Talking Forex Weekly FX Wrap: April 15, 2012

The pair settled the week lower and crucially below the psychologically important 1.3100 level on the back of renewed tensions surrounding the debt mountain in the Iberian Peninsula. There were also conflicting statements from various ECB officials regarding the controversial bond buying program. Of note, ECB’s Coeure raised speculation that the central bank may resume its bond buying program to alleviate market pressure on Spain, however ECB's Knot said that he hopes that the ECB never has to buy up government debt again.

Activity in the options market was fairly busy, with the benchmark 1-month at-the-money (ATM) implied volatility settling down 1.6%, while the 1-month 25-delta risk-reversal (RR) advancing around 9%. In terms of technical levels, supports are seen at 1.3067 (Apr-11 low), followed by 1.3033 (Apr-9 low) and then at the 21-Day Lower Bollinger Level at 1.3022. On the other hand, resistance levels are seen at the 10DMA line at 1.3143 and then at the 55DMA line at 1.3205.

GBP/USD

In spite of trading in close proximity to the key 1.6000 level on Thursday, the pair came under intense selling pressure the next day on the back of renewed concerns surrounding the eurozone sovereign debt crisis which in turn meant that the pair settled the week little changed. In terms of UK-related economic commentary, the Office for National Statistics (ONS) released figures showing a widening of Britain's trade gap from GBP 2.5bln to GBP 3.4bln.

While the BRC reported that unseasonably warm weather has boosted UK retail sales supporting expectations that the UK has avoided a return to recession. Separately to this, the KPMG survey has shown that permanent jobs have risen for the third month in a row to their highest level since August last year, however temporary positions have fallen.

In terms of technical levels, supports are seen at the 55DMA line at 1.5844, followed by 1.5808 (Apr-10 low) and then at 1.5801 (Mar-26 low). On the other hand, resistance levels are seen at 1.5985 (Apr-12 high) and then at the 21-Day Upper Bollinger Level at 1.6015.

USD/JPY

The pair finished the week lower and in close proximity to the 81.00 level amid an influx of safe-haven trade flows as concerns surrounding the eurozone debt crisis resurfaced. Of note, the BoJ have released the minutes from the March 12-13th policy board meeting. A board member proposed additional monetary easing steps to further spread understanding of the easing in February and to help realize potential demand in the economy. The proposal was rejected by the other eight board members.

Separately to this, the BoJ have slightly upgraded its assessment of the domestic economy for the second straight month, with improving conditions following an upswing in public investment in the post-earthquake reconstruction phase.