FX Market Summary 01-15-2014: Technical Euro Correction

The dollar has regained some ground over the past 24 hours with other majors being subjected to a correction after failing to break resistance.

Fundamentally, regional US Fed President Plosser stated that he would continue to back a further tapering of bond purchases at the forthcoming meeting. Fellow member Fisher also expressed his backing for a further reduction in bond purchases and warned that he would dissent against any decision to slow tapering. The overall market impact was limited as both members are always at the hawkish end of the FOMC spectrum, but they are voting members this year.

The main feature during Asian trading on Wednesday was fresh weakness in commodity currencies. AUD/USD was subjected to renewed selling and tested support below 0.89 while USD/CAD continued the charge towards 1.10. There was a modest correction during European trading, but the net vulnerability provided some dollar support against all major currencies.

There was weaker than expected Chinese lending data which should have dampened risk appetite to some extent. Equity markets were still generally resilient and the yen failed to secure significant gains as USD/JPY pushed to highs just below 104.50.

EUR/USD was also undermined by the failure to break resistance levels on Tuesday and tended to drift weaker during the European session with an initial move down to the 1.3610 support area which held the 55-day moving average and longer-term trend-line support.

The headline US producer prices data was stronger than expected with a headline increase of 0.4% for December while there was a core increase of 0.3% compared with an expected 0.1%. There was also a much stronger than expected reading for the New York Empire PMI index with a gain to 12.5 for January from 1.0 previously. Although volatile on a monthly basis, the data provided some lift to the dollar. EUR/USD broke through the 1.36 support area and dipped to lows near 1.3580 before finding some degree of support as commodity currencies moved off their worst levels.

There was further choppy Sterling trading during the day as markets looked to test technical levels and resolve uncertainty surrounding medium-term direction. GBP/USD initially found support near 1.6380, but came under sustained pressure in New York following a rejection near 1.6450 with lows below 1.6350 as EUR/GBP pushed above the 0.83 level.

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