing PMI release with leveraged accounts also said to be buying the GBP/USD. Further weight was also placed on the EUR/GBP amid news of CaixaBank’s purchase of Barclays’ EUR 800mln Spanish books. In terms of the UK manufacturing PMI, the release fell well below expectations and below the lower range of estimates by coming in at 52.5 (Exp. 55.1), this particularly weak reading saw an immediate fast-money move lower for the GBP/USD of around 30 pips and thus paring some of the earlier gains. Thereafter with volumes light amid the US away from market, the pair traded in a relatively rangebound manner. Looking ahead, all focus for the UK will be on the BoE rate decision, consensus is for the MPC to keep rates on hold, although speculation will continue to mount about a surprise rate hike by the BoE given the 7-2 split as revealed by last month’s minutes.

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USD/JPY

Overnight, the pair was seen higher as the USD reached its highest level since July 2013, with JPY subsequently seen weaker across the board. In terms of economic commentary from Japan, today’s session saw comments from Japanese PM advisor Honda who said the BOJ could ease policy regardless of next sales hike in order to achieve inflation goal and the next sales tax hike needs to be delayed by 1-1.5yrs to 2017 given larger than expected tax rise impact. However, these comments failed to present the USD/JPY with any reaction as they were made by a PM advisor and not the PM himself. With newsflows particularly light throughout the session and a lack of inflammatory geopolticial developments, the pair proceeded trade relatively flat and thus hold onto earlier gains. In terms of investment bank commentary today, Deutsche Bank see the USD/JPY moving to 105.00-108.00 over Sep-Oct and through 110.00 by year end. Looking ahead, all eyes will be on the BoJ rate decision with expectations for the central bank to keep their monetary policy on hold despite the recent weakness in the Japanese economy.

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