JPY Hit By BoJ

EUR/USD

A relatively lacklustre first half for the week for the pair where EUR slowly strengthened on the back of better-than-expected ECB stress test result was interrupted by the hawkish FOMC decision and the subsequent US Dollar strength. The FOMC was a seminal event for the pair falling from just below 1.2750 through 1.2700 to reach 1.2650 starting the trend for the rest of the week. This was as although the Fed, whilst ending QE3, kept the ‘considerable time’ comment, it suggested that 'solid job gains' with lower unemployment means underutilisation of labour resources is gradually diminishing, and as such the moment for a rate hike appears to be closer. On Thursday the pair’s price action was dictated by a ‘false dawn’ in US GDP figures after markets realised the beat on expectations (3.5% vs. Exp. 3.0%) was due to Govt. spending rather than consumer and as such the pair ended the day relatively unchanged, having initially weakened. Over Friday the BoJ’s increased monetary easing caused USD to strengthen further at the expense of JPY and EUR/USD broke below the 1.2600 and then 1.2500 handles through the session to trade at August 2012 lows heading into the last close of the week. Looking ahead the ECB rate decision and subsequent press conference looks to be the most notable event for the pair, with participants looking for further signs from ECB’s Draghi of policy divergence between the EU and the US.

GBP/USD

The pair spent much of the first half of the week in muted trade, amid little fundamental to guide price action. The strengthening EUR benefitted GBP/USD with the pair consolidating above the 1.6100 handle, mostly remaining above this level until the FOMC rate decision brought GBP/USD within striking distance of the key psychological 1.6000 mark late on Wednesday. Moving forward the pair broke this level early on Thursday and preceded to trade either side of the 1.6000 level, again amid little macro guidance. The impact of Thursday night’s BoJ-inspired USD strength was marginal in comparison to GBP’s continental peer. Yet heading into the last close of European and UK markets for the week the pair remains firmly in the red. Looking ahead the a host of UK data points including industrial and manufacturing production draw attention, however the main focal point for the week will remain the BoE rate decision on Thursday.

USD/JPY

With an unimpressive start to the week USD/JPY made up for its slow start from late Wednesday onwards, finding upside, and direction, initially on the hawkish FOMC statement alongside the rate decision. However this move, close to 100 pips, on the US central bank comments was eclipsed by the stellar USD/JPY performance after the JPY happened upon further suffering as the BoJ announced plans for further monetary easing. Specifically the BoJ announced an increase to QQE of JPY 10trl to JPY 80trl from JPY 70trl and increases JGB buying by JPY 30trl per year. This news came allied with an announcement from the GPIF that they approved cutting its JGB allocation to 35% and foreign bonds to 15%, while also approving raising domestic and foreign stock to 25% each from 12.5%. The policy divergence between the Fed and BoJ has helped USD/JPY break above 112, having begun the day around 109.40, taking out a touted option barrier at 112 in the process and triggering stops on the break of the handle. The pair moved to print a high around 112.20, 1 pip shy of 2007 highs of 112.21 and has consolidated around this level heading into the European close. Looking ahead there appears little in the way of Japanese data, however for the US participant will await tentatively US Nonfarm Payrolls and Trade Balance.