EUR/USD
Once again, in the absence of tier 1 data from the Eurozone, it was rhetoric out of the ECB which dictated the direction for the pair with comments from ECB’s Nowotny and Constancio. The pair started the session climbing marginally higher in a retracement of last week’s, Draghi inspired, heavy losses. However, the upward momentum for the pair was short-lived as ECB’s Nowotny said an interest rate cut alone would likely be too little to combat low inflation, which added to the dovish sentiment provided by Constancio who said the central bank was concerned with the current period of low inflation. The connotations of a potential QE programme sent the EUR/USD gradually lower with markets continuing to speculate over further monetary easing by the central bank. Although in the latter half of the session, prices did begin to recover with the 100DMA to the downside at 1.3741 unable to be breached, as the pair traded in a relatively tight range throughout the session. Looking ahead, focus will continue to remain on central bank speakers as well as tomorrow’s ZEW Survey.
GBP/USD
This week all eyes in the UK will be placed upon the BoE’s Quarterly Inflation Report which is expected to reveal an upgrade to growth forecasts and downgrade to the inflation outlook, with participants also looking out for any views the bank can provide on slack in the UK economy. One key development today was participants continuing to bring forward their expectations of a rate hike by the BoE with the market now pricing in Q1 2015 as a likely date, a date which the Sunday Times expects to be confirmed this week. As such, this sent the GBP/USD back towards that crucial 1.6900 handle and consequently weighed upon the weaker EUR/USD to send the EUR/GBP to 16 month lows, although GBP/USD failed to climb to the levels seen last week. Given the lack of tier 1 data out of the UK or notable economic commentary, this set the tone for the today and ensured the pair finished the session firmly in the green.
USD/JPY
During Asia-Pacific trade, the pair briefly broke back above the 102.00 handle as a stronger EUR/JPY provided the USD/JPY with some upward momentum which was also exacerbated by a weaker than expected current account reading out of Japan. However, as European participants came to market some of these gains were trimmed by a weaker USD. Nonetheless, in the latter half of the session, as US participants came to market, a surge higher in equities brought on a bout of JPY weakness which once again lifted the pair above the key 102.00 level and ensured the pair finished the session in positive territory.