The pair settled lower for the week as concerns over the solvency of both Italy and Spain continued to weigh on investor sentiment. Spain’s Rajoy presented new budget measures to the Spanish parliament this week, while the EU Commission stated that senior bondholders and depositors would not be involved in Spanish banking haircuts. Market participants also digested yet another sovereign rating downgrade, this time from Moody’s. The ratings agency downgraded Italy by two notches to Baa2 and warned it could cut further. On a separate note, even though Thursday’s release of the daily liquidity update from the ECB, wherein deposits, unsurprisingly, fell dramatically to EUR 324.9bln following the central bank’s cut to zero-deposit rates. The move by the ECB to boost credit flows and lending has slipped at the first hurdle, as the fall in deposits is matched almost exactly by an uptick in the ECB’s current account. As such, it is evident that the banks are still sitting on their cash reserves, reluctant to lend, as the real economy is yet to see a boost from the zero- deposit rate. In terms of technical levels, supports are seen at 1.2162/49 and then at 1.2132. On the other hand, resistance levels are seen at 1.2248/97 and then at 1.2334.GBP/USD
There was little in terms of UK related macro economic commentary and as such, the price action throughout the week was mostly driven by the news flow relating to the Eurozone. In turn, given the never-ending uncertainty over the Iberian Peninsula, as well as Italy, meant that the pair settled lower for the week. In terms of UK related news flow, according to sources, the OBR will propose as much as GBP 50bln in further spending cuts and tax increases to stem public debts. While UK Business Secretary Cable has said UK banks are 'throttling' the UK recovery by failing to lend to small firms desperate for loans. Finally, technical studies indicate that supports are located at 1.5414/06 and then at 1.5393. On the other hand, resistance levels are seen at 1.5578/88 and then at 1.5623.
The BoJ have held their target rate unchanged at 0.10%, alongside expectations and maintained its view that the Japanese economy is gradually picking up, pointing towards solid domestic demand as a spur for growth countering the need for additional stimulus. Furthermore, the total size of the BoJ's asset buying and lending program is unchanged at JPY 70trl, however the bank has made a technical revision to the scheme, and are to increase the buying of short-term securities by JPY 5trl while reducing the amount it offers under fixed-rate market operations by the same amount. As a result, given lack of fresh monetary easing meant that the pair settled lower for the week.