USD Drives European Currency Markets

The major pair has continued yesterday’s positive trend throughout the European session, heading into the European close with gains of 40 pips. With all eyes looking ahead to the FOMC rate decision this evening, the USD has been the driver today, as participants look ahead to further asset purchases from the Federal Reserve. Nonetheless, a compression in peripheral government bond yield spreads and talk of strong demand in EUR/JPY specifically has helped the pair retain the 1.30 figure, but offers at 1.3050 have prevented additional topside. Subject to the outcome of tonight’s Federal Reserve announcement, tomorrow’s bond auction from Italy could be the next litmus test for EUR resiliency. An extended move higher in the pair could bring Dec 6th high of 1.3087 within range, with Dec 5th high beyond that at 1.3127.

GBP/USD
GBP has been outperformed by its European counterpart today, as EUR/GBP trades with 20 pip gains ahead of the European close. GBP/USD has benefited from the weaker USD due to the FOMC effect, and remains supported by favourable labour market data released by the ONS earlier in the session. The jobless claims change unexpectedly fell by 3,000, prompting a fast-money move higher in the pair, taking out stops at 1.6135 on the way to a session high of 1.6149, but the rally was tempered by touted offers at 1.6150. Post-FOMC rate decision/projections release, any aggressive USD weakening could bring Nov 1st highs into play at 1.6176, with Oct highs just beyond at 1.6178.

USD/JPY
The JPY currency has weakened from the European opening bell, moving lower amid aggressive JPY cross buying, particularly in EUR/JPY. This brought USD/JPY to eight-month highs of 82.94, being stopped short by large offers heading into 83.00, with a large barrier touted at the figure. Participants remain focused on the weekend’s elections where expectations are for the opposition LDP to gain a majority and pursue the country’s inflation target with more conviction than their DPJ predecessors. Shortly following the elections, the Bank of Japan rate decision this weekend will come into focus, with recent source comments suggesting the bank will conduct further policy easing.