Spectacular GBP strength after UK unemployment rate of 6.9%

EUR/USD 

After an initially opening lower in the first session of the week, on the back of disparaging comments from the ECB over the strength of the EUR, the pair made some early upside headway. However the pair remained resilient in spite of talk of QE by the ECB, leading to volatility over the mid-point of the week. Touted EUR repatriation related flows by companies fearing tougher sanctions on Russia offset what was also generally a firmer USD and instead resulted in a volatile price action throughout the rest of the week. The Eurozone CPI final reading for March was reported, on Tuesday, in line at 1.6% M/M, but the core reading lower, giving cause for some EUR weakness. With the long weekend and positioning for it the pair broke its previous weekly high of 1.3863 to reach 1.3865 in early trade Thursday, this move had potential to continue with no levels of resistance up to its intra-week close at 1.3886 but failed to sustain the strength, rebounding off Thursdays’ highs to trade with minor risk off sentiment. Looking ahead to next week, Eurozone PMIs’ appear to offer the largest opportunity for participant to observe. 

GBP/USD

GBP/USD passed the first half of this truncated week muted amid light flow of news, underperforming its peers on Tuesday, but showing little other animation. Contrastingly the pair’s theme of the second half was one of GBP strength, with a spectacular move noted. Wednesday’s strong reaction to the UK’s unemployment rate, 6.9% vs. Exp. 7.1%, which broke the BoE’s 7% threshold, saw the pair move to break through the physiological handle of 1.6800 and the previous week’s high of 1.6820, with the pair then trading sideways after coming off its highs. Over Wednesday night increased GBP strength on the back of markets pricing in an earlier than previous anticipated rate hike led the pair to reach its highest level in 5 years at 1.6837. Since reaching this level GBP/USD has seen some pressure to move to the downside, with the pair coming off its best levels of the day. Looking ahead to next week the BoE minutes look to be the focal point for the pair. 

USD/JPY

Flight to quality failed to weigh on the pair, which instead benefited from a firmer USD and also Japan governments ongoing attempts to encourage the GPIF to reallocate into riskier assets and offset the recently sales tax hike. At the same time, the pair benefited from favourable interest rate differential flows which remained on a downward trend in spite of somewhat dovish comments by Fed’s Yellen. Despite the upside, the pair failed to make a convincing break above the 50DMA level. For next week, Japanese CPIs’ seem to be the greatest trading opportunity for the pair.