FX Wrap: EUR/USD Finished London Session In Minor Positive Territory

EUR/USD

The pair finished the London session in minor positive territory as money market rates continued to rise with the 3-month Euribor fix coming in at 0.290% vs. Prev. 0.282%, marking yet another rise in the fix. The EUR continued to sky-rocket as market participants considered the implications of the ECB’s Asset Quality Review which is likely to lead to a repatriation of funds by European banks and thus be EUR positive. However, later on in the session, most of these gains were trimmed following reports of a NY think tank on the ECB saying that the ECB will enter next year genuinely ready to cut the MRO and deposit rate if downside risks to output and inflation materialise. This weakness in EUR was further exacerbated by dovish comments from Draghi, which although are in line with recent rhetoric, his opening statement retained an overriding theme of preference for easy policy, reaffirming forward guidance and the ability to utilize other tools for monetary policy. Looking ahead for the pair, the FOMC is very much the core focus of market participants. However, any further comments on repatriation or rate cuts in the Eurozone could act as a guide for prices.

GBP/USD

The pair finished the London session relatively unchanged, with little in the way of economic commentary from the UK. Despite the EUR/GBP trading in positive territory earlier in the session, the across the board weakness seen in the USD index, meant that the pair was seen with gains throughout the start of the session and traded around the 1.6350 level. However, as a result of the weakness in EUR following the NY think tank and comments from Draghi as detailed above, the pair failed to hold on to these gains and thus finished relatively unchanged. Looking ahead for the pair, tomorrow sees the release of inflation data from the UK, and thus could act as a guide for prices as market participants continue to decipher a timeline for a BoE rate hike.

USD/JPY

The USD/JPY settled in minor negative territory despite seeing significant downside in overnight trade with Japanese names selling the USD/JPY allied with domestic equity weakness after the Nikkei 225 closed down 1.6%. The cross was sold as a result of the multi-year highs seen last week which presented market participants with a profit-taking opportunity. However, the turning point for the USD/JPY was seen alongside the resurgence in European equities amid comments from Goldman Sachs that Goldman says first Fed tapering move is more likely in March with the taper next week is unlikely because the case for tapering mixed on basis of data since Oct. This news translated into gains in the EUR/JPY and consequently lead to gains in the USD/JPY to take it back near the highs of the year. Looking ahead for the cross, there is little in the way of releases from Japan, however, any taper talk or commentary heading into Wednesday’s taper decision could act as a guide for price action.