FX Market Summary 01-28-2014: Durables Miss Unsettles Dollar

Risk conditions tended to improve during the Asian session on Tuesday with reports that a major troubled Chinese Credit trust had effectively been bailed out which would safeguard capital and avert default. AUD/USD was able to make further headway and pushed to highs near 0.8820 before meeting fresh selling interest.

There were market expectations of strong UK GDP data and Sterling moved higher in early Europe with a GBP/USD move back above the pivotal 1.66 level as EUR/GBP dipped to 0.8220. In the event, the data was exactly in line with market expectations as the economy grew 0.7% in the fourth quarter and at an annual rate of 2.8% which was the fastest rate of growth for six years.

Markets had already priced in a figure at least as strong as the market consensus and Sterling spiked lower following the release. GBP/USD retreated to 1.6535 lows before being bid higher once again as shorts again failed to press home their advantage.

EUR/USD was unable to make a fresh challenge on resistance level in the 1.37 area in early Europe and drifted lower during the session. There was a further unwinding of defensive demand which tended to push the Euro weaker and there was a dip to below the 1.3650 level which triggered stops and lows around 1.3630.

There were reported ECB comments that the current monetary stance was appropriate which did not have a significant market impact. Emerging markets continued to show some greater degree of stability with a wait and see approach ahead of Turkey’s emergency monetary meeting outcome.

There was a much weaker than expected reading for US durable goods orders with a headline monthly decline of 4.3% from a 3.4% gain the previous month while core orders fell 1.6% with weakness in most categories. Although the data is very volatile on a monthly view, the underlying series has been weak over the past few months, undermining confidence in the outlook.

In this environment, there was also no encouragement to take a more aggressive stance on potential Fed tapering at Wednesday’s FOMC statement, especially with markets already uneasy surrounding emerging-market tensions. In response, EUR/USD spiked back to the 1.3680 area as USD/CHF was unable to hold the 0.90 level and USD/JPY dipped towards 102.50.

Although the damage was partially reversed by a stronger than expected consumer confidence reading which suggested that underlying confidence in labour markets had improved, USD/JPY was unable to regain the 103 level.

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