GBPUSD: The move to the downside was then exacerbated by a weak UK industrial

EUR/USD

The pair started the week on the backfoot following on from last week’s post-NFP inspired losses, with weak industrial production data (-1.8% vs. Exp. 0.0%) from Germany adding to the pair’s downward momentum. With a lack of notable economic commentary or tier 1 data from the Eurozone thereafter, the pair continued to trade in close proximity to the 1.3600 handle for the first half of the week. The main source of direction for the pair this week stemmed from the growing concerns over the Portuguese banking sector after Espirito Santo Financial missed a short-term debt payment earlier in the week prompting weakness across European financials. This came alongside the German 10yr yield falling below 1.20% and consequently led the pair back below the 1.3600 handle as EUR lost territory to USD amid a flight to quality. Although on Friday, the pair recouped some of these losses to see the week out relatively unchanged as fears over the systemic risk posed by the bank dissipated. Looking ahead, next week sees the release of the German ZEW survey, with the headline expectations figure expected to show a fall from last month, as well as the final Eurozone CPI reading for June which is expected to remain unchanged.

GBP/USD

GBP/USD ebbed lower in the early stages of the week in a pullback from recent gains and trended lower back towards the 1.7100 handle where it found support amid light newsflow. The move to the downside was then exacerbated by a weak UK industrial and manufacturing report, with the industrial release showing its largest monthly decline since August 2013 and consequently dragged the pair below the 1.7100 handle. With the BoE maintaining their current interest rate and APF programme, the pair’s direction in the latter stages of the week were largely dictated by turmoil surrounding the Portuguese banking system as GBP was out-muscled by USD in a safe-haven bid. Moving forward, attention now turns to the upcoming UK inflation data which is expected to show an uptick from last month. This comes ahead of next week’s UK jobs report which is expected to come broadly in-line with previous.

USD/JPY

The pair initially saw strength at the start of the week and traded above the 102.00 handle with USD benefitting against JPY amid favourable interest differential flows. However, this move to the upside was short-lived alongside a move lower in global equities which saw flows into USTs and thus reversed the direction of interest differential flows, with the pair moving below the 200DMA seen at 101.80 where it remained for a majority of the week. This move to the downside was extended on Thursday, with the pair slipping below the 101.50 level and towards the 101.00 handle following a particularly disappointing Japanese machine tools orders (M/M -19.5% vs. Exp. +0.7%) and JPY prospering amid a flight to quality amid the concerns of the Portuguese banking sector. Next week, the main focus for Japan will be that of the BoJ rate decision, although the bank are not expected to take action, it does come in the midst of recent source comments saying the BoJ could lower growth forecasts.