EUR/USD: Despite seeing a relatively subdued start to the week

EUR/USD

Despite seeing a relatively subdued start to the week, the pair was presented with further misery following source comments of an ECB corporate bond buying programme, which saw the pair break back below 1.2800. Despite an ECB-spokesman suggesting this was not the case, the pair resided below the handle with further downside stemming from reports in Spanish press that 11 banks may fail the ECB stress tests, which eventually saw EUR/USD break below 1.2700. However, this move to the downside was then later halted by strong PMI reports from Germany and the Eurozone which helped lift investor sentiment, although was not enough for the pair to move back above 1.2700, a level which it remained below for the rest of the week. Next week, attention will turn towards the fallout of the ECB stress tests, with expectations being that banks will perform relatively well, although expectations for the number that fail range from between 2 to 20 lenders. Furthermore, next week also sees the release of a host of tier 1 Eurozone data points with the German IFO due to take centre stage and expected to reveal a sixth consecutive decline, while the German unemployment level is expected to reveal a third consecutive rise.

GBP/USD

The pair started the week on the front-foot following comments from BoE’s Weale who said he still remains in favour of raising interest rates, with the hawkish sentiment echoed by BoE’s Haldane who said the market may have overreacted to the data. Thereafter, all eyes were on the BoE minutes, which although came in line with expectations, saw GBP/USD slip back below 1.6100 following a particularly dovish tone of the release. More specifically, MPC members noted that the UK economic recovery was losing momentum and that the economic outlook was worsening. This move to the downside was then further exacerbated by a lacklustre UK retail sales release, which briefly saw the pair break below 1.6000 before being provided some reprieve with an inline Q3 GDP release which revealed the longest uninterrupted spell of growth in the UK for 3 years. The data slate from the UK next week is expected to remain relatively light, with little in the way expected from the BoE, with no scheduled speakers due until early November.

USD/JPY

The pair initially saw a relatively rangebound start to the week while trading in close proximity to the 107.00 handle. Thereafter. US yields largely dictated the state of play for the pair, with the initial downside in yields countered by the ECB source comments and thus presented USD/JPY with some mixed price action. The greatest source of price action for the pair occurred on Thursday after the USD index pushed the pair higher and saw USD/JPY trip stops through 107.55, with the move to the upside exacerbated by reports in the WSJ that the BoJ now sees a much bigger chance of inflation falling below 1%. This subsequently saw the pair breach the 108.00 handle to the upside, with the pair trading in close proximity to the level for the remainder of the week. Next week, focus for the pair will likely be placed on events stateside with the FOMC rate decision, whereby the Fed are due to end their bond buying programme, although there is no scheduled press conference due alongside the release.