USDJPY broke above option expiry at 107.50

EUR/USD

Heading into the European session, EUR/USD traded with modest losses which were then later exacerbated by the lacklustre French PMI release alongside the negative European cash equity open. This positioned markets for subsequent disappointing readings from the Eurozone and Germany which were both expected to fall from previous and thus further compound the recent slew of weak data releases from the Eurozone. However, against the grain of expectation both the German and Eurozone PMI releases came exceeded expectations and saw EUR/USD move higher by around 50 pips and pull away from the 1.2600 level around which it had been trading in close proximity to. Thereafter, with the weekly US jobs report not providing too substantial a deviation from expectations, the pair trades in a relatively rangebound manner while remaining in positive territory. Looking ahead, with a lack of tier 1 Eurozone data releases, attention will shift towards the publication of sovereign ratings for German, Spain, Italy and Portugal tomorrow.

GBP/USD

With participants unreactive to comments from BoE’s Broadbent who failed to provide anything new in the way of BoE rhetoric by saying any rise in BoE official interest rate to be limited and gradual, all eyes for GBP today were firmly placed on the UK retail sales release. Over the past month UK economic releases have been relatively lacklustre and today’s offering proved to be no different with the release falling short of expectations (Ex Auto M/M -0.3% vs. Exp. 0.0%), which saw the pair briefly break below 1.6000 to the downside, with the ONS noting that the fall in clothing sales volumes is the biggest since April 2012. Furthermore, negative sentiment also stemmed from the BBA release which revealed that UK net mortgage lending is at its lowest level since Jan 2014. Looking ahead, attention tomorrow turns towards the advanced UK GDP reading which is expected to fall to 0.7% Q/Q from 0.9%.

USD/JPY

Despite being relatively rangebound overnight, USD/JPY managed to break above Monday's and last week's highs in early European trade alongside the move lower in fixed income products as USD/JPY gained amid favourable interest differential flows. The move to the upside was then further exacerbated by the pair tripping stops through 107.55 and talk of leveraged names on the bid which also saw the pair break above an option expiry at 107.50. Heading into the North American open, USD/JPY saw another move to the upside as USTs continued to slide, with the WSJ also running reports that the BoJ now sees a much bigger chance of inflation falling below 1%. More specifically, the article suggested that the BoJ recognises that lower oil prices in the long run will be good for Japan but in the short term they are concerned about the impact on inflation. This subsequently saw the pair approach 108.00 to the upside before running into offers at the handle, with USD/JPY seeing the session out firmly in the green.