EUR/USD
Muted volumes ahead of the ECB policy meeting on Thursday left EUR/USD flat for today’s session. Optimism from Tuesday’s PMIs was somewhat dampened today as German Factory Orders showed an unexpected decline of 2.8%. It is widely expected that the ECB will leave rates unchanged and also refrain from policy easing, but also leave the door open to more accommodative actions should economic conditions warrant such a move. This view was also echoed by economists at Goldman Sachs, who believe that probability of ECB adopting new liquidity measures has declined from earlier this year. Despite the lacklustre price action, there is a risk that the pair will come under selling pressure late Thursday and Friday, as looming option expiries which reside below the spot price (1.1bln at 1.3780-90, 1.17bln at 1.3800, 834mln at 1.3810-20 and 411mln at 1.3825) and expire on Friday magnetise the spot price.
GBP/USD
The pair traded steady on Wednesday, albeit with a slight downward bias, as market participants consolidated recent gains and positioned for the upcoming MPC announcement. At the same time, 1.7000 option barrier related flow kept the price action muted. Touted profit taking from Tuesday’s highs weighed on the pair in early trade, with no tier-1 data to guide prices. However, the pair held above touted bids at 1.6950 as most investors twiddle their thumbs ahead of the BoE rate decision on Thursday. Consensus is that there will be no rate change despite the most recent unemployment level falling below the 7% threshold defined by MPC. However, there is a chance of a statement which will give guidance as to how soon the looming hike should be expected.
USD/JPY
Japanese participants returned to the market today after a four day weekend only to witness an uneventful BoJ minutes and lower stocks. Overnight the Nikkei 225 fell a staggering 2.9% lead by a tech and social media selloff following a weak NASDAQ close yesterday. The tight correlation between the pair and the benchmark equity index meant that lower close by other Asian bourses resulted in flight to quality and weighed on the pair. However as the session progressed, reports that Russia’s Putin is willing to enter dialogue with OSCE caused an unwinding of safe haven flow as Putin stated that he supports the presidential elections in Ukraine. This movement could also be pinned to a slight rebound off of yesterday’s long liquidation as the move was not founded on any US of Japanese fundamentals.