EUR/USD
Absence of policy easing, as well as marginal upward revision to 2014 GDP forecast from the ECB supported EUR in the closing stages of the week, which in turn saw 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 than what the President said last month. Draghi also said that the central banks stands ready to act but council judged no action was necessary. The pair pared some of the move higher on Friday, after the release of an encouraging jobs report from the BLS supported the USD.
GBP/USD
The pair traded in tandem with EUR/USD throughout the week and settled with solid gains. Similarly to the ECB, the MPC of the BoE also refrained from announcing any new policy easing measures. The pair was also supported by the release of decent macroeconomic data releases, which is a stark contrast to the recent data coming out of Europe.
USD/JPY
The aggressive liquidation of long USD/JPY positions on the back of sharp declines by the Nikkei 225 index which fell just over 5% also saw the pair break few technical levels, which in turn prompted analysts at Morgan Stanley to revise down their Q2 forecast to 98.00 from 100.00. The sell-off by the Nikkei 225 index saw the benchmark move into bear market territory, having trimmed over 20% off highs. 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.