Both EUR/USD and GBP/USD failed to benefit from the resolution in the US which avoided the so-called fiscal cliff and settled lower last week after the minutes of the most recent FOMC meeting revealed growing discontent among Fed officials on the latest asset purchase program. Still, the Bulls prevented the pair from making a convincing break below the psychologically important 1.3000 level and will likely use the recent weakness as an opportunity to re-enter longs. This week sees the governing council meet for the very first time this year and expectations of a rate cut have been scaled back somewhat following the release of higher than expected eurozone CPI estimate.
GBP/USD
The pair is due for another tough week and there is a risk that a firm break below the 1.6000 level will lead to more stop loss selling, especially if the MPC vote to boost the APF (Asset Purchase Facility) target. However the most recent Credit Conditions Survey by the Bank of England revealed that the FLS (Funding for Lending Scheme) which was launched last August, is now helping to increase the flow of money to borrowers. As such, given the criticism endured for undertaking the QE in the first place, the MPC will likely use the latest report as an opportunity to remain on the sidelines unless yet again.
USD/JPY
The pair is set to remain supported by the so-called Abe trade, who is expected to push for more BoJ easing and go as far as raising inflation target to facilitate more aggressive actions by the central bank. Last week the pair traded as levels not seen since mid-2010 and there is little indication that the bias will reverse course south just yet.