EUR/USD
The pair started the week on the back-foot as the USD index broke above the key 81.00 level to print a 9-week high; leading the pair lower towards the 1.3400 handle. This downside momentum for the pair was then exacerbated following expectations of a potential uptick in excess liquidity in the area due to a fall in excess reserves. However, this was not to be the case and the downward momentum for the pair was halted by touted month-end buying by a major European central bank in EUR/GBP. Wednesday proved to be a particularly pertinent session for the pair with the pair dropping below the 1.3400 handle after the US GDP release far exceeded expectations by coming in at 4.0% vs. Exp. 3.0%. Thereafter, the pair then continued to trade in a relatively rangebound manner heading into the US monthly jobs report with Eurozone CPI (0.4% vs. Exp. 0.5%) failing to weigh on the pair. The below expectations nonfarm payrolls release saw immediate upside for the pair as EUR/USD reclaimed 1.3400 handle. However, this reaction failed to be sustained as participants reacted to the fact that the release presented the 6th consecutive 200K+ level; a level that the Fed is said to view as a strong report. Looking ahead, Tuesday sees a plethora of final EU manufacturing releases, however, focus will largely be on the ECB rate decision on Thursday. Expectations are for the ECB to keep rates on hold, with a New York think tank on Thursday saying the ECB views the easing measures announced in June are having a positive impact on the Eurozone economy.
GBP/USD
Despite seeing a relatively muted started to the week, the pair continued to extend on its recent losses as fears of over-valuation and weak UK data releases provided the bulk of the pair’s direction. As the week developed and month-end approached, the pair began to start its descent as month-end buying in EUR/GBP filtered through to the pair as GBP/USD remained below the 1.7000 handle. Various investment bank rhetoric has revealed that many institutions see the pair as overvalued. This alongside the broadly-stronger USD the pair then pushed below the 1.6900 level heading into the UK manufacturing PMI. Despite the recent slew of positive UK data, the release underwhelmed markets as it showed it’s lowest level of growth in a year (55.4 vs. Exp. 57.2), this subsequently led to further downside for the pair and ultimately cemented GBP/USD’s position in negative territory. Moving forward, next week sees the release of a host of UK data with construction PMI, services PMI, industrial & manufacturing PMI and the BoE rate decision, where the central bank are expected to keep rates on hold.
USD/JPY
The pair started the week on the front-foot as broad-based USD strength saw the pair break above 50DMA seen at 101.83, before then breaking above the 102.00 level. Strong US earnings then helped the pair maintain its upside momentum as the pair broke through further technical levels with the 100DMA and 200DMA failing to prevent the pair’s move higher. Given the pair’s sensitivity to interest differential flows, the stronger than expected US GDP reading which led the move lower in USTs saw yet further gains for the pair as USD/JPY briefly broke above 103.00. Thereafter, despite seeing some volatility following the NFP release, the pair traded in close proximity to 103.00 and ensured the pair saw the week out with substantial gains. Next week sees the release of Japanese services PMI, and the BoJ rate decision, although the central bank are not expected to act in the near-term.
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