EUR/USD

The pair finished the week with a net gain of around 200pips and settled above the psychologically important 1.3000 level which in theory should indicate that the bulls remain in the driving seat. However, the advance by the pair is seen largely to be a by-product of short-covering on the back of speculation of an imminent deal between private creditors and IIF, which in turn should mean that the ECB avoids taking a loss on its debt holdings. As such, it remains to be seen whether the bullish pattern will remain intact in the near future. The pair also benefited from a dovish statement by the Fed, which revealed that members expect Fed Funds to remain low through late 2014. The spread between the 3-month implied vs. historical volatility held steady, while the benchmark 1-month 25 risk-reversal continues to trade near -1.0350.

Finally, technical support levels are seen at 1.3077/45 and then at the 10DMA line at 1.2951. On the other hand, resistance levels are seen at 1.3199, 1.3237 and then at 1.3282.

GBP/USD

Less than impressive macro economic data releases in form of the advanced Q4 UK GDP, the pair trended higher throughout the week on the back of EUR-related short squeeze which in turn depressed the USD index. In addition to that, GBP also benefited from safe-haven related flows, in spite of the fact that it is widely acknowledged that UK banks are heavily exposed to a number of EU indebted nations. The latest minutes revealed that the MPC voted unanimously to keep both the Asset Purchase Facility (APF) and the benchmark borrowing rate unchanged, but indicated that an expansion may be warranted should the economic projections which are to be published in February warrant it. Separately, public inflation expectations for the next 12 months slumped in January to their lowest level since April 2010, according to YouGov.

Finally, technical studies indicate that supports are seen at the 55DMA line at 1.5572 and then at the 10DMA line 1.5540. On the other hand, resistance levels are seen at the 21Day Upper Bollinger Level at 1.5752 and then at 1.5775.

USD/JPY


In spite of being on an upward trend during the first half of the week, the pair settled the week little changed after the Fed indicated that it is prepared to keep Fed Funds rate unchanged through late 2014. As a result, the pair settled below 77.00 level, while the USD index has slipped below 79.00 mark. Of note, the Japanese government has said excessive volatility in the FX markets is bad for their economy and they will monitor the markets closely, taking decisive steps when needed.

Separately, Bank of Japan has forecast that their economy will contract in this current fiscal year, but they have kept monetary policy steady at 0-0.1%, further forecasting that the economy will make a steady recovery later in the year fuelled by exports to emerging markets. The minutes of the meeting showed that some BoJ members have said the country needs to make the utmost efforts to maintain financial stability and that the latest expansion of asset buying has been effective.