USD/JPY remained relatively unmoved by the Japanese trade balance

EUR/USD

In early trade EUR/USD began to slowly ebb lower as USD clawed back some of it’s overnight losses with the USD index slowly returning to flat. With a lack of tier 1 Eurozone data due for release, price action was subsequently guided in early trade by comments from ECB’s Coene who said that there is no concrete proposal for bond buying, refuting claims to the contrary yesterday. This saw a bout of mild EUR weakness which was then later exacerbated by reports in EFE which said that 11 banks may fail the ECB stress tests which are due to be released this Sunday. Despite the ECB later declining to comment on the situation regarding the stress tests, EUR/USD broke back below the 1.2700 handle as concerns continue to mount regarding the economic outlook for the Eurozone economy. Thereafter, the pair saw a further bout of weakness as US CPI modestly exceeded expectations and thus ensured the pair’s position in negative territory. Looking ahead, attention for the pair will turn towards tomorrow’s Eurozone PMI releases which will provide participants with further insight into the fragility of the multi-bloc economy.

GBP/USD

All eyes for the pair today were firmly placed on the BoE minutes which were initially expected to largely be a non-event, with the vote split expected to remain at 7-2. However, talk started doing the rounds in early trade that McCafferty may have decided to return back to the ‘hold’ camp and thus present an 8-1 split. This subsequently weighed on GBP/USD in early trade alongside the modest resurgence in the USD index, although market consensus still remained largely in favour of a 7-2 decision. In terms of the release, the minutes revealed a 7-2 split and thus saw a brief spike higher in GBP/USD amid an unwind of dovish positions. However, these gains were swiftly pared as attention then turned towards the dovish content of the minutes with MPC members saying that the UK economic recovery was losing momentum and that the economic outlook had worsened. This then saw GBP/USD break back below its earlier lows and thus cement its position in negative territory with a lack of further newsflow thereafter to drive price action. Looking ahead, attention turns towards tomorrow’s UK retail sales report with the headline M/M ex. auto figure expected to fall from 0.2% to 0.0%.

USD/JPY

Overnight, the main focus for the pair centred around the release of the Japanese trade balance, which was expected to show a narrower than previous deficit. However, the headline figure actually revealed a slightly wider than expected deficit due to a surge in imports. Nonetheless, USD/JPY remained relatively unmoved by this release, with USD/JPY instead gaining traction from the modest USD weakness which saw the pair linger above the 107.00 handle. However, USD/JPY then broke away from this level as the USD index gained at the expense of the weaker GBP and EUR. The main source of price action for the pair came in the latter half of trade following the US CPI release. Both the M/M and Y/Y figure came in marginally above expectations and thus saw the USD-index move firmly into the green with the move lower in USTs exacerbating the move to the upside for USD/JPY amid favourable interest differential flows. Looking ahead, attention for the pair will turn towards tomorrow’s Japanese manufacturing PMI release which is expected to remain unchanged at 51.7.