Global FX: Bond Vigilantes Dominate

The price action was dominated by bond vigilantes, with stocks in Europe and the US also in free-fall mode as market participants reacted to the release of less than impressive macroeconomic data in China, but also digested the statement and more importantly comments by the governor Bernanke who suggested that tapering could begin this year. In terms of EU related commentary, German IFW cut its German GDP growth forecast for 2013 to 0.5% vs. 0.6% and raised German GDP growth forecast for 2014 to 1.8% vs. 1.5%. Furthermore, GR/GE 10-year bond yield spread widened sharply on Friday as market participants reacted to press reports that the IMF is preparing to suspend aid payments to Greece by the end of next month unless euro-zone leaders plug a EUR 3-4bln shortfall. What’s more is that some euro zone central banks are reluctant to roll over Greek bonds according to sources. Sources said central bank reluctance could create shortfalls in Greek bailout program although Eurozone is confident that Greece will receive next aid payment. If that wasn’t enough, it was also reported that Greece's Democratic Left party is to decide today if it will continue in the coalition government. On that note, Greek PM Samaras said he wants to finish a full four-year term. As a result, by the closing stages of trade on Friday, the pair was nursing losses of almost 200pips.

GBP/USD
Similarly to EUR/USD, the pair finished the week sharply lower as the USD index surged after the governor of the Fed suggested that tapering could begin this year. So much so that even the release of better than expected macroeconomic data from the UK failed to have a meaningful impact on the pair. In terms of UK related commentary, the release of the most recent MPC minutes showed that the MPC voted 6-3 to keep QE unchanged, as expected, with the majority stating that the QE and FLS are still working through economy. Technically, support levels are seen at the psychologically important 1.5400 level, followed by the 30-DMA line at 1.5359. On the other hand, resistance levels are seen at the 38.2% retracement of the 1.5753 to 1.5415 move at 1.5544, followed by the 50% retracement of the 1.5753 to 1.5415 move at 1.5584.

USD/JPY
The surge higher by the pair after the governor of the Federal Reserve signalled that tapering could begin this year ensured that the pair finished the week with solid gains which will now likely encourage bulls to eye the key 100.00 level. In terms of Japan specific commentary, BoJ governor Kuroda said the BoJ's April-4 action does not mean it will not act for two years and that yields may rise if BoJ bond buys is seen as government financing. S&P chief global economist Sheard said the BoJ can buy more risk assets and the BoJ may be holding back on ammunition.