EUR and GBP lacked direction against the USD

EUR/USD

With a lack of notable tier 1 data or economic commentary from the Eurozone, the pair traded in a relatively tight range throughout the session as participants awaited this week’s upcoming key risk events. The pair was initially dragged lower in early trade as the USD index broke above the 81.00 level to print a 6-week high as EUR/USD traded in close proximity to touted option barriers at 1.3425 and 1.3400. Despite comments over the weekend from ECB’s Constancio who said inflation rates in the Euro area remained too low in Q2, but further moves to tackle low inflation are unlikely in near term. However, these comments did little to sway the pair in what was a subdued session for EUR/USD. Of note, analysts at Morgan Stanley recommend selling EUR/USD after falling below key 1.3500 level and expects EUR/USD to decline further. MS think that the main EUR-supportive flows, foreign purchases of peripheral bonds, foreign purchases of equities and central banks diversification into EUR, should now slow down. Looking ahead, once again tomorrow sees an absence of tier 1 releases or scheduled speakers from the Eurozone. However, this week sees the releases of US GDP, ADP, NFP and the FOMC rate decision. 

GBP/USD

As was the case with EUR, GBP lacked initial direction with an absence of economic commentary from the UK over the weekend or tier 1 data due for release. The pair staged a modest pullback of last week’s losses while trading in close proximity to option expiries at today’s NY cut at 1.6975 as the pair found support at the 50DMA seen at 1.6970, however, ultimately as was the case across FX markets, the pair traded in a particularly tight range. Despite briefly breaking back above 1.7000, analysts at Scotiabank note that since July 1st, net long positions for GBP/USD have fallen from USD 6.0bln to USD 2.9bln. Looking ahead, tomorrow sees an absence of tier 1 data from the UK, although BoE’s Broadbent is due on the speaker slate, with participants looking for any comments that provide a support or contrarian view to last week’s less hawkish than expected BoE minutes release. 

USD/JPY

Overnight, the pair prospered from the move higher in the USD index as the pair broke above its 50DMA seen at 101.83 as the pair moved towards Friday’s high seen at 101.94. Ultimately, the pair failed to reach this level as markets remain on the side-lines ahead of this week’s key risk events from the US. Despite a lack of pertinent new newsflow today, once key source of price action this week could stem from the ongoing geopolitical events regarding Russia and Ukraine. This comes as the Sunday Times report that the EU could impose tough new sanctions on Russia as early as Tuesday after last Friday where EU’s Van Rompuy said that sanctions should target the oil sector. However, once source of speculation is how Russia will retaliate with analysts speculating that EU capital markets could be a target. This could therefore see some escalation of tensions and thus drive a safe-haven bid into USD/JPY.