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Week’s End Global FX: Yen Up, Euro Down

Week’s End Global FX: Yen Up, Euro Down

EUR/USDThe pair settled this week with a net loss, as expectations of QE tapering by the Fed continued to support the greenback, while M&A related flows (Vodafone/Verizon deal) dampened investor appetite for the currency. Dovish press conference by Draghi where the President reiterated that the ECB remains in an accommodative mode, whilst noting that the ECB expects interest rates to remain at present or lower levels for extended period also weighed on the pair. On the topic of interest rates, Draghi said that the council discussed rate cuts, adding that the ECB would consider cut if conditions in money markets deteriorates. In other Eurozone related news, it was reported that Berlusconi may consider withdrawing his support for the current Letta government in Italy alongside calling for elections this year, according to sources in Italian press. Technically, support levels are seen at the 50% Fibonacci retracement of the 1.2755 to 1.3453 move at 1.3104, 1.3089 (Jul-19 low) and then at 1.3051 (Jul-16 low). On the other hand, resistance levels are seen at 1.3223 (Sep-5 high), the 10-DMA line at 1.3238 and then at 1.3250. GBP/USDCombination of M&A related flows, as well as better than expected UK based macroeconomic data ensured that the pair finished the week with modest gains. Broad based GBP gains also resulted in Goldman Sachs being forced to close its long EUR/GBP trade with a potential 0.2% loss, citing strong UK data. This week the BoE voted to keep the benchmark rate unchanged, while also refraining from adjusting the Asset Purchase Facility (APF) target. The Bank also said that the MPC has agreed to make GBP 1.9bln of gilt purchases, financed by central bank reserves, which are to be split evenly across maturity ranges; 3-7 years, 7-15 years and 15+ years. In terms of technical levels, supports are seen at the 10-DMA line at 1.5557, 1.5507 (Sep-2 low) and then at 1.5498, which is the rising channel base. On the other hand, resistance levels are seen at 1.5667 (Sep-5 high), 1.5718 (Aug-21 high) and then at the 30-day upper Bollinger level at 1.5747. USD/JPYEven though the BoJ kept rates unchanged, interest rate differential flows saw USD/JPY edge above 100.00 for the first time since late July and thus settle the week with solid gains. Of note, the BoJ unanimously voted to keep monetary policy unchanged and also raised its assessment of Japan’s capital spending and economy. The BoJ stated Japan’s economy is recovering moderately and that it will ease until 2% inflation is stable. Technical studies indicate that support levels may be found at the Ichimoku Cloud top at 99.29, 99.17 (Sep-3 low) and then at 98.66, which is the Ichimoku Cloud base. On the other hand, resistance levels are seen at 100.45 (Jul-24/25 high), 101.05 (Jul-22 high) and then at 101.22 (Jul-10 high).

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