FX Market Summary 01-17-2014: Retail Surge Boosts Sterling

Asian trading was generally subdued on Friday with little in the way of major fresh trading incentives. The latest Japanese capital-account data recorded a second successive week of overseas bond selling by Japanese institutions. One of the bearish factors in expecting a weaker yen is capital outflows from Japan on yield grounds and the latest data will cast some doubt on these flows which will also make it more difficult to push the yen weaker. USD/JPY consolidated below 104.50, unable to push higher.

Sterling was the stand-out performer during the European session following the latest retail sales data. GBP/USD had moved higher ahead of the release, again with the suspicion that the data had selectively leaked. In the event, there was a much stronger than expected release with sales volume jumping 2.6% for the month and over 6% for the year. Inevitably GBP/USD surged higher to the 1.6450 area following the data from below 1.6350 as EUR/GBP crashed lower towards 0.8250.

There was only limited follow-through buying for the UK currency with a suspicion of faulty seasonal adjustment, but it did hold the gains, especially against the Euro. EUR/USD tended to drift weaker into the New York open with Euro selling against Sterling certainly a significant factor and a break below 1.3580 triggered stops down to lows at 1.3565.

The headline US housing starts data was slightly stronger than expected for December at an annualised rate of 1.00mn from 1.11mn previously while permits edged lower for the month. Industrial data was broadly in line with expectations while there was a small decline in the University of Michigan consumer confidence index. The latest job-openings data pushed higher to the 4.00mn for the first time in close to six years which continued the healing process from last week’s weak payroll report.

The data did help underpin the dollar and EUR/USD held below the 1.3600 area and players looked to target the crucial 1.3550 support area as the Euro remained under pressure on the crosses. GBP/USD held above 1.64 while USD/JPY was again held below 104.50.

Commodity currencies stayed under pressure with AUD/USD testing fresh four-year lows below 0.8780 while USD/CAD moved back towards the key 1.10 level in US trading.

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