Talking Forex: GBP/USD Saw A Move To The Downside

EUR/USD
The EUR/USD ended the London session in negative territory with USD strength guiding the pair lower. As was the case yesterday, a flight to quality dictated the direction of trade and saw broad based JPY strength which weighed heavily upon both the EUR/JPY and GBP/JPY. Although JPY did strengthen against USD, USD benefited from risk aversion which saw UST yields fall as participants searched for more secure assets. Consequently any losses in the USD/JPY were capped and thus USD gained relative to EUR and pushed the pair lower with downward momentum being exacerbated by stops being taken out on the way lower. Elsewhere, with a lack of tier 1 macroeconomic data or influential economic commentary, this dictated the price action today and ensured the pair traded lower, with attention now turning to Friday’s Eurozone and CPI release. Speculation has also began to mount following comments from ECB sources saying there is no consensus within governing council now for a March policy move as a negative deposit rate could send 'problematic' signal.

GBP/USD
As was the case with the EUR/USD the pair saw a move to the downside despite a promising GDP reading from the UK. Although the headline figure for UK GDP did not exceed expectations, the actual breakdown for the release showed that total business investment was much stronger than expected (2.4% vs. Exp. 1.3%), with the Y/Y rising firmly to 8.5%. Additionally, it appears the dependency on private consumption is lessening, rising by 0.4% vs. Exp. 0.6% which was interpreted as positive news due to the recent criticism over the UK’s reliance on the UK consumer and high levels of indebtedness at UK households. However, the aforementioned surge by the USD later weighed on the GBP/USD as it traded in close proximity to a large expiring option strike level at 1.6600/50, although losses were capped by selling pressure in the EUR/GBP.

USD/JPY
The USD/JPY finished the London session relatively unchanged as a resurgence in JPY strength amid risk-off sentiment pared earlier gains. In Asia-Pacific trade the USD/JPY saw mild support following an easing of concerns as markets adopted the view that the recent erasure of the premium by the PBOC is temporary measure aimed at discouraging investor demand before widening the trading band in Q2. However, price action in the latter half of the session was dictated by a large option expiry at 102.25 which magnetised the pair lower towards this level with JPY also benefiting from safe-haven flows and thus paring the earlier gains. With a lack of tier 1 data out of Japan for the rest of the week, price action will more than likely be dictated by market sentiment with political turmoil in Ukraine and events in China being hot topics for participants.