The Troika of Currencies – The Pound, The Yen and The Euro

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The Great British Pound

On Friday, trading in the EUR/GBP cross rate developed according the script of the previous days. There were few economic data. The UK budget deficit was bigger than expected, but as was most often the case of late largely ignored by traders. So trading was mostly driven by global sentiment on risk. Over the previous days sterling profited more from the positive sentiment on the equity markets than the euro. On Friday, sentiment was more risk-off, but this didn’t change the balance between the euro and sterling. Cable resisted the decline of risky assets much better than EUR/USD. In addition, early in the afternoon, EUR/GBP lost further ground on headlines that Valencia was seeking support from the central government. EUR/GBP set a yet another correction low in the 0.7773 area. Later in the session, the decline of the euro slowed, but EUR/GBP held near the recent lows.  The bigger question of the week, will the UK slip deep into recession when GDP numbers are released ?

Today, there are no important eco data releases in the UK and the EMU consumer confidence is usually also no market mover. The market headlines this morning are clearly euro negative. Sterling has already succeeded a very powerful rally against the euro since end June. The pair is oversold and one might assume that the market is already positioned EUR/GBP short. However, for now, there is no good reason to row against the tide. 

The Unsinkable Japanese Yen

There was not that much to tell on USD/JPY trading, as the trend of the previous days was extended. Sentiment on risk was again negative. Core bond yields were under downward pressure and this continued to weigh on the USD/JPY. However, given the decline on the European equity markets and in EUR/USD, the losses of USD/JPY were very moderate. 

This morning, the USD/JPY cross rate is captured in another down-leg. The negative headlines on Europe continue to spook the market and for Japanese investors, lower USD bond yields and the prospect of more QE in the US are no incentive to buy the dollar. So, for a lot investors the yen remains the by default safe haven currency. Japanese Fin Min Azumi repeated the usual mantra that Japanese authorities are ready to take decisive action against speculative and excessive rises in the safe haven yen. However, markets are clearly not convinced that there is that much that Japan can do to break the current rise of the yen. Japanese policy makers will step up their verbal interventions, but this is not enough a reason to row against the tide.  Government officials including the Prime Minister and the Bank of Japan governor have been in closed door meetings all day discussing the current JP crisis.

The Cascading Euro

At the end of the week there were no important eco data on the calendar in Europe or in the US. However, this didn’t prevent some wild swings in the EUR/USD cross rate. Several intermediate support levels were broken and finally the key 1.2163 low was broken. So, EUR/USD (and several other euro cross rates) set new multi-year lows. 

On Saturday, , the negative news flow on the EMU debt crisis continued unabatedly. An official from the region of Murcia indicated that his region will also ask financial support at the central government and there is a lot speculation that several other regions will go the same way. Greece is also returning to forefront of the financial headlines. The Troika will return to the country tomorrow. It is quite obvious that the country is off track to meet the targets of the current plan. Recently, several German officials indicated that Greece wouldn’t get any additional aid if the requirements of the aid package are not met. Even more, there are press articles that the IMF is moving to a similar conclusion. So, the tensions in Spain and Grexit will again be the key factors for trading at the start of this new trading week. EUR/USD is dipped below the 1.21 level this morning. 

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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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