EUR/USD
Comments from ECB’s Knot over the weekend saying that he holds reserves on the effectiveness of QE, despite the general pro-QE sentiment coming from the ECB, lifted money market rates and consequently the EUR. The EUR/USD pair saw a sharp upturn early in the European session as the ECB announced that liquidity in the Eurozone had fallen again holding below the EUR 100bln level to EUR 86.6bln, marking multiyear lows. This comes after the ECB balance sheet contracted following the large 3y LTRO repayment on Friday. The pair then traded relatively range bound throughout the session with no scheduled tier 1 data releases. The remainder of the session has no scheduled risk events as markets will now look towards German regional and national CPIs tomorrow.
GBP/USD
GBP also saw a sharp upturn in the early European session, adding to USD weakness, as Pfizer Inc (NYSE:PFE) confirmed interest in purchasing Astrazeneca Plc (AZN) in a deal worth an estimated GBP 58bln. This move saw GBP/USD at the highest levels since November 2009. The pair then traded horizontally through the majority of the session before later paring much of the gains, reducing them to only 20 pips, as markets correct for the earlier up tick. The markets look ahead to UK GDP due tomorrow at 0930BST.
USD/JPY
Despite USD weakness from the get-go, due to M&A talk in the UK and the contracting liquidity in Europe, USD/JPY has been pushing upward today. The JPY softened as the US unveiled its latest sanctions on individuals and companies in Russia which were less imposing than feared. The pair was then lifted further as US pending home sales beat expectations at 3.4% vs. Exp. 1.0%. This helped to relieve some of the poor sentiment from last week’s disappointing existing homes sales data, helping push USD/JPY above 102.50. Markets in Japan will be closed tomorrow marking Showa day and the start to the Golden Week holiday.