EURUSD: Break above the 1.2700 handle

EUR/USD

Significant upside for the pair was seen overnight as markets reacted positively to the results of the European bank stress tests which saw EUR/USD break above the 1.2700 handle, printing an overnight high at 1.2714 in the process. EUR/USD then came off its highs in-line with the turnaround in European equities, yet remained trading with modest gains, as large option expires in EUR/USD at 1.2680-90 (2.2bln) and 1.2700 were said to be anchoring the pair’s price action. With US pending home sales missing expectations the USD started to weaken, and as the 10am NY cut rolled out and these options expired, the pair’s drag dissolved and saw significant upside, reaching 1.2709 shortly after. Elsewhere, the amount settled in the ECB’s covered bond purchases program exceeded market expectations by coming in at EUR 1.7bln, however this failed to provide the pair with much in the way of traction as it was in line with the earlier alleged leaked figure. Furthermore, ECB source comments said stimulus may lack desired scale and QE is an option, however, this also failed to weigh on investor sentiment as it didn’t provide participants with much in the way of new information.

GBP/USD

The pair spent much of the session ticking higher on little fundamental, moving past the 1.6100 handle on the way, with the main driver being the strength in the EUR weighing on the USD. Furthermore, GBP/USD remained relatively unmoved by weekend comments from BoE’s McCafferty who once again called for raising rates now, stating that starting to increase the benchmark rate now will increase the probability that pace can be kept gradual and limited. by As the aforementioned large options expired at 1400GMT, EUR broke out of its range adding even further pressure to the USD, in turn allowing GBP/USD to print its best session levels at 1.6138, though the pair failed to maintain this height, pulling back slightly. Looking ahead attention from a UK perspective will turn towards the speaker slate with BoE’s Cunliffe due to comment.

USD/JPY

With the EUR driving markets in the first half of the session and the USD-index remaining on the back foot as a result, the pair managed to break below support seen at Friday’s lows. As such, leveraged hedge funds were spurred to reduce JPY short positions. Following this, in early European trade USD/JPY, which had resided near the 108.00 level overnight, fell firmly back below the 108.00 handle. With little fundamental news to guide the pair for much of the session lacklustre trade was observed until the miss in pending home sales data for the US saw the pair move lower, briefly touching 107.65, its lowest point for the day. Looking ahead the calendar appears light for Japanese market moving events but saturated for US data points, most notably the US durable goods orders.