Global FX: Markets Finish Thursday On Muted Note

Absence of policy easing, as well as marginal upward revision to 2014 GDP forecast from the ECB supported EUR and weighed on the core fixed income products as market participants were forced to cover their “lower rates” bets. While an announcement that the central bank is to implement negative deposit rate was always seen as an outside probability, it was viewed more likely that the ECB will announce that it is to loosen its collateral policy and potentially focus on ABS haircuts. Given that this did not materialise in turn resulted in an aggressive unwind of upside Euribor positions and in turn lifted money market rates. Still, Draghi has said that the governing council has discussed negative deposit rates and that they are technically ready for negative deposit rates. Again, this is no different to what the president said last month. Draghi also said that the central banks stands ready to act but council judged no action was necessary. In terms of technical levels, supports are seen at 1.3053, the 200-DMA line at 1.3043 and then at the 30-DMA line at 1.3005. On the other hand, resistance levels are seen at 1.3243, 1.3319 and then at the 61.8% retracement of the February to April slide at 1.3343.

GBP/USD
Even though the pair did not immediately benefit from the decision to keep rates unchanged by the MPC, the pair surged higher later on in the session, in tandem with EUR/USD after the ECB failed to announce any immediate policy easing measures which prompted market participants to cover their shorts which in turn weighed on the USD. Technically, support levels are seen at the 30-DMA line at 1.5320, 1.5290 and then at 1.5273. On the other hand, resistance levels are seen at the 76.4% retracement of the 1.5607 to 1.5008 move at 1.5466, the key 1.5500 level and then at 1.5589.

USD/JPY
Even though currency markets were somewhat volatile during the latest press conference by Draghi who failed to deliver any immediate policy easing measures, which in turn drove EUR/USD higher, the pair remained relatively subdued and settled the session in minor negative territory. Of note, the Nikkei 225 in Japan fell another 0.85% and has now lost almost 20% from its highs, signifying a bear market. However unlike on previous occasions and in-spite of settling below the 50-DMA line yesterday, USD/JPY traded steady overnight, albeit still below the key 100.00 level. In terms of Japan specific commentary, the Bank of Japan are said to be divided on measures to quell bond volatility. According to people familiar with the talks, the BoJ board are said to be split on allowing two-year funding operations, and the expansion of Japanese real estate investment trust buys is opposed within the bank. In terms of technical levels to note, supports are seen at 98.65/58 and then at 98.00. On the other hand, resistance levels are seen at 99.47, the psychologically important 100 and then at the Kijun-Sen line at 100.41.