Japanese GDP Helps Yen

EUR/USD

In-line with the broader market trends, EUR was initially out-muscled by the broadly stronger USD as the pair lingered above the 1.2500 handle. However, the pair then slipped below this level following comments from ECB’s Mersch who said unconventional measures could theoretically include buying state bonds or other assets such as Gold, shares or ETFs. This saw EUR/USD slide around 20 pips in a fast-money move as the mention of gold, share and ETF purchases hadn’t been made prior to these comments. Next up on the speaker slate was ECB’s Draghi and Praet who both presented an increasingly dovish tone by hammering home the point that the ECB are willing to take additional measures and are unanimous in doing so, while also placing focus on balance sheet expansion. These comments didn’t see any immediate spike lower but saw EUR/USD continue its grind lower with the downwards pressure seeing the pair trip stops to the downside throughout 1.2480. Looking ahead, focus for tomorrow will be on the German ZEW survey with the headline expectations figure expected to reveal a modest uptick from the prior month.

GBP/USD

GBP was placed under selling pressure throughout the session as participants continue to come to terms with the likelihood of a much later than expected rate hike by the central bank. This weekend saw further dovish BOE rhetoric, with BoE governor Carney and MPC member Haldane both on the wires. BoE Governor Carney said low interest rates in the UK are explained by huge disinflationary pressures from trade partners, falling commodity prices and labour market slack, adding he sees continuing slack in the labour market. Elsewhere, BoE’s Chief Economist Haldane said he is watching “like a dove” for signs that expectations of very low inflation in Britain could become entrenched. Furthermore, following the fallout of last week’s QIR tier-1 investment banks have continued to push back their expectations of a rate-hike to Q1 2016. This increasingly dovish stance and broad-based GBP strength subsequently ensured that GBP/USD saw the session out in negative territory. Looking ahead, all eyes tomorrow will be on the UK inflation data as participants look to see how plausible it is that inflation in the UK could slip below 1% within the next 6 months as discussed by last week’s QIR.

USD/JPY

The main focus for the pair throughout the session came in the form of Japanese GDP release, which saw Japan unexpectedly enter into recession with the headline Q/Q SA figure coming in at -0.4% vs. Exp. +0.5%. This subsequently benefited JPY after spurring safe-haven demand flows, thus dragging the pair back below 117.00 after earlier breaking above the handle for the first time since Oct’07. More specifically, the safe-haven bid then saw USD/JPY plummet and break below 116.00 with profit-taking in the pair also said to be a driving factor. However, this downside was short-lived following comments from PM Abe Adviser Honda who said another sales tax hike is out of the question and the government should compile a stimulus package worth in excess of JPY 3trl. Therefore, JPY then softened as this shows the increasing probability that some form of stock-supportive stimulus is on its way, which would subsequently pressure the JPY. Thereafter, the pair traded in a relatively stable manner with today’s tier 1 US data failing to provide any further traction. Looking ahead, focus tomorrow will be on any comments from PM Abe who is expected to give a press conference about the possibility of a sales tax delay in lieu of today’s numbers.