Talking Forex: GBP/USD Retraced Losses

EUR/USD
The pair finished the London session relatively unchanged despite EUR retracing some of yesterday’s AUD cross inspired losses. Earlier in the session, a weaker USD index following on from a negative tone in equities saw the pair break above its 21 DMA. However, the gains were short-lived as a result of a resurgence in the USD index amid talk of leveraged names buying USD/JPY. In terms of macroeconomic releases form the Eurozone, markets were presented with a higher than expected Industrial Production figure for both M/M and Y/Y, however this failed to act as a guide for price action. In terms of Eurozone commentary, soon-to-be ECB member Lautenschlaeger said low interest rates are not without risks in the long-term and although negative deposit rate is technically and legally possible, need to look at whether it would really help the economy. Whilst ECB’s Nowotny said he sees no immediate need for action as neither inflation nor deflation is expected in short or medium term in Eurozone. Looking ahead for the pair, there is a lack of Tier 1 data from the Eurozone, therefore market participants may place particular focus upon any comments from central bank speakers.

GBP/USD
The pair managed to retrace some of the losses seen yesterday linked to touted real money selling of GBP against a basket of currencies, particularly AUD, which saw GBP/AUD print the lowest level since December 12th. The retracement of this move saw the pair trade with significant gains earlier in the session, however, these gains were trimmed by the CPI reading from the UK which showed that inflation in the UK has slowed to its slowest level since November 2009. One of the crucial interpretations of this release is that the figure eases the pressure on the BoE’s MPC to adjust their monetary policy and thus negated much of the upside seen earlier in the session. Looking ahead for the pair, there is a lack of tier 1 data releases from the UK and therefore the pair may be guided more by events in the US.

USD/JPY
Following the absence of Japanese participants yesterday which saw USD/JPY trade below the 103.50 level, the reopening of markets and a record wide current account widening from Japan saw USD/JPY surge back above this key psychological value. Despite risk averse sentiment, the current account reading managed to underpin the likely need for more aggressive and protracted accommodative policy stance by the BoJ. Furthermore, talk of leveraged names buying USD/JPY ensured the pair finished the London session in positive territory. Looking ahead for USD/JPY, there is a lack of significant data points due out of Japan. However, any commentary from the BoJ following this latest current account reading may be of particular focus for participants.