FX Market Summary 02-10-2014: Consolidation Dominates Action

The latest Japanese current account data registered a record deficit for December, maintaining longer-term expectations of yen weakness and there was some fresh speculation that the Bank of Japan would be forced to sanction additional policy easing later this year. USD/JPY pushed to a high of 102.65 in Asia on Monday before drifting weaker again as buyers were unable to secure any sustained traction. USD/JPY dipped back to test 102 support ahead the US open.

The latest CFTC positioning data recorded a renewed increase in dollar long positions and a reversion to Euro shorts, illustrating the risk of further choppy trading conditions over the next few weeks as speculative players get whipsawed in erratic conditions.

Monday trading conditions were, however, very subdued, maintaining the traditional torpor on the first trading day following the monthly US payrolls data. The Euro-zone data did not have a significant impact with a weaker than expected reading for Italian industrial production offset by gains for the Sentix business confidence index.

The risk of quiet conditions was amplified by the fact that markets are also waiting for key events later this week. New Federal Reserve Chair Yellen will testify to the US House of Representatives on Tuesday with players studying fresh comments on the US outlook very closely for further evidence on likely tapering prospects.

EUR/USD was again able to resist any serious test of support in the 1.3600 area in Europe while there was resistance on approach to the 1.3650 area as technical indicators were slightly, but not convincingly, bullish at this stage.

Sterling was boosted by another generally favourable business survey with theĀ  latest BDO survey putting business confidence at a 22-year high. GBP/USD looked to build on gains seen in New York on Friday, tackling resistance above the 1.6420 area. There was significant selling interest at higher levels with a retreat back to just below the 1.64 level as EUR/GBP looked to hold above 0.83.

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