Overview: EUR/USD, USD/JPY and EUR/GBP

Today, the economic data set to be released in the US, EMU, UK and Japan  is quite thin and in such a context, the global forex markets will probably take a second reading of U.S. Federal Reserve Chairman Ben Bernanke’s quotes on Friday evening.

Later today, the focus will turn to the meeting of the Ministers of the Euro Area in Brussels. After, the poor reception by markets of the EU rescue package for Ireland, markets will look out whether the EMU/EU will take additional measures to address the government bond crisis. The ECB bond buying at the end of last week eased the fears on the European debt crisis. This eased also temporary the pressure on the euro. However, it is no long-term solution.

EUR/USD

On Friday, EUR/USD continued its rebound that started on Wednesday ahead of the ECB meeting. The euro was well bid already during the European session, as the ECB continued to buy peripheral bonds, according to sources in size. This suggested that the ECB wouldn’t remain sidelined and defend the euro area interests. The gains were still limited as market participants eyed the US payrolls release. EUR/USD hovered around the 1.3250 level which compares to opening levels around 1.32.

The November payrolls report was outright weak, also in its details and fell sharply short of the expectations. So, the euro climbed swiftly to about 1.34 where the rally stalled. Interestingly, the euro gains were eked out helped by equities that lost only minor ground.

The weak US payrolls report reassured markets that there was no reason for the Fed to backtrack on QE-2 and this weighed on the US currency. This view was confirmed late in the session when the headlines of an interview of Fed’s Bernanke came on the screens. The Fed president indicated that the US was struggling to move to self-sustaining growth. He said also that the purchase of more bonds than planned was certainly possible. This triggered some further USD losses. EUR/USD closed the session at 1.3414, compared to 1.3346.

USD/JPY

On Friday, USD/JPY continued its correction, especially after the payrolls report. The pair traded with a negative bias but recouped the losses in the run-up to the payrolls report. The latter was very weak and fell short of expectations. USD/JPY spiked lower from about 83.80 to about 82.50. It was the steepest intra-day movement since September 15 when the BOJ intervened.

The remainder of the session, the pair tried to recoup some of its losses, but the attempt had very little success. The steepness of
the move is a bit surprising, as equities after all, digested the weak payrolls well, while the decline in yields remained modest. The pair eventually closed 82.,53 compared to 83.82 on Thursday.

This morning, USD/JPY is tries to reverse some of Friday’s losses. However a test to regain the 83.00 area didn’t succeed yet. There were no economic data in Japan. Asian equities are trading mixed, but after all the negative fall-out form the poor US payrolls report is limited.

EUR/GBP

On Friday, the overall euro recovery affected also the EUR/GBP, but contrary to EUR/USD, it took the euro longer to take distance from sterling. Initially, sterling even tried to recoup Thursday’s losses, but that attempt hadn’t strong enough momentum.

The UK service PMI was near expectations, while consumer inflation expectations surprised by rising further above the 2% BoE inflation target. This puts the BoE before a dilemma and diminishes the risk on more Gilt buying by the BoE. While it is intrinsically sterling positive, it couldn’t really push sterling higher. In the afternoon, the euro started to rally and the pair climbed swiftly from 0.8470 to 0.8520, near the key resistance of 0.8530. However, a break didn’t succeed. EUR/GBP closed the session at 0.85.04, compared to 0.8468.

Today, the UK and EMU calendars are devoid of market moving items. Therefore, the situation in the peripheral countries, general sentiment and the technicals will dominate trading. We keep and eye on the Irish budget and on the meeting of the EMU Finance Ministers.

Content provided by: KBC Bank