EUR/USD

Following an optimistic session yesterday, the trends have continued in today, as EUR/USD books solid gains of 30 pips heading into the European close. The major pair managed to print a high of 1.3308 halfway through the trading day, after a touted option barrier was overwhelmed by strong buying in EUR/JPY as participants continue to look toward the Bank of Japan’s rate decision in Thursday’s Asia-Pacific session. The high print marked a nine-month high for the pair, supported by positive IFO data from Germany as well as S&P’s multi-notch upgrade for Greece, who can now use Greek debt as collateral at the ECB. This prompted tightening of peripheral government bond yields against the German benchmark, assisting EUR buoyancy. Heading through the US session, a modest recovery in the USD has pulled the pair off its best levels after an Obama aide warned that the President would veto Republican Boehner’s ‘Plan B’ for the fiscal cliff. Tomorrow’s session remains light for Eurozone risk events, with the pair likely to be driven by the USD once more and the political turmoil heading into December 31st.

GBP/USD

GBP is seen firmer against most other currencies just ahead of the European close after touching 3- month highs early in the day of 1.6307 amid talk of strong demand from US names. This, combined with broad USD weakness in the European morning helped lift the pair, after erasing a touted option barrier at 1.63 on the mid-morning rally. Favourable German data lifted EUR/GBP to break 0.8160, tempering any exaggerated moves higher for GBP/USD. The Bank of England minutes provided little in the way of surprises, and MPC comments that a strong GBP is hampering recovery failed to impact the currency. Tomorrow’s session brings retail sales figures for November, with eyes looking forward to the final reading of Q3 GDP on Friday. Vanilla options for tomorrow’s NY cut stand at 1.63, which could prove magnetic heading into 1500GMT tomorrow.

USD/JPY

The JPY weakened across the Asia-Pacific session and European morning as PM-elect Abe claimed he would drop Japan’s existing fiscal reform plan and will not keep the JPY 71trl spending cap for the next fiscal year. The suggestions that stimulus will come from both the fiscal and monetary side prompted the weakening moves in JPY alongside the strong performance in local Japanese stocks. This allowed USD/JPY to rally to highs of 84.62. A turn around in risk sentiment upon Obama aide comments that Boehner’s Plan B would be vetoed brought the USD firmly off its session lows, strengthening the JPY in tandem and bringing the USD/JPY back toward the lower range of the day, settling at 84.30 ahead of the European close. The Bank of Japan’s rate decision will be the catalyst for trade overnight, with the Bank’s board expected to ease policy by around JPY 10trl. Touted large options at 85.00 will likely draw focus heading into the close of the week if the JPY keeps the weaker trend.