Global FX: EUR/USD Volatility Continues

EUR/USD
EUR/USD’s 1.38 handle in the wake of the Fed's QE taper proved short lived, as a mixture of profit-taking and USD-dominance pushed the pair a full 150pips lower over approximately 12 hours, to eventually languish between 1.3650/1.3700 for much of Thursday's trading session. The single currency found some slight solace in a final agreement made between EU finance ministers on a single resolution fund that allowed the pair to find a bottom at around 1.3650 and support from macro-demand in EUR/GBP. Credit conditions in Europe continue to ease, with today's session marking the first fall in interbank lending rates for over three weeks providing more downside pressure for the pair. Providing tomorrow's ECB LTRO repayment announcement provides no surprises, EUR looks to end off the Christmas period on the front foot, in very close proximity to YTD highs.

GBP/USD
The pair settled in negative territory despite a relatively quiet European session. In terms of macroeconomic data, today saw the release of a mixed Retail Sales from the UK, which in combination with macro names buying in EUR/GBP, ensured that the pair settled lower. BoE’s McCafferty said there will be 'no sudden rate hike next year' and said the MPC will only consider lifting interest rates above their historically low level of 0.5% until joblessness drops to at least 7%. However, this did little to act as a guide for price action. Looking ahead for the pair, tomorrow sees the release of GDP for the UK and US, which could provide some direction for the pair as we head into the festive period.

USD/JPY
The pair finished the London session in minor negative territory despite printing a five-year high at 104.37 in the Asian session following the FOMC taper decision, which consequently saw the Nikkei 225 print a six year high. In terms of economic commentary from Japan, there were reports from a government source that Japan plans to reduce new bond issuance in fiscal 2014/15 by more than JPY trl from this year's JPY 42.85bln. However, this failed to present markets with anything in the way of a reaction. Looking ahead for the pair, one of the key sources of focus for participants will be the BoJ decision overnight. Expectations are for the BoJ to reiterate QQE and are expected to ease policy early next year.