EUR/USD
The pair started the session on the backfoot amid a broadly stronger USD as it recouped some of its post-FOMC losses. The move to the downside was extended following some particularly disappointing industrial production figures from Italy, France and Netherlands, which once again provided participants with a reminder of the fragility of the Eurozone economy. However, price action across FX markets was largely dictated by growing concerns over the Portuguese banking sector after Espirito Santo Financial missed a short-term debt payment earlier in the week prompting weakness across European financials. This saw a flight to quality which consequently led USD to prosper against EUR and drive the pair lower towards the crucial 1.3600 handle while the German 10yr yield printed its lowest reading of all-time and below 1.20%. At 1.3600 there was said to be a cluster of option expiries which saw the pair break below the level at the NY 10am cut despite holding above the price for much of the European session. Looking ahead, attention now turns to tomorrow’s German CPI,albeit a final reading, as well as sovereign debt ratings for Germany, Netherlands and the Eurozone.
GBP/USD
In a similar fashion to that of EUR, GBP was largely outweighed by the safe-haven bid into USD, with a lack of economic commentary from the UK to counter the USD strength. Today saw the BoE maintain their current interest rate policy and APF programme, which was completely in line with market expectations and as such failed to grant the pair with anything in the way of a reaction, with the out of line UK trade balance also failing to grant the pair with any direction. From a technical perspective, today saw the pair break below the 1.7150 level before finding support at 1.7100. Also of note, analysts at Morgan Stanley advised clients to enter long GBP/USD position as UK housing market shows balanced growth and comments from the BoE deputy governor-designate Shafik are perceived hawkish. Looking ahead, tomorrow sees an absence of tier 1 data from the UK and therefore price action may continue to be dominated by lingering by movements in USD amid Eurozone fears.
USD/JPY
During Asia-Pacific trade, JPY was seen broadly stronger amid a record decline in Japanese machine tool orders (M/M -19.5% vs Exp. +0.7%) which saw the pair ebb lower towards the 101.50 level. This level was consequently breached in early European trade amid a safe-haven bid which saw JPY benefit at the expense of USD amid the growing concerns over the Portuguese financial system. This saw the pair move to its lowest level since late-May while JPY also managed to out-muscle its other major counterparts with the EUR/JPY seen lower by over 1 point. The USD/JPY trended lower towards the 101.00 handle which held strong as it reportedly met bids at the level. Of note, sources reported talk of a think tank report on the JPY suggesting that the BoJ could lower growth forecasts but keep inflation projections stable. However, this was very similar to source comments yesterday and thus failed to provide the pair with any further traction.