Weekly Forex Wrap: May 17, 2013

The major pair has had a whirlwind of a week, as the single currency falls against most others after poorer-than-expected GDP figures pave the way for a more dovish perception of the European Central Bank. After printing a high at 1.3029, the pair has fallen as low as 1.2797 after a late flurry of USD buying pressed the pair below the 1.28 handle for the first time since early April. EUR weakness prevailed as the lowest inflation reading in years allied to poorer data allows markets to read further into recent ECB members’ data-dependency. The USD rallied across the board as participants take note of a number of FOMC members now positing and considering when and how the beginning of QE tapering will begin. As such, attention turns to the FOMC minutes on Wednesday, alongside a presser from the Fed Chairman Bernanke for any further hints on future policy. Technically, if further downside persists, the 2013 low at 1.2740 lies below Friday’s downside print, with mid-May highs in the pair the nearest resistance higher.

GBP/USD

This week, the pair tumbled over 200 pips, looking to approach 1.5128 – marking the 61.8% retracement of the 1.4832 – 1.5607 recovery, but reflecting off lows of 1.5162 in Friday’s session. USD strength prevailed, overruling an upbeat tone from the Bank of England’s Quarterly Inflation Report on Wednesday, wherein the Governor and his board upgraded the growth forecast for the UK economy in order to factor in the Funding for Lending Scheme and recent strong data. As such, the GBP has outperformed the EUR, with EUR/GBP falling consistently over the past week. Next week brings the Bank of England’s minutes release for their May meeting, wherein the MPC kept the powder dry, but expectations remain for three of the nine members having looked to add asset purchases this month.

USD/JPY

Resounding USD strength and an affirmation of the success of the BoJ’s QQE program steam-rollered the pair higher taking out 102.00 and subsequently 103.00 in the past five days. Japanese GDP data this week vindicated BoJ’s Kuroda and Abenomics as a whole, beating expectations to mark the fastest pace of expansion for the Japanese economy since Q3 2011. The next significant milestone for the pair comes at 103.50 – marking late September 2008’s high print. Focus for next week turns to the BoJ’s monetary policy meeting, wherein they are expected to reaffirm their open-ended bond-buying program, with much discussion on the volatility observed in the JGB markets this week, after being halted limit down for three consecutive sessions this week alone. Should the current trend of USD positive and JPY negative US data, the 104.00 should not be factored out – particularly heading into the FOMC’s minutes this Wednesday.