EUR/USD Closes Lower, GBP/USD Falls Sharply

The price action in Europe was largely driven by the release of the most recent MPC meeting minutes, as well as retail sales, which reversed some of the improvement seen in recent months. The BoE MPC voted 6-3 to keep QE unchanged and 9-0 to keep interest rates unchanged at 0.50% (King, Miles and Fisher voted for more QE). As such, lower GBP/USD, as well as touted buying of EUR/GBP by model names helped support EUR/USD, which in spite of the evident risk-averse sentiment was seen marginally higher. In terms of EU related commentary, Germany's Schaeuble says low ECB rates a justifiable policy and that ECB rates mustn't stay low for extended period. PIMCO says the ECB may resort to providing more liquidity to the region's banks while it discusses more controversial measures that will take time to develop and implement. The pair spiked higher later on in the session, but failed to break the key 1.3000 level, after the governor of the Federal Reserve said that premature tightening risks slowing or ending recovery, downplaying the likelihood of tapering of asset purchases.

GBP/USD
The pair fell sharply on Tuesday after inflation in the UK slowed in April to a seven-month low and producer prices rose the least since 2009. The Office for National Statistics (ONS) said lower transport costs, notably for motor fuels and air fares, were a big factor in the dip in price pressures. Rises in food and soft drinks prices stopped inflation falling by a bigger margin. Going forward, much of the attention will be on the looming release of the minutes from the most recent MPC meeting, which is widely expected to echo the release of the most recent Quarterly Inflation Report and hence unlikely to reveal any major revolutions among the Bank of England's already-divided MPC board. In terms of technical levels, support levels are seen at 1.5128, which is the 61.8% retracement of the 1.4832 to 1.5607 move, followed by the 21-DMA lower Bollinger level at 1.5109. On the other hand, resistance levels are seen at 1.5221/81 and then at the 10-DMA line at 1.5298.

USD/JPY
The pair recovered from the sell-off observed on Monday after Japanese Economic Minister Amari said he cannot say when correction from strong JPY will end, but hopes exchange rate settles at level suited to Japan’s economic fundamentals. The latest comments came as a surprise and marked a change in tone from his comments on Sunday when he was quoted as saying that the correction of the strong JPY is largely complete. In terms of technical levels, supports are seen at 102.44/08 and then at the psychologically important 102.00, which is the May 20 low. To the upside, immediate resistance levels are seen at 103.18, 103.32, which is the high printed on May 17 and then 103.50, daily low level printed back in late September of 2008.