Talking Forex: GBP/USD Slides, USD/JPY To Test 100.00?

EUR/USD
EUR/USD could stand to benefit this week from the news that the Italian President Napolitano has ended uncertainty by confirming he will stay on in the broadly ceremonial - albeit still critical - role as the President of Italy. Market’s perception of this will likely be shown in the results of this Wednesday’s BTP auction from the Italian Treasury, as Italian borrowing costs continue to decline despite the highly unstable outcome of the recent elections. Tuesday’s PMI figures out of the Eurozone should paint a clearer picture of growth in the early months of the year as Draghi and his board continue to see a slow and gradual recovery in the latter half of 2013. The recent ZEW survey out of Germany showed that the Cypriot bailout and Italian elections shook business confidence last month, and the IFO data this week will paint some further colour on this.

GBP/USD
GBP/USD slid on Friday after Fitch downgraded the UK’s sovereign credit rating to AA+ from AAA after the dwindling growth picture removed the top-rating. GDP on Thursday should confirm this trend, although analysts see a triple-dip recession being avoided with just 0.1% growth in the first three months of the year. With the currency remaining very much lower year-to-date, this Thursday could confirm a trend back toward 2013 lows at 1.49. On a slightly more global tone, US GDP is also on the slate for this week, which should show that the world’s biggest economy continues to thrive as the US consumer recovers from the fiscal cliff jitters in the earlier part of this year.

USD/JPY
Last week showed the G20 had no objections to the Bank of Japan’s Qualitative Quantitative Easing program, which should clear the way for USD/JPY to make a test on 100.00 this week for the first time since 2009. This Friday’s rate decision from the Bank of Japan should be relatively well telegraphed, with the central bank looking to continue their open-ended asset purchase program until deflation hits 2.0%. Source comments last week suggested that Kuroda and the board could bring forward their due date for inflation to hit target to 2015, suggesting their inflationary policy is already filtering through the beleaguered economy.