The pair finished the session with a net loss of around 100pips after better than expected PMI report from France, as well as a well received Spanish auction was offset by weaker PMI report from Germany which raised fears of a slowdown in Europe. Also, concerns over bank funding, as evidenced by the price action in the cross currency market weighed on the currency and there is a risk that wholesale funding costs will rise further should the report from auditors on Spanish banks indicate that much higher provisions will need to applied. In terms of technical level, supports below the key 1.2600 level are seen at the 10DMA line at 1.2591, 1.2583 (trend line from early June) and then at the 21DMA line at 1.2536. On the other hand, resistance levels are seen at 1.2744/48 and then at 1.2820.
UK retail sales surprised to the upside, causing GBP/USD to make a very rapid 15 pip spike before paring much of the move almost immediately. However the upward bias was not sustained and pair trended in tandem with EUR/USD as market participants continued to fret over the sovereign debt crisis in Europe, which given the elevated stress levels in some credit markets prompted analysts at BarCap to speculate that the ECB may cut rates by as much as 50bps in July. In terms of technical levels, supports are seen at the 10DMA line at 1.5604 and then at the 21DMA lien at 1.5558. On the other hand, resistance levels are seen at the 21DMA Upper Bollinger level at 1.5797 and then at the 55DMA line at 1.5846.
The pair trended higher throughout the session on the back of growing speculation that policy makers in Japan will finally approve the sales tax bill. The move higher was also driven by comments from BoJ’s Ishida, who said that the BoJ will continue to pursue powerful monetary easing to achieve its 1% inflation mandate.