Global FX: Single Currency Holds Its Own

The price action in Europe was largely driven by the release of the most recent MPC meeting minutes, as well as retail sales, which reversed some of the improvement seen in recent months. The BoE MPC voted 6-3 to keep QE unchanged and 9-0 to keep interest rates unchanged at 0.50% (King, Miles and Fisher voted for more QE). As such, lower GBP/USD, as well as touted buying of EUR/GBP by model names helped support EUR/USD, which in spite of the evident risk-averse sentiment is seen marginally higher. In terms of EU related commentary, Germany's Schaeuble says low ECB rates are a justifiable policy and that ECB rates mustn't stay low for too long. PIMCO says the ECB may resort to providing more liquidity to the region's banks while it discusses more controversial measures that will take time to develop and implement. The pair spiked higher, but failed to break the key 1.3000 level, after the governor of the Federal Reserve said that premature tightening risks slowing or ending recovery, downplaying the likelihood of tapering of asset purchases.

GBP/USD
The pair failed to benefit from the dovish statement from Bernanke and settled lower, following the release of the weaker-than-expected retail sales report and the MPC minutes, which showed a 6-3 split. The drop in retail volumes was partly because of cold weather, which the Office for National Statistics said had hit food sales. In other news, although the IMF said that risks to UK economy are still tilted to the downside, the fund did not repeat its April criticism of Osborne’s fiscal strategy. Instead, it said the UK should focus on measures to improve supply capacity in the economy.

Furthermore, it suggested that the UK monetary policy should remain accommodative and that more gilt purchases should be considered. In addition to that, the BoE could provide forward guidance on rates, could say rates to be low until full momentum reached. Technically, the pair is very close to the crucial support of 1.5125, which is also the 61.8% retracement of the up move from March 2013 lows to May 2013 highs.

USD/JPY
Even though the BoJ kept monetary policy unchanged, the fact that the governor downplayed the recent jump in JGB yields resulted in broad based JPY depreciation. In particular, EUR/JPY rose higher, while the major USD pair edged toward the 103.00 level. Technically, resistance levels are seen at 103.00/50 and then 105.60. Also of note, Japanese Merchandise Trade Balance Total (JPY)(Apr) M/M -879.9bln vs. Exp. -620.6bln (Prev. -362.4bln, Rev. -364.0bln) -- that’s as a boost to exporters from a weaker JPY was outweighed by rising prices for imports.