Global FX: Bonds Dominate Price

The price action was dominated by bond vigilantes this morning, with stocks 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%. The release of the latest round of PMI data from Europe was somewhat mixed, underlying the need for the ECB to remain in accommodative mode. In terms of technical levels, support levels are seen are seen at the 200-DMA line 1.3073 and then at 1.3053, followed by the psychologically important 1.3000 level. On the other hand, resistance levels are seen at the 10-DMA line at 1.3317/25 and then at 1.3338.

GBP/USD
Similarly to EUR/USD, the pair finished the session 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 technical levels, supports are seen at 1.5400 and then at the 30-DMA line at 1.5359. On the other hand, resistance levels are seen at the 10-DMA line at 1.5619 and then at the 200-DMA line at 1.5690.

USD/JPY
Unsurprisingly, the USD was one if the few assets to have gained on Friday as markets reacted to the statement from the FOMC, while Bernanke signalled that tapering could begin this year. As a result, USD/JPY trended higher overnight in Asia and Europe this morning as markets switch to long USD positions, while EUR/USD and GBP/USD traded sharply lower. JPY weakness materialised in spite of further deterioration in liquidity and macroeconomic conditions in China, where the HSBC Manufacturing PMI came in at nine-month low and China’s seven-day repo rate jumped 374bps to record 12%. Technically, support levels are seen at 96.20/00 and then at the 200-HMA at 95.88. On the other hand, resistance levels are seen at 50% retracement of the 103.74 to 93.79 move at 98.75 and then at 99.20.