FX Traders Focus On Draghi's Upbeat Comments, JPY Dissents

Even though the ECB kept its key benchmark interest rate and the deposit rate unchanged, the press conference has sent the EUR bid across the board, with the EURIBOR strip trading heavier as participants price-in lower expectations of expansionary monetary policy. Draghi said that the ECB rate decision was unanimous, implying that no members made a request to cut rates. He also added that the fragmentation is being gradually repaired, and there is significant improvement in the financial markets over the last six months, with strong capital inflows into the Euro zone. In addition to that, peripheral government bond yields have tightened against the German benchmark as Spanish and Italian debt markets surge after Draghi claims confidence is returning, with capital inflows strengthening. In terms of technical levels, supports are seen at the 10-DMA line 1.3138, the 30-DMA line at 1.3121 and then at 1.3040 which is the 21-DMA lower Bollinger line. On other hand, resistance levels are seen at 1.3288 which is the 21-DMA upper Bollinger level, followed by 1.3300 and then at 1.3308.

GBP/USD
The pair trended in tandem with EUR/USD throughout the session and settled higher after comments by Draghi during the press conference buoyed risk sentiment. Of note, just like the ECB, the Bank of England kept its asset-purchase target unchanged at GBP 375bln and also kept interest rates unchanged at 0.50%, as expected. Of note, UK index-linked bonds were better bid this morning after the ONS said the UK will continue to publish RPI, formula will not change. This saw the curve steepen and yield on inflation linked Gilt (10y) fall to a record low of -0.99%. In terms of technical levels, supports are seen at 1.5992/88 and then at 1.5962. On the other hand, resistance levels are seen at the 10-DMA line at 1.6131 and then at the 21-DMA line at 1.6153.

USD/JPY
Broad based JPY weakness was again observed this morning and one-month implied vols. extended gains to their highest levels since April after press reports indicated that the Bank of Japan is weighing further monetary easing at its next meeting in January. According to Asahi, the Bank of Japan is reported to be considering increasing the asset-purchase program by JPY 10trl. In terms of technical levels, supports are seen at 88.02, 87.87 and then at 87.40. On the other hand, resistance levels are seen at 88.48, 89.00 and then at 89.15.