USD/JPY: The pair was a key focus throughout the week

EUR/USD

The pair started the week on the backfoot following comments from ECB’s Mersch who said unconventional measures could theoretically include buying state bonds and other assets including gold, shares and ETFs. Thereafter, the pair managed to steadily pare some of these losses following the release of a better than expected German ZEW survey heading into Thursday which saw the release of a raft of Eurozone PMI releases. In terms of these data points, they painted a particularly dreary picture of the Eurozone economy while highlighting particular weakness in the area’s manufacturing sector with Germany only narrowing contractionary territory. However, the main focus for the pair this week was when ECB’s Draghi took stage in Frankfurt today. The ECB president gave his most clearest indication to date that the ECB are becoming increasingly willing to consider a sovereign bond-buying program by saying that he wishes to get Eurozone inflation back on track as fast as possible, while also pointing out the efficacy of US and Japanese QE programme in lowering the value of domestic currencies. This subsequently saw a sharp move lower in EUR/USD with the pair later finding support at 1.2400 and thus ensured the pair saw the week out in negative territory. Looking ahead, next week sees the release of the German IFO, jobs report and regional CPIs. However, given the comments today, focus instead may shift towards the speaker slate as participants look for further clarity on the views shared by Draghi.

USD/JPY

The pair was a key focus throughout the week with all eyes initially on the Japanese GDP readings which revealed a particularly concerning picture for the Japanese economy as the nation entered into recession. This subsequently dragged the pair lower as JPY was subject to a safe-haven bid and USD/JPY slipped below 116.00. However, the pair then staged a significant rebound as focus then shifted towards the possibility of a sales tax hike and subsequent snap election which was subsequently announced the following day. With investors seemingly unwilling to hold JPY, the pair ebbed towards the 119.00 handle, a level which it failed to make a substantial break above. Thereafter, participants proceeded to book profits, with the move to the downside exacerbated by comments from Fin. Min Aso who said he was concerned with how quickly the JPY had depreciated. Looking ahead, focus for the pair will largely reside with the fallout of the recent policy announcements by PM Abe and the subsequent political fallout of the snap elections, with participants still looking out for a potential stimulus package.

GBP/USD

The main event from the UK this week was that of the BoE minutes release, ahead of which GBP softened as participants positioned for a dovish release from the MPC. However, this speculation failed to bear fruition with Weale and McCafferty still firmly in favour of rate lift-off. Furthermore, particular focus was paid to the comments that a tighter labour market is likely to lead to wage growth soon and the fact that the MPC majority said there is a risk of inflation overshooting the 2% target. As such, GBP/USD surged higher away from it’s Sept 2013 lows in fast-money move of around 50 pips to place the pair firmly in the green. Thereafter, the pair saw some further reprieve following the better than expected UK retail sales report, with price action ultimately dictated by movements in the USD in what was otherwise a relatively quiet week for the UK. Looking ahead, next week sees the release of UK GDP, however, participants will continue to speculate over the timeline of the central bank’s rate lift-off.