FX Overseas: All Eyes On The Yen

EUR/USD tested the 50% retracement of this month's recovery at 1.2974, where a break below would indicate that there is scope for the pair to extend to move lower towards 1.2920, which is the 62% retracement. In case the bear trend accelerates, market participants will look to target 1.2746 and 1.2662. Interestingly to note is that even though a number of investment banks have revised their ECB rate-cut expectations and expect the central bank to cut rates in May, an economist out of IFO does not expect the ECB to cut rates. Furthermore, economist said that German economy should grow more strongly in Q2 than in Q1 despite IFO decline. The EONIA curve reversed the bull flattening observe yesterday and the Euribor strip traded flat for most of the session. What’s more is that the German daily Welt reported that EU Parliament's President Schulz is demanding an easing of the austerity stance in Europe. This follows on from comments made by Barroso earlier in the week, who warned that public spending cuts alone will not solve European financial crisis. However as to be expected, German officials stated that Germany won't support new discussion on EU fiscal rules.

GBP/USD
GBP/USD was supported by a weaker USD on Wednesday, however the underlying trend remains bearish and it is more likely than not that the pair will head back toward the key 1.5000 level in the coming days. In terms of technical levels, supports are seen at 1.5190, the 38% retracement of the March to April recovery and then at 1.5054 before testing the psychologically important 1.5000 level. As expected, the BoE and the Treasury have said that the FLS will run for an additional year until Jan. 2015 and will increase incentives for banks to lend to smaller firms. Also, the scheme will include non-bank providers of credit.

USD/JPY
USD/JPY traded in a tight range throughout the session today and remains on path to make a test on the key 100.00 level. Technical resistance levels above the psychologically important 100.00 level are seen at 101.45, the April 2009 high and then at 105.75 which is the 62% retracement of the June 2007 to October 2011 selloff. Of note, it was reported that Japan's Asahi Life said it is to slow domestic bond buying this FY if Japan yields stay low due to BoJ easing, and it sees an alternative investment in foreign bonds as an option and seeks opportunities to buy on dips.