Talking Forex Daily Wrap - 13/03/13

EUR/USD

The major pair heads through the European close with losses of close to a point as flow to the USD and domestic concerns in Italy drive a flight away from the single currency. In very early European trade, a bout of USD-selling lifted EUR/USD to short-lived session highs of 1.3065 before falling on a consistent downward trend for the majority of European trading hours. A poorly received Italian bond auction prompted underperforming domestic assets, as the IT/GE 10yr government bond yield spread widened by over 12bps - weakening the EUR currency. Furthermore, unexpectedly hawkish comments from the PBoC governor Zhou tapered risk appetite as he warned on China’s inflation outlook. News from the German banking sector further prompted downside pressure as one of Germany’s larger banks, Commerzbank, confirmed they are to conduct a capital increase. Firmer US retail sales accelerated the downside moves below mid-December 2012 lows to print 1.2924 at the lower extreme. Option expiries at 1.2950 and 1.2925 could keep the pair toward the intraday lows over the coming 24 hours.

GBP/USD

For a change, GBP has been the outperformer of the session amid a lack of negative newsflow for the UK economy, despite UK press highlighting the gloom of the domestic economy in the wake of yesterday’s industrial and manufacturing production figures. Overnight, stops tripped on the way through 1.4910 provided early support, with downside pressure in EUR/GBP and a spell of short-covering in GBP/USD allowing the pair to maintain a 1.49 handle for much of the session. A vanilla option expiry said to be of large size for Friday’s NY cut is helping keep the pair from dwindling too far. UK risk events remain light for the rest of the week, with focus remaining on next Wednesday’s budget from the UK Chancellor Osborne and the Bank of England’s minutes from their March rate decision.

USD/JPY

The JPY gained in the overnight Asia-Pacific session as participants remained weary of the upcoming BoJ nomination parliamentary hearing in tomorrow’s session as well as a generally weaker Tokyo stock market after a bout of profit-taking from five year highs in the Nikkei 225. Further USD sales brought the USD/JPY pair to lows of 95.45 at the beginning of European trade, but this was short-lived as the EUR suffered and the USD recoupled with economic fundamentals after US retail sales firmly beat expectations. Additionally, position-taking ahead of the overnight Japanese Lower House vote on BoJ nominations have allowed USD/JPY to grind higher toward unchanged, but still well below the best levels of the week. Should the Lower House vote pass by uneventfully, option expiries between 95.00 and 96.00 could keep USD/JPY within recent ranges.