EUR/USD tumbled to 15-month lows knocking out option barriers at 1.2800

EUR/USD

EUR/USD tumbled to 15-month lows after knocking out option barriers at the 1.2800 handle, as the policy divergence between the ECB and the Federal Reserve continues to dictate price action. Early doors, large bids at the 1.2825/30 level kept the pair supported, however a poor German IFO Business Climate coupled with further commitment from Draghi to ‘do whatever it takes to save the EUR’ eroded all support ahead of the figure alongside the Wall Street opening bell. As such, the pair trades just above the July 2013 lows of 1.2755 as traders continue to factor in the likelihood of the ECB being forced to commit to additional measures to weaken the currency in the near future – particularly in the wake of the poor TLTRO uptake and the as yet cloudy details on the ABS/covered bond purchase program. Looking ahead, tomorrow’s session sees another appearance from ECB President Draghi in Lithuania and continued focus on Greece, whose as yet stellar performance has softened lately as recent reforms are called into question ahead of an IMF repayment deadline.

AUD/USD

AUD’s initially strong performance was buoyed by short-covering after an approx. 100 pip decline since the beginning of the week and a resurgence in commodities prices, as a loosening in Chinese money market rates helped free some pent-up demand in east Asia. Nonetheless, heavy offers ahead of a touted barrier at 0.8900 stemmed the gains in the pair, as attention once again shifted to the surging greenback and the Australian government’s downbeat forecast on iron ore prices in the near future (one of the country’s largest exports). Overnight, the RBA’s Financial Stability Report provided little new, however highlighted the necessity for continued easy policy from the RBA as the domestic economic weakness threatens Australia’s inflation target. Looking ahead, the ongoing will-they-won’t-they speculation of Chinese easing looks far from over, as sources report that the Chinese Premier Xi Jinping could be looking to replace the PBoC head with a closer ally, potentially Shuqing, a former banking regulator in China. 

USD/JPY

The seemingly perennial incline of USD/JPY stalled slightly today as the Japanese PM Abe appeared to throw a spanner in the works after highlighting the dangers to the domestic economy from a very sharply accelerating bout of weakness in the JPY. The turn of face from Abe drove USD/JPY lower by approximately 40 pips, however the pair found a base at 108.46 at around the halfway point of the Asia-Pacific session, as the pickup in Chinese equities spurred short-covering in the pair. For the rest of the session, large offers at 108.70 kept a lid on price action, however a wave of EUR selling sent the USD-index to four-year highs, erasing all offers in USD/JPY as the pair succumbed to the pressure to trade flat.