FX Wrap: GBP/USD End Down

EUR/USD
Despite the highest German ZEW Survey since April 2006, the EUR took no solace against the greenback as liquidity conditions took precedence. Excess liquidity in the Eurozone has risen as banks hoard cash ahead of year’s end and put downward pressure on money market rates. Later on in the session a resurgence in the USD in spite of a lower than expected CPI reading from the US, saw the USD index trade at session highs. This consequently weighed on the pair causing the EUR/USD to briefly break yesterday’s lows and last Thursday at 1.3736 with stops being tripped at 1.3740. Looking ahead for the pair, the key trading event comes in the form of tomorrow’s widely anticipated FOMC decision, although calls for a Dec taper lessening it will nevertheless be a key risk event and thus possibly lead to relatively muted trade across the European session tomorrow.

GBP/USD
A concoction of thin liquidity given the upcoming festive holidays and the lowest annualised CPI reading from the UK since November 2009, resulted in the pair settling the London session in negative territory. Following the release of the CPI data, the pair moved around 30 pips lower, a move that was exacerbated later in the session by the resurgence in the USD index which caused the pair to trip stops through 1.6240 to the downside. Looking ahead for the GBP/USD, tomorrow sees the release of the BoE minutes for December. However, the minutes are expected to show a unanimous vote in favour of continuing the bank’s current policy. Furthermore as expected the key risk event for the pair is the decision FOMC.

USD/JPY
The pair finished the London session in minor negative territory after being magnetised towards the crucial 103.00 level after market talk of several yards for expiry near 103.00 in USD/JPY ahead of the FOMC, with talk in excess of USD 20bln in expiries between 102.50-103.50 this week. In terms of economic commentary from Japan, BoJ’s Kuroda said that Japan are half way to achieving their inflation target, but given the size of the expiries, this did little to provide any direction for the USD/JPY. Looking ahead for the pair, there are few releases left for Japan for the rest of the week, although any further commentary on GPIF reforms could be of importance for the USD/JPY. However, as is the case for the other two pairs and given the importance of interest differential flows for the USD/JPY, the FOMC decision is likely to act as the greatest guide for price action.