An Early Morning Look at the EUR, USD, JPY, GBP

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Today in the Asian session markets are mostly slightly higher. EUR/USD is holding near yesterday’s closing levels. Sentiment on risk remains cautiously positive, but basically investors are counting down to the US payrolls report.

Yesterday, the trading dynamics of EUR/USD were more or less the same as they were earlier this week. The euro was rather well supported, but there was no strong enough factor to push the pair beyond technically important levels. EUR/USD reached an interim high at 1.2958 on a positive open of the stock market. Negative headlines on Greece (Rumors that IMF was considering dropping its assistance for Greece) sparked a temporary setback in sentiment on risk and in the EUR/USD uptrend. Nevertheless, EUR/USD still tested the 1.2968 reaction high around the ECB policy announcement. However, the real news, if any, had to come from the press conference. So, EUR/USD hovered near the recent highs ahead of president Draghi’s appearance. The cross rate jumped 25 ticks higher at the start of the press conference.

The USD/JPY was well bid early in Asian trade, but the pair returned these gains as the BOJ (as expected) left its policy rate and the program of asset purchases unchanged. The BOJ sounded more negative on the global economy and on the impact on Japan. So, the pressure for further policy easing at the October 30 meeting will persist. This week, the day-to-day momentum in USD/JPY wasn’t that bad. The price action sometimes also decoupled from its ‘usual drivers’ (US bond yields). For now, we assume that any sustained break higher in USD/JPY won’t be easy (global dollar weakness), but we look out for signs of some bigger impact of domestic factors (BOJ easing) on the Japanese currency. If so, the 79.22/66 previous highs might come in the picture.

Today, there are no important eco data on the calendar in the UK. So, technical considerations and global market sentiment will set the stage for EUR/GBP trading. Some consolidation of the recent gains might be on the cards. On Thursday morning, EUR/GBP continued to set minor new highs as the euro was well bid across the board. The Halifax house price data completed a series of negative data surprises from the UK this week. However, UK data are still no big issue for EUR/GBP trading.

Later today, the industrial output/production data in the Spain and Germany will be published. They might spark some headlines, but markets will keep a wait-and-see mode ahead of the US payrolls. It is not that evident to predict the reaction on the (currency) market, even if one would know the outcome of the report in advance. At the current juncture, we consider US eco data a bit less relevant for global markets and for EUR/USD than in a ‘normal’ context. In case of a weak figure, the economic tail-risk of more weakness down the road is more or less covered by the commitment of the Fed to take further action. In

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About:FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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